By Thomas Kaufman; (follow me on Twitter)
A First Appellate District decision from May 31, 2012, Sotelo v. Medianews Group, Inc.; was published yesterday. The opinion contains an in-depth discussion on class action concepts arising out of a case alleging misclassification of newspaper carriers as independent contractors. The opinion cuts back on some pro-certification precedents, sets forth some anti-certification law for independent contractor cases, and contains some interesting observations about class certification in general.
Background Facts and Procedural Posture of Case
This was a newspaper carrier independent contract ("IC") misclassification case. The proposed class consisted of people whom the defendant newspaper had hired as ICs to insert advertisements into newspapers, fold and bag newspapers, deliver newspapers to subscribers, and/or supervise others who performed those tasks. The proposed class was broken into two groups: "carriers" who did the actual folding, bagging and delivering, and "distributors" who oversaw carriers’ work. Approximately 5000 of these class members had signed common independent contractor agreements with defendant. Many of them also subcontracted to others to perform some of the "carrier" duties that they had contracted. Furthermore, many of them had relationships with multiple newspapers, while others worked only for the defendant. The class members ran the gamut from an individual who folded/bagged/delivered himself, to ICs who subcontracted all the work to other ICs and employees and did no carrying at all. The proposed class focused on anyone who did carrier or distributor duties, so it was not limited just to the 5000 who signed the IC contract, but also to the people with whom they subcontracted.
Judge Steven Brick of the Alameda Complex Court denied class certification finding issues with ascertainability and predominance of common issues. Plaintiff appealed and the Court of Appeal affirmed. The decision analyzes in depth the ascertainability and commonality requirements for class certification in several ways.
Ascertainability means the ability to determine who is in the class. Reaching back to Hicks v. Kaufman & Broad. 89 Cal. App. 4th 908 (2001), the case law in California on ascertainability has focused only on the ability of a class member who receives notice to determine whether he or she fits within the class definition. It has not addressed the situation where membership in the class definition turns on individualized disputed facts (federal law in this area is much better). The Court of Appeal noted that Estrada v. FedEx Ground Package System, Inc., 154 Cal. App. 4th 1 (2007), had held that a class is ascertainable if "it identifies a group of unnamed plaintiffs by describing a set of common characteristics sufficient to allow a member of that group to identify himself as having a right to recover based on that description." But in Estrada, all 200 members of the class could ultimately be confirmed by reference to defendant’s records (albeit with significant administrative cost). Here, by contrast, there were no records that indicated which of the class members who did not actually enter into an IC contract with the defendant folded, bagged, or delivered newspapers, and even if someone contended that they did so, there could be an individualized dispute over whether they are correct in their purported belief. As such, the Court held that Judge Brick was correct in deeming the class as defined as unascertainable.
The plaintiff retorted that this was the fault of the defendant in not keeping adequate records, and they cited Aguiar v. Cintas Corp. No. 2, 144 Cal.App.4th 121 (2006) for the proposition that a defendant cannot defeat class certification "by their own wrongdoing in not maintaining proper records." But the Court noted that the defendants in Aguiar were required to maintain the records in question as a result of a contractual obligation to do so. Here, by contrast, the obligation to keep track of who folded, delivered, and bagged papers arises only if you assume the plaintiff is right that the defendants misclassified the entire class as ICs. In a quotable quote, the Court held that one could not invoke Aguiar through such "bootstrapping":
"Here, any obligation on respondents’ part to track all members of the proposed class depends on the merits of the suit being brought. Appellants cannot bootstrap their action merely by assuming as true what they are obligated to prove." (p. 7)
This is a very useful quote, because it would seem to apply to any exemption case where the reason for keeping no records is that they are not required if the defendant is correct in its belief that the employees are exempt.
The plaintiff sought to get around this ascertainability issue by narrowing the class to just the 5000 putative class members who signed IC contracts. Judge Brick refused to certify a narrower class, reasoning that the plaintiff should not have waited until the hearing to raise the issue, and noting that even the class of 5000 plaintiff sought created insurmountable litigation management issues. The Court of Appeal suggested that, if narrowing would resolve the ascertainability issue, a court should narrow the class. The Court of Appeal agreed that, if narrowing the class would have resulted in an otherwise certifiable class, it would have been error to refuse to do so. But the Court agreed with Judge Brick that there were enough other defects with the narrowed class that gave Judge Brick discretion to deny certification in any event.
The court went cause of action by cause of action and explained how there were predominant individualized issues with each one.
(1) Overtime/Minimum Wage
Judge Brick had noted that the hours worked on a route varied significantly such that a substantial portion of the class worked no overtime at all, particularly when one considers that many class members subcontracted the "carrier" work to others. Plaintiff argued that this is just a "damages" issue and cited Jaimez v. Daiohs USA, Inc., 181 Cal.App.4th 1286 (2010) for the proposition that this variation in hours worked should not have precluded certification. The Court of Appeal noted, however, that in Jaimez, there were specific allegations about company policies and uniform practices that created liability, i.e., (a) that the employer knowingly misclassified everyone as exempt when their duties made them non-exempt and made them all work overtime for which they weren’t paid; and (b) that the employer set up routes in a way that precluded employees from having a chance to take their meal and rest breaks. The Jaimez court found that this was a certifiable class because "Plaintiff alleges [defendant] consistently administered a uniform corporate policy that violated overtime and meal and rest break requirements."
By contrast, in this case, the only common issue Plaintiff identified is that everyone was treated as an independent contractor when they should have been treated as employees. The difference between that an Jaimez is that being misclassified as an IC does not mean you were necessarily deprived of overtime pay and meal and rest breaks. Plaintiff failed to come forth with any evidence that "the class" generally worked uncompensated overtime or was deprived of meal and rest breaks. The court makes this point very interestingly, in a way that I expect both plaintiffs and defendants will cite:
"[S]imply having the status of an employee does not make the employer liable to a claim for overtime compensation or denial of breaks. An individual employee establishes liability by proving actual overtime hours worked without overtime pay, or by proving that he or she was denied rest or meal breaks. A class, on the other hand, as in Jaimez, may establish liability by proving a uniform policy or practice by the employer that has the effect on the group of making it likely that group members will work overtime hours without overtime pay, or to miss rest/meal breaks." (emphasis added).
This is the first time I have seen it posed that class certification turns on the existence of a policy that has some amount of "likeliness" to cause Labor Code violations. Arguably, it is inconsistent with the prohibition on Trial by Formula discussed in Dukes v. Wal-Mart, but it does put the burden on the plaintiff to show that an alleged common policy actually causes a high percentage of violations, which is a standard many plaintiffs’ counsel do not even bother to establish.
(2) Independent Contractor Status
Although there are precedents that have held, on seemingly similar facts, that a class was properly certified on the carrier’s independent contractor status (e.g., Antelope Valley Press v. Poizner, 162 Cal.App.4th 839 (2008)), the court held that the record here showed enough variability on key factors of independent contractor status to justify denial of class certification. Although, if the class were limited to those who signed IC agreements, there was a common issue of control as to how the carriers were supposed to fold/bag/deliver the newspapers, there was a lot of variation on other key elements to IC status. Specifically, the court found variations as to (1) whether the IC was engaged in a distinct occupation or business; (2) the method of payment; (3) whether or not the parties believe they are creating an employer-employee relationship; (4) the hiree’s opportunity for profit or loss depending on his or her managerial skill. Much of the variation arose from the fact that people subcontracted work, and this wasn’t a class limited to people who just did the delivering entirely by themselves.
The Court of Appeal cited favorably to Judge Brick’s reason for finding individualized issues to predominate: "It does not appear that trying common issues first would result in any appreciable savings of the court’s or the litigants‟ time. In other words, even after the common issues were resolved, there still would be significant individualized fact disputes to work through before it could be determined whether any individual was misclassified. Although this is not a novel point, it is another case worth citing for the notion that some individualized issue precludes class certification.
(3) Fraud and Concealment
The plaintiff’s theory was that those ICs who signed an agreement were fraud victims because the agreement fraudulently described them as ICs when they were, in fact, employees. Plaintiff argued that the common communication was sufficient to justify class certification. The Court of Appeal disagreed. Although reliance may be presumed in some cases where there is a common false statement made to the class that was heard/read by the entire class, here there was no evidence that everyone who signed the IC agreements read the section stating that they were being treated as ICs rather than employees. The Court contrasted Occidental Land, Inc. v. Superior Court 18 Cal. 3d 355 (1976) where everyone had read a fraudulent report and was required to state in writing that he had done so. Again, this seems to raise a hurdle for plaintiffs to overcome to justify certification that many plaintiffs’ lawyers will just assume to be true.
Use of Surveys
The plaintiff argued that the great majority of the class performed the job in a common way and that the experiences set forth in declarations that showed a materially different way of performing the job were merely "outliers." The Court of Appeal noted that the plaintiff lacked common evidence to establish her claim that the great majority of the class performed the job commonly. The court stated that if the plaintiff had presented a scientifically valid survey of the 5000 people who signed contracts, that might have supported their contention, but none was present in the record. In a footnote, the court commented that surveys can be used both to support and undercut class certification. This is helpful because plaintiffs’ lawyers rarely bother to perform a valid survey at the class certification stage, but merely speculate that they might be able to do so at some future time (which never comes because the case settles after it is certified). This case would provide authority for the notion that the absence of a survey showing predominant common issues could be used as grounds to deny certification. It also holds up the possibility that surveys could be interpreted in a way that show predominant individualized issues.