This Week at The Ninth: Class Certification and Misclassification

From JDSupra, James Sigel discusses a recent case in which the Ninth Circuit Court of Appeals said that class certifiation of misclassification claims is not appropriate when common issues do not predominate. James writes:

This week, the Court takes a close look at the standards for certifying a class action under Rule 23 and for classifying someone as an employee or independent contractor under California law.


The Court holds that variations in injury and damages precluded class certification for plaintiffs’ overtime and reimbursement claims, while clarifying the standards applicable in determining whether an individual is an employee or independent contractor in California.

The panel:  Judges W. Fletcher, Bennett, and Bade, with Judge Bennett writing the opinion.

Key highlight:  “[B]ecause the class members have not necessarily suffered damages traceable to their alleged misclassification, and because they have not presented a method of calculating damages that is not excessively difficult, they have failed to satisfy Comcast’s simple command that the case be ‘susceptible to awarding damages on a class-wide basis.’”

Background:  Defendant FAS contracted with vendors to perform services preserving pre-foreclosure residential properties.  It classified all of its vendors as independent contractors.  Plaintiff Fred Bowerman, one such vendor, brought suit, alleging that FAS had misclassified him as an independent contractor rather than an employee, and as a result had violated California law in failing to properly pay overtime or reimburse business expenses.

The district court granted Bowerman’s motion to certify a class containing 156 FAS vendors.  It subsequently granted partial summary judgment to the class members, concluding that they had been misclassified as a matter of law.  The court then held an 8-day jury trial to determine the damages of 11 of the class members, after which FAS filed a motion to decertify the class.  The district court denied the motion, then entered judgment as to these 11 class members under Rule 54(b).  After FAS appealed, the district court awarded plaintiffs’ counsel an interim fee award of more than $5 million.

Result:  The Ninth Circuit reversed.  First, the Court held that the class could not be properly certified because common issues did not predominate.  The Court assumed that whether FAS misclassified the vendors could be proved through common evidence.  But, it explained, “FAS’s liability to any class member for failing to pay them overtime wages or to reimburse their business expenses would implicate highly individualized inquiries on whether that particular class member ever worked overtime or ever incurred any ‘necessary’ business expenses.”  The Court thus rejected the plaintiffs’ invocation of the principle that individualized issues regarding damages do not themselves defeat certification, explaining that these issues went to FAS’s liability to each class member.  Regardless, the Court continued, even if establishing FAS’s misclassification of the class members were enough to establish liability, the class still could not be certified because plaintiffs could not demonstrate that the “whole class suffered damages traceable to the same injurious course of conduct underlying the plaintiffs’ legal theory.”  Additionally, as the 8-day damages trial for 11 class members confirmed, the plaintiffs had also failed to demonstrate “that damages can be determined without excessive difficulty.”

Next, the Court addressed the legal standard governing plaintiffs’ misclassification claims.  As the Court explained, the California Supreme Court in Dynamex had adopted a new test for claims “derive[d] directly from the obligations imposed” by a California wage order.  By contrast, the preexisting “Borello” test continued to govern non-wage-order claims.  Here, while the plaintiffs’ overtime compensation claims were based on a California wage order (and thus governed by Dynamex), their expense reimbursement claims were instead based on a California statute (and thus governed by Borello).  The Court rejected FAS’s argument that all the overtime claims should be governed by Borello because they were ultimately joint employment claims, but left it for the district court to determine whether that might be true with respect to some class members who were employed by an FAS vendor.

Applying these standards, the Court then reversed the district court’s grant of summary judgment.  As the Court reasoned, under the Borello test, triable disputes of fact existed as to whether FAS controlled the means by which its vendors performed their work (as opposed to simply the results they were supposed to achieve).  While FAS provided detailed instructions as to what vendors were supposed to accomplish, it was up to a jury to conclude whether it thereby exercised the requisite control.  But, the Court continued, a different result would follow under the Dynamex test, as there was no dispute that FAS’s vendors did not “perform[] work that is outside the usual course of the hiring entity’s business.”  FAS might, however, be able to invoke the recently enacted business-to-business exception to the Dynamex test with respect to its vendors.  Finally, the Court concluded with respect to all class members’ claims that, even assuming a given class member was misclassified, there was a genuine dispute of material fact as to whether they “ever incurred reimbursable expenses or ever worked overtime,” thus rendering summary judgment “improper for the very same reason that the class certification was.”

Finally, the Court also reversed the interim attorneys’ fee order.  While this order was nonfinal, and thus ordinarily would not be appealable, the Court concluded it could exercise pendent appellate jurisdiction over the award because it involved issues inextricably intertwined with review of the summary judgment and class certification orders.  And because those orders had been vacated, the Court vacated the fee order as well.

Source: This Week at The Ninth: Class Certification and Misclassification | Morrison & Foerster LLP – Left Coast Appeals – JDSupra

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