Hunton Employment & Labor Perspectives

California employers may be familiar with Wang v. Chinese Daily News, a wage-and-hour class action that has been in litigation for almost a decade. The latest decision in this case, a published opinion from the Ninth Circuit on March 4, 2013, offers a boost to defense counsel who face a class actions in this circuit.

Wang, filed in March 2004, is a relatively small class action (only about 200 employees) in which plaintiffs assert claims under the FLSA and California law for unpaid overtime, denial of meal and rest breaks, and for wage statement / termination pay. The plaintiffs sought damages, restitution, attorney fees, and injunctive relief. The district court (Judge Marshall of the Central District) certified the class under Rule 23(b)(2), finding that the claims for injunctive relief and those for damages were on “equal footing,” and alternatively under Rule 23(b)(3), finding that the plaintiffs’ challenge to an allegedly uniform policy satisfied the requirement that common questions predominate. The court found on summary judgment that the employees in question were not exempt, and there was then a 16-day jury trial, resulting in a special verdict for over $2.5 million in damages. The court denied injunctive relief, holding that monetary damages were an appropriate remedy. The Ninth Circuit affirmed certification under Rule 23(b)(2) and declined to address the district court’s predominance analysis under Rule 23(b)(3) (which had already been criticized by other Ninth Circuit decisions).

That might have been the end of Wang but for the game changing case of Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). On a petition for certiorari, the Supreme Court GVR’d Wang (Grant certiorari, Vacate decision, Remand) for reconsideration in light of Dukes. This most recent decision is the Ninth Circuit’s application of Dukes to the district court’s certification order, which the panel this time reversed and remanded for the district court to reconsider its Rule 23 analysis.

We have already begun to see the effect of the Supreme Court’s holding in Dukes that class certification under Rule 23 now requires a “rigorous analysis” and “significant proof.” (Indeed, this blog has recently discussed class cases that failed these new requirements.) In Wang, the Ninth Circuit reiterated that the test of commonality is satisfied, not by mere common questions, but rather “the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.” Dukes, 131 S. Ct. at 2551. Even in this much smaller class, the court noted, “there are potentially significant differences among the class members.” The court thus remanded for the district court to determine whether the plaintiffs have shown “significant proof that [Chinese Daily News] operated under a general policy” that violated federal and state labor laws.

Dukes rejected the Ninth Circuit’s “equal footing” analysis of claims for monetary damages and injunctive relief under Rule 23(b)(2), and the Wang plaintiffs conceded that certification under Rule 23(b)(2) could no longer stand. The court remanded for reconsideration of the predominance requirement, noting again the Circuit’s disapproval of an analysis that was focused almost completely on the fact that a common policy was alleged and challenged. In effect, the court observed, the district court had created a presumption that certification is proper given such a common policy, notwithstanding “the existence of other potential issues that may make class treatment difficult if not impossible.” (quoting In re Wells Fargo Home Mortg. Overtime Pay Litig., 571 F.3d 953, 958 (9th Cir. 2009)). Rule 23(b)(3) requires consideration of “the balance between individual and common issues,” id., and “a district court abuses its discretion in relying on an internal uniform exemption policy to the near exclusion of other factors relevant to the predominance inquiry,” (quoting Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 946 (9th Cir. 2009)). Moreover, the court noted, the predominance analysis of the plaintiffs’ meal break claims should be conducted in light of the Brinker decision.

The court added one more paragraph to its analysis, a paragraph that has major implications for the litigation of class actions in the Ninth Circuit. If the district court does decide that the class can still be certified, the court noted, it should then reconsider the amount of damages. Dukes disapproved “Trial by Formula”; accordingly, even in a class action, damages calculations must be based on “individualized determinations of each employee’s eligibility” for monetary relief. (quoting Dukes, 131 S. Ct. at 2561). Moreover, the court reminded the district court of Dukes’s holding that employers have the right to litigate any individual affirmative defenses they may have with respect to the claims of particular class members.

This holding has important implications even beyond the issue of proving damages. A certification analysis considers in part whether a class action will be predominated by individual issues and whether the litigation is manageable as a class. If an employer can raise a multitude of affirmative defenses (and possibly counterclaims?) related to individual employees, query what such a trial plan might look like. And if there are going to be issues of proof relating to the hours each employee actually worked, or whether the employer knew or should have known that the employee was working during the meal break, or other issues that require individual determinations to protect the employers’ due process rights, it will be all the more difficult to establish that class litigation is desirable, effective, or even feasible. At a minimum, the “rigorous analysis” required of district courts in the Ninth Circuit just became even more rigorous, and defense counsel (and this blog) will watch closely to see how courts grapple with these additional requirements.