2004-17

Trial Court Properly Certified Overtime Class Action on Behalf of Sav-On Managers

The California Supreme Court has reversed a Court of Appeal holding and ruled that a trial court properly certified an overtime class action on behalf of assistant managers (AM's) and operating managers (OM's) who allegedly were misclassified as exempt employees by the Sav-On drug store chain. Sav-On Drug Stores Inc. v. Superior Court, 2004 D.J..D.A.R. 10627 (August 26, 2004)(published August 27, 2004).

The class action originated from a lawsuit filed by two plaintiffs, Robert Rocher and Connie Dahlin, who alleged that they were owed unpaid overtime wages as a result of Sav-On's misclassification of its AM's and OM's as exempt employees. The complaint alleged violations of Labor Code ? 1194, et seq. (the overtime statutes), Bus. & Prof. Code ? 17200, et seq., and conversion. Injunctive and declaratory relief were sought, as well as damages.

At the trial court level, Sav-On opposed class certification by contending that each individual manager's status as exempt or non-exempt turned on his or her actual tasks, job duties, and the amount of time he or she spent on those tasks. Sav-On contended that significant variance among its stores based on factors such as store location, size, output, sales volume, and the number of employees and managers made each manager's exempt status an individual question of fact.

In support of class certification, the plaintiffs alleged that the AM's and OM's were uniformly misclassified by Sav-On based strictly on their job title and description, without any consideration being given to the actual amount of time spent performing exempt managerial duties. The plaintiffs also asserted that Sav-On's store operations were standardized such that all AM's and OM's had the same duties and responsibilities, regardless of geographic location or store size. Lastly, they contended that the proposed class members regularly spent in excess of 50% of their workday performing non-exempt work, and worked in excess of eight hours a day and/or forty hours per week without receiving overtime compensation as required by law.

The trial court considered the evidence presented and certified the proposed class and appointed Rocher and Dahlin as representatives of all current and former salaried OM's and AM's who were employed by Sav-On in California at any time between April 3, 1996 and June 22, 2001.

Sav-On petitioned the California Court of Appeal for writ relief, and the Court of Appeal issued a writ of mandate directing the trial court to vacate its order and enter a new order denying the AM's and OM's class certification. Plaintiff petitioned the California Supreme Court for review.

The Supreme Court stated that it is the burden of the party seeking class certification to establish that there exists an ascertainable class and that the proposed class members share a defined "community of interest." The "community of interest" requirement considers the following: (1) whether common questions of law or fact predominate; (2) whether the class representatives have claims or defenses that are typical of the class; and (3) whether those representatives can adequately represent the class.

On petition for review, Sav-On did not challenge whether the named plaintiffs were adequate representatives whose claims were typical of the class. Rather, the only challenge was to the trial court's finding that common issues predominated.

According to the Supreme Court, the trial court found that the plaintiffs established "by a preponderance of the evidence" that common issues predominated, and therefore, a class action was deemed "superior to alternate means for a fair and efficient adjudication of the litigation."

The Supreme Court employed an abuse of discretion standard in reviewing the class certification granted by the trial court. Accordingly, so long as the trial court's decision was supported by "substantial evidence," it would not be disturbed unless (1) improper criteria were used; or (2) erroneous legal assumptions were made.

The Supreme Court stated that in determining whether there is substantial evidence to support class certification, it considers whether the party seeking certification has advanced a theory that is amenable to class treatment.

At the trial level, the plaintiffs contended that Sav-On's standardized operations and uniform policies and practices resulted in a corporation-wide misclassification of AM's and OM's. The plaintiffs contended that the misclassified managers regularly worked overtime for which they did not receive compensation as a result of this alleged misclassification. Plaintiffs also claimed that they could present evidence on behalf of the collective group of AM's and OM's which would substantiate this theory.

Defendant argued against certification on the theory that liability, if any, would have to be determined on an individual basis for each class member. Therefore, common issues did not predominate and class certification should not have issued.

The Supreme Court found that substantial evidence was presented to the trial court that Sav-On's misclassification of the AM's and OM's was pursuant to company policy and practice. Furthermore, the documents, depositions, declarations, and interrogatory responses presented in support and in opposition to the motion for certification indicated that it was not irrational for the trial court to conclude that "questions of law or fact common to the class predominate over the questions affecting the individual members."

The Supreme Court discounted Sav-On's argument that individualized damage determinations made this case unsuitable for class certification, stating that "the need for individualized proof of damages is not a per se obstacle to class treatment," but is a single factor to be considered by the Court. Instead, the Court reasoned that common evidence on the misclassification questions would promote judicial economy and efficiency. The Court further opined that "a class action is not inappropriate simply because each member of the class may at some point be required to make an individual showing as to his or her eligibility for recovery or as to the amount of his or her damages."

The Supreme Court also rejected Sav-On's assertion that its decision in Ramirez v. Yosemite Water, Inc. (1999) 20 Cal.4th 785 barred class certification in this matter. In Ramirez, a bottled-water route sales representative brought an action against his former employer for unpaid overtime. The Supreme Court reversed a Court of Appeal holding that the plaintiff was an exempt outside salesperson on the grounds that the court had erroneously relied on federal regulations (as opposed to California law) in making its determination. In reversing, the Supreme Court stated that "how the employee actually spends his or her time" and "whether the employee's practice diverges from the employer's realistic expectations" should be considered in determining his or her exempt status.

The Supreme Court called Sav-On's reliance on Ramirez "misplaced." It pointed out that Ramirez was not a class action and had no certification question. The Court stated that its analysis in Ramirez was tied to the specific "outside salesperson" exemption and its decision did not limit the types of evidence or methods of proof which can be introduced by parties to an overtime dispute.

The Supreme Court stated that Sav-On's reading of Ramirez would reverse the burden of proof by requiring a party seeking class certification to first establish that the entire class is non-exempt. The Court noted that prior California Supreme Court precedent, including Ramirez, firmly established that the burden of proving an employee's exemption from the overtime requirements (which is an affirmative defense) rests with the employer, not the employee.

Lastly, the Court stated that public policy and judicial economy concerns merit the use of a class action device for wage and overtime claims, and this case in particular. It reasoned that resolving the wage and overtime claims of many aggrieved employees at the same time "both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation."

The Court noted that without the class treatment granted by the trial court, each of the proposed class members would bring an individual action in which he or she would present the same arguments and expert testimony, and the result would be a "multiplicity of trials conducted at enormous expense to both the judicial system and the litigants."

Back to Top | Back to Summaries

Standardized Workers' Compensation Release Does Not Operate to Bar Civil Claims by Employees Unless Subject to a Separate Release.

The California Supreme Court held that a standardized Compromise & Release Form ("C&R") used to resolve claims before the Workers' Compensation Appeals Board ("WCAB") does not operate to release causes of actions which are not exclusively within the scope of workers' compensation law, absent a separate document evidencing settlement of such claims. Claxton v. Waters, 2004 D.J.D.A.R. 10728 (Aug. 30, 2004)(published Aug. 31, 2004).

In the underlying case, Plaintiff Carolyn Claxton filed a workers' compensation claim against her employer, Pacific Maritime Association ("PMA"), relating to a slip and fall injury she suffered in 1997. At that time, Claxton claimed injury to her "left lower extremity and psyche." In 1998, she filed a second workers' compensation claim against PMA for injury to "psyche due to sexual harassment."

In 1998, Claxton filed the instant civil action alleging sexual harassment in violation of the FEHA. Then, in early 1999, she settled her workers' compensation claims with PMA for $25,000. As part of the settlement, Claxton executed a preprinted C&R, the use of which is mandatory in California as part of any WCAB settlement. The C&R executed by Claxton only referred to Claxton's two workers' compensation claims, and made no mention of her pending civil action.

The language of the C&R signed by Claxton was as follows:

Upon approval of this compromise agreement by the Workers' Compensation Appeals Board or a workers' compensation judge and payment in accordance with the provisions hereof, said employee releases and forever discharges said employer and insurance carrier from all claims and causes of action, whether now known or ascertained, or which may hereafter arise or develop as a result of said injury, including any and all liability of said employer and said insurance carrier and each of them to the dependents, heirs, executors, representatives, administrators or assigns of said employee.

The workers' compensation judge approved the C&R in March 1999, and issued an order approving the settlement which referenced the case numbers of Claxton's two workers' compensation claims. No reference was made to Claxton's civil action.

PMA subsequently sought and was granted leave to amend its answer in the civil action to allege that Claxton's execution of the workers' compensation C&R operated to extinguish her civil claims. After amending the answer to add this affirmative defense, PMA moved for summary judgment, claiming the C&R precluded her from recovering damages in the civil lawsuit. The trial court granted PMA's motion and awarded the company over $92,000 in attorneys fees.

The Court of Appeal reversed the trial court's grant of summary judgment, and the Supreme Court affirmed. While discussing the informality of workers' compensation proceedings, the Supreme Court stated that as a safeguard to protect a party from unwittingly releasing claims, the party's knowledge and intent to release certain claims or benefits must be established separately from the standard release language. The Court acknowledged this concern is stronger where the release on which a party relies pertains to claims outside the workers' compensation scheme.

In upholding the decisions of the Court of Appeal, the Supreme Court specifically stated that the standard language in a workers' compensation C&R releases only those claims that are within the scope of the workers' compensation system and does not apply to any claims asserted in separate civil actions.

The Supreme Court also declared that extrinsic evidence should not be admissible to show that the parties intended a standardized C&R to apply to claims outside the scope of workers' compensation law. The Court reasoned that the introduction of such extrinsic evidence creates a triable issue of fact in virtually every case, thereby clogging the courts with litigation to ascertain parties' true intent.

Additionally, the Court reiterated its desire to protect injured employees from any unintentional loss of rights. It reasoned that it is contrary to public policy to permit a mandatory, standardized C&R such as the one used here to release an employer from claims outside the workers' compensation scheme, particularly if such claims have not been filed at the time the C&R is executed.

The Supreme Court clarified that parties may still release civil claims when executing a C&R for a claimant's workers' compensation claims. However, a separate document must reflect the parties' intent to release any such claims in this manner.

Lastly, the Court determined that because parties may have relied previously on the ability to introduce extrinsic evidence as to their intent to settle all claims, fairness and public policy mandate that the new rule articulated as a result of this decision apply prospectively only.

Justice Brown wrote a concurring and dissenting opinion in which she agreed with the result, but not the reasoning or the new rule established by the majority. Brown contended that the standard provisions in the Civil Code which pertain to contracts between parties should govern. The dissent also asserted that the majority provided no statutory basis for refusing to apply the contract provisions of the Civil Code pertaining to contracts or for creating "an exception to our long-standing rules of contract interpretation for preprinted release forms."

Back to Top | Back to Summaries