Header graphic for print

Proskauer on Class and Collective Actions

Employers Should Now Run – Not Walk – Toward Adopting Arbitration Agreements in California

Posted in FLSA, Uncategorized

Today, the California Supreme Court issued its long-awaited decision in Iskanian v. CLS Transp. Los Angeles, LLC, Case No. S204032, upholding class action waivers in employment arbitration agreements.  This means that the U.S. Supreme Court’s 2011 opinion in AT&T Mobility LLC v. Concepcion is to be given full force and effect in the employment setting in California.  That said, however, Iskanian distinguishes the right of an employee to bring a representative action under California’s Private Attorneys General Act of 2004 (“PAGA”) and holds that such claims may not be barred in an arbitration agreement.

Iskanian is a favorable decision for employers. First, Iskanian reaffirms that class actions are a procedural device that exists to make the resolution of certain claims more efficient; it is not a substantive right to which litigants are invariably entitled.  Iskanian also rejects the NLRB’s conclusion in D.R. Horton (discussed in detail here­) that class action waivers violate employees’ rights under Section 7 of the National Labor Relations Act to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Iskanian confirms that an employer does not waive its right to enforce an arbitration agreement when the law suggests that moving to compel arbitration would be futile.  In Iskanian, for example, the employer withdrew its petition to compel arbitration when the California Supreme Court issued its opinion in Gentry v. Superior Court (which made clear that further petition would be futile) and renewed its petition after the U.S. Supreme Court decided Concepcion, which implicitly overruled Gentry.  In this context, Iskanian holds that a delay in moving to compel arbitration is permitted so long as it is not unreasonable.

In sum, Iskanian clears the way for employers to enter into enforceable arbitration agreements that also contain class action waivers.  Further, employers should know that arbitration agreements also operate as “wolfsbane” in warding off some of the most active members of the Plaintiffs’ bar who simply refuse to take a case to arbitration – they would much prefer to pluck at the heart strings of a sympathetic jury.  And, while representative PAGA actions will survive and probably multiply in the wake of Iskanian, these actions are subject to a significantly shorter statute of limitations period (one year) as compared to the four year statute of limitations employers typically see in other non-PAGA actions.  This means that any putative “representative group” will consist of significantly fewer employees (and possibly less exposure).

California Courts May No Longer Be Able to Certify a Ham Sandwich

Posted in FLSA

Commentators have quipped that class certification is so easy in California that with little effort a group of plaintiffs could certify even a ham sandwich.  In fact, as we have discussed here, we have seen a proliferation of recent appellate decisions hinging class certification on the mere existence of an employer’s uniform policy – no matter how facially lawful that policy may be or how diverse its application is to the putative class at issue.

The law may be changing.  On May 29, 2014, the California Supreme Court issued its long-awaited decision in Duran v. U.S. Bank Nat’l Ass’n, which sets forth the degree of rigorous analysis in which trial courts must engage before certifying a class action.  Importantly, Duran confirms that plaintiffs need more than the mere existence of a uniform policy to support their effort to certify a class.

Duran involves a group of loan officers for U.S. Bank who allege they were misclassified as overtime-exempt pursuant to the outside sales exception, which applies to employees who spend more than 50% of their workday engaged in sales activities outside their home office.  Plaintiffs argued that the common issue for certification purposes was the fact that U.S. Bank had a common policy that classified its loan officers as exempt and used a common job description.  Rejecting this argument, the Supreme Court confirmed that plaintiffs need more: “In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting.”

Accordingly, Duran instructs trial courts to examine how any purportedly unlawful policy is applied to the putative class when deciding to certify the class and how any individualized issues surrounding this application will be managed at trial.  The Court said, “[t]rial courts must pay careful attention to manageability when deciding whether to certify a class action” and explained that “[i]f the court makes a reasoned, informed decision about manageability at the certification stage, the litigants can plan accordingly…”

In this way, Duran seems to adopt the reasoning of the U.S. Supreme Court’s 2011 decision in Wal-Mart Stores v. Dukes, thereby making Dukes’ application to California state law class actions apparent.  First, Duran relies on Dukes in affirming that a defendant has a due process right to litigate its defenses and that the individualized issues surrounding these defenses must be considered at the class certification stage.  Second, in stating that class certification must hinge on “some glue that binds class members together” Duran seems to echo the U.S. Supreme Court’s admonition in Dukes that plaintiffs need some “glue holding the alleged reasons for [the unlawful conduct] together” in order to support class certification.  Both Duran and Dukes similarly instruct that class certification is proper only where an examination of all of the class members’ claims for relief will produce a common answer to the critical liability question.

Additionally, Duran confirms that plaintiffs may propose using statistical or survey data to prove class wide liability at trial.  However, the Court clearly stated that plaintiffs cannot use statistical evidence as “an evidentiary substitute for demonstrating commonality.”  For example, in Duran, even though the trial court found certain allegations were common to the class (i.e. whether U.S. Bank uniformly classified the loan officers as exempt employees and allegedly failed to train or monitor their compliance with the exemption), these questions did not produce common answers as to how the 260 class members actually spent their time.  Moreover, the statistical model used by the trial court failed to ameliorate the problem.

The trial court permitted plaintiffs to submit a “random” sample of 20 employees chosen by the court and did not permit U.S. Bank to introduce any favorable evidence from employees who were not part of the sample.  Based on the evidence from this 20-employee sample and statistical extrapolations that were applied to the rest of the class, judgment was rendered against U.S. Bank for the misclassification of all 260 employees – even though some of those employees signed declarations demonstrating that they were properly classified as exempt.  Duran, therefore, emphasizes that when using statistical evidence, the defendant must be permitted to address questions supporting its defenses even if those questions must be answered on an individualized basis.  And, if these individualized questions become so numerous that the trial would be unmanageable, the class should not be certified.

Court Approves FLSA Settlement that Extinguishes Related State Law Claims

Posted in FLSA

When an employer settles a collective action lawsuit under the Fair Labor Standards Act (FLSA), may the settlement agreement also include a release of any rights to overtime pay which the plaintiffs may have under state law? In Wells Fargo Wage and Hour Employment Practices Litigation, MDL No. H-11-2266 (S.D. Tex. May 12, 2014), the court answered that question with a clear “yes.”

Wells Fargo was sued in five separate unpaid overtime lawsuits by plaintiffs who had worked as home mortgage consultants, mortgage consultants, loan originations, loan consultants, or in similar positions throughout the country.  Two of these suits – Richardson v. Wells Fargo and Chaplin v. Wells Fargo – purported to represent nationwide collectives under the FLSA. Another of these lawsuits, Chan v. Wells Fargo Home Mortgage, Inc., brought claims only under Washington state law.  The lawsuits were consolidated for proceedings in the Southern District of Texas.   The parties successfully mediated the Richardson and Chaplin suits, and the plaintiffs agreed to release any claims they may have had based on unpaid overtime, which would include state law claims as well. Over 4,000 employees opted into that settlement.  The named plaintiffs in the Chan action did not; instead, they filed objections.

The court denied the objections and a later motion for reconsideration.  It began by holding that the Chan plaintiffs lacked standing to object since they were not opt-in members of the Richardson or Chaplin collectives.  Since they lacked any personal stake in the settlement, those plaintiffs had no grounds to object.  The Chan plaintiffs attempted to claim standing based on their “fiduciary duty” to the settling employees, but the Court correctly held that no such duty existed because the settling employees had, by opting in, expressly consented to representation by the attorneys prosecuting the Richardson and Chaplin suits.  The court then went on to hold that, even if the Chan plaintiffs did have standing, they had failed to show that the settlement was substantively unfair or unreasonable.  The court recognized that, in settling the state law claims along with the FLSA claims, the plaintiffs were giving up potentially valuable legal rights; however, “compromise is part of a settlement,” and the plaintiffs were entitled to accept an immediate sum certain in lieu of a potential, uncertain recovery at some possible future date.  The court thus granted final approval to the settlement.

Rebuking “Trial by Formula,” Federal Court Decertifies Rule 23(b)(3) Class Action

Posted in FLSA

In Stiller v. Costco Wholesale Corp., No. 3:09-cv-2473-GPC-BGS, Plaintiffs Eric Stiller and Joseph Moro alleged that Costco’s loss-prevention closing procedures effectively “forced” employees to work off-the clock without getting paid because they were required to remain on-site after they had clocked out of their shifts to go through security screenings.  In December 2010, the district court certified a California-wide class finding that common questions predominated because Costco employed a centralized policy which applied to all employees.  However, on April 15, the Court decertified the class finding that the purportedly “common” question of whether Costco had a “de facto policy of detaining employees in warehouses during closing procedures without pay” would only determine whether “employees were sometimes detained without pay as a result of the alleged policy.”  Costco’s liability would still hinge on individualized determinations as to “whether, how often, and for how long [individual] class members actually experienced unpaid [off-the-clock] time.”

Stiller contrasts starkly with Williams v. Superior Court (Allstate Ins. Co.), where the California Court of Appeal characterized “trial by formula” as “a method of calculating damages” with “little, if any, relevance at the certification stage before the trial court and parties have reached the merits of the class claims.”  (See our blog post about Williams here.)  Citing the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc.  v. Dukes, Stiller emphasized that “trial by formula” would thwart Costco’s right to assert defenses to individual claims of liability.  Moreover, the Court held that the plaintiffs’ proposal to determine Costco’s liability to the class by drawing inferences about class members’ work from expert testimony and Costco’s payroll records, scheduling records, and cash register logout data improperly “put the damages cart before the liability horse” because class members were not all subject to Costco’s policies in the same way.  Individualized questions relating to a class member’s right to recover, therefore, bore directly on the question of whether common questions predominated.

Hopefully, California courts take note.  While California courts are not bound by federal authority when ruling on class certification decisions, the California Supreme Court’s decision in Brinker Restaurant Corp. v. Superior Court clearly indicated that California’s certification standards are derived from “federal precedent.”  Hence, similar to Federal Rule of Civil Procedure 23, California courts require the party advocating for class treatment to, among other things, demonstrate the existence of a “well-defined community of interest,” which includes showing that “predominant common questions of law or fact” exist.  Thus, Dukes’ rejection of “trial by formula” should apply regardless of whether the class certification decision is being considered by a federal court or a California state court.

Ninth Circuit Clarifies Removal CAFA Removal Requirements

Posted in FLSA, Uncategorized

In its recent per curiam opinion in Rea v. Michaels Stores, Inc., the U.S. Court of Appeals for the Ninth Circuit clarified rules and procedures relevant to defendants seeking to remove cases to federal court.

In Rea, the plaintiffs filed a class action alleging that Michaels improperly classified California store managers as exempt from overtime.  Michaels removed the action to federal court under the Class Action Fairness Act (CAFA), but the district court remanded the case back to state court because Plaintiffs had expressly waived the right to recover more than $4,999,999.99, meaning that the case fell one-cent shy of the necessary $5,000,000 amount in controversy.  After remand, the U.S. Supreme Court decided Standard Fire Ins. Co. v. Knowles, which invalidated purported damage waivers used by plaintiffs to defeat CAFA removal.  Michaels once again removed to federal court under CAFA, but the district court deemed Michaels’ attempted removal barred by CAFA’s 30-day rule and found that Michaels failed to show that the amount in controversy exceeded $5 million.

The Ninth Circuit reversed, finding that the California state court’s post-remand decision to certify the class could not defeat federal removal jurisdiction “if jurisdiction was properly invoked as of the time of the filing.”  As to Michaels’ failure to remove within 30 days of receiving the complaint, the Ninth Circuit held that that CAFA’s 30-day time period does not start to run until a complaint or an amended pleading, motion, order, or other paper “affirmatively reveals on its face” that the case is removable. Because controlling law generally recognized damages waivers as valid and effective when plaintiffs filed their complaint, the Ninth Circuit ruled that the complaint did not “affirmatively reveal” the facts necessary for federal court jurisdiction and, therefore, did not trigger the initial 30-day removal period. Here, the Court explained, Michaels’ 30-day limit did not commence until the U.S. Supreme Court decided Standard Fire, after which Michaels timely filed for removal.  Even so, the Court found that Standard Fire amounted to “a relevant change in circumstances” that justified reconsideration of Michaels’ “successive, good faith petition for removal.”

The Ninth Circuit also held that Michaels satisfied CAFA’s $5 million amount-in-controversy requirement by providing evidence that managers were expected to work at least 45 hours per week and by pointing out that named plaintiffs testified that they actually worked at least 45 hours per week.  This, the Court found, was “substantial, plausible evidence” that the amount in controversy could exceed $5 million, despite the fact that Michaels did not proffer evidence that any of the other class members actually worked more than 45 hours per week.

Rea thus fortifies employers’ right to remove class actions under CAFA. Particularly valuable is Rea’s rejection of the “legal certainty” standard for establishing the amount in controversy and holding that defendants can establish the amount in controversy by pointing to plausible, rather than actual, damages.  Using such tactics, defendants should have an easier time establishing removal jurisdiction, especially since Rea indicates any plausible showing of an amount in controversy exceeding $5 million effectively shifts the burden to plaintiffs to affirmatively prove that the value of their case is less than $5 million, which few plaintiffs are likely to want to do.

American Conference International (ACI)

Posted in FLSA, Uncategorized

American Conference International (ACI)
21st National Forum on Wage and Hour Claims and Class Actions

May 29-30, 2014
New York Marriott East Side Hotel * New York, NY

Laura Reathaford has been invited to speak on a panel titled “Donning and Doffing & Walking Time Allegations, and the Latest Claims Arising from Meal and Rest Breaks.” This premiere conference features two days of programming related to best practices and developing law related to wage and hour claims.

As a result of our participation, we are able to offer our friends and clients a discount on the registration cost by entering code 851L14.S  Registration needs to be made by February 26.

Here is a link to the full conference program. (http://www.americanconference.com/2014/851/wage–hour-claims-and-class-actions)

 

California Appellate Court Affirms Denial Of Class Certification

Posted in Uncategorized

As we recently reported here, there have been a number of appellate decisions ordering class certification based on the existence of an employer’s companywide policy – all while overlooking numerous individualized questions that would undoubtedly create manageability problems during trial.  On December 30, 2013, the California Court of Appeal in Johnson v. California Pizza Kitchen, Inc., 2013 WL 6858373 (Cal. App. 2 Dist. Dec. 30 2013) anticipated these trial management issues and upheld the trial court’s decision denying class certification.

David Johnson and three other former non-exempt employees sued California Pizza Kitchen, Inc. (“CPK”) and alleged the company failed to pay them and other non-exempt employees for their off-the-clock work, including time spent performing opening and closing duties and working through their meal and rest breaks.  Plaintiffs also alleged that although CPK’s policies were “facially compliant,” the company chronically understaffed its restaurants, resulting in missed, interrupted or late breaks.  Finally, plaintiffs claimed that as a result of the aforementioned alleged violations, CPK failed to furnish its employees with accurate itemized wage statements.

The trial court denied class certification on the ground that common questions did not predominate the litigation.  The California Court of Appeal agreed.

The Court recognized that the Supreme Court’s decision in Brinker Rest. Corp. v. Superior Court, requires plaintiffs to show the existence of “a uniform policy consistently applied to a group of employees in violation of the wage and hour laws” (emphasis added).  Here, the Court concluded that plaintiffs failed to make this showing.  The court noted that CPK’s company policy expressly prohibited off-the-clock work and similarly observed that if there were deviations from the company’s official policy, this was due, among other things, to each individual supervisor’s varied application of the policy.  Specifically, the court noted that out of 89 employee declarations submitted by plaintiffs, only 42 claimed any off-the-clock work.  With respect to the meal and rest break subclasses, the Court highlighted the trial court’s findings that fewer than 50% of the declarations submitted claimed any missed meal or rest periods.  As a result, the trial court properly denied class certification as to these claims.

Unfortunately for employers, this decision is not published and therefore, it is not citable nor binding precedent upon other courts.  On January 9, 2014, the California Employment Law Counsel filed a request to publish this decision.  If published, employers can rely on the decision for the principle that class certification is only appropriate where plaintiffs have shown with evidence that the company has a companywide policy of violating California employment laws.  This is markedly different from other decisions affirming class certification where plaintiffs have shown merely that the employer has a facially neutral policy that allegedly violates California employment laws.

California Employers Down, But Not Out, Concerning Class Certification Issues

Posted in FLSA, Uncategorized

Shortly after the California Supreme Court issued its 2012 decision in Brinker Restaurant Corp. v. Superior Court, employers saw an immediate uptick in appellate court decisions supporting the denial of class certification to plaintiffs in wage and hour lawsuits.

Today, the opposite seems to be true: appellate courts are reversing decisions denying class certification and directing trial courts to certify wage and hour class actions.  In some of the more recent cases, the courts justify class certification based on the existence of one common question and reserve for another (unspecified) day the multitude of admittedly individualized questions that are summarily characterized as irrelevant questions about “damages.”

In Martinez v. Joe’s Crab Shack, the California Court of Appeal for the Second District reversed a trial court’s denial of class certification as to the restaurant’s managers who claimed they had been misclassified as exempt employees.  The plaintiffs alleged they spent more than 50 percent of their time performing nonexempt tasks (cooking and bussing tables), and thus were entitled to overtime premiums.  The employees moved for class certification, but the trial court denied the motion because individual trials would be necessary to resolve the amount of time each employee spent performing exempt duties.  In doing so, the trial court applied the logic of other appellate decisions denying class certification in misclassification cases, such as Dailey v. Sears, Roebuck & Co., Mora v. Big Lots Stores, Inc., and Arenas v. El Torito Restaurants, Inc.

This time, however, the Court of Appeal reversed the trial court’s decision denying class certification.  While acknowledging that the time spent on particular tasks is relevant to the employer’s ultimate liability, the Court held that restaurant’s policy of classifying managers as exempt from overtime and the managers’ allegations that their tasks did not differ from nonexempt tasks was common enough to justify class certification.  The Court said that the trial court should have focused on “the employer’s realistic expectations [of the job] and its classification of the tasks [that] managers may have been expected to perform rather than whether the employee can identify in retrospect, the amount of time he or she was engaged in an exempt or nonexempt task.”  The appellate court therefore instructed the trial court to refocus its analysis on the policies and practices of the employer, “even those in which the facts appear to present difficult issues of proof.”

In Jones v. Farmers Ins. Exch., insurance claims representatives and senior claims adjusters alleged that their employer should have compensated them for preparatory work they were purportedly required to perform before their scheduled shifts and for the time it took them to drive to their first appointments each day.  The trial court denied class certification on the ground that that individualized trials would be required to resolve whether employees actually performed these pre-shift tasks.

In reversing this decision, the Court of Appeal for the Second District found that common issues predominated because the existence of a uniform policy requiring pre-shift tasks was, in and of itself, a common question amenable to class treatment.  It further reserved any individualized issues—such as actual time spent on these tasks—as applicable only to the amount of “damages,” which, in its view, did not preclude class certification.  On remand, the Court instructed the trial court to focus on whether plaintiffs’ theory of recovery is amenable to class treatment, as opposed to whether any individual might actually be able to recover at trial.

Finally, in Williams v. Superior Court (Allstate Ins. Co.), the California Court of Appeal for the Second District reversed the lower court’s decertification of a class of automotive field adjusters who claimed they were not paid for certain pre- and post-shift activities, such as logging onto their computers, setting voicemail messages, and checking for schedule and travel changes.  The trial court initially certified the class, finding that Allstate’s alleged requirement that the employees perform these pre- and post-shift tasks was a common question justifying class certification.  Shortly after the class was certified, however, the United States Supreme Court handed down its decision in Wal-Mart Stores, Inc. v. Dukes.  Based on that decision, Allstate moved to decertify the class, arguing that individualized issues predominated as to whether any employee spent more than a de minimis amount of time on pre- or post-shift tasks.  Specifically, Allstate argued that since Dukes rejected a “trial by formula” approach to class actions, a series of mini-trials would be necessary to establish any individual employee’s right to compensation for time spent on the allegedly required pre- or post-shift tasks.

Although the trial court agreed with Allstate and decertified the class, the Court of Appeal reversed the decertification order with directions to certify.  The Court found that “[t]rial by formula is [merely] a method of calculating damages,” which “have little, if any, relevance at the certification stage.”  Accordingly, it held that “whether Allstate had a practice of not paying adjusters for off-the-clock time was common enough to justify class certification, regardless of whether Allstate’s de minimis defense could, arguably, eviscerate any one employee’s right to recover any wages at all.”

These decisions do clearly leave employers exposed to a greater risk of a class being certified, which typically works in favor of plaintiffs’ leveraging multi-million dollar settlements.  All is not lost, however.  Since the appellate courts still have yet to address precisely how these (admittedly difficult to prove) cases should be tried, class wide liability may not be a foregone conclusion.

For example, should the trial court determine that Joe’s Crab Shack required its managers to perform certain nonexempt tasks (thereby resolving the arguably common question), plaintiffs presumably will still have to prove – as a matter of liability – that every single class member did not perform exempt tasks more than 50 percent of the time.  Since the court must address this question eventually, employers may have an opportunity to win the war prior to trial – even after losing the initial class certification battle.

Should evidence be developed that numerous class members did not perform nonexempt tasks, for instance, an employer may later move to decertify the class or may ask the court to require that each and every class member attend trial in order to prove his or her actual damages.  Another option may be to move in limine to preclude statistical or “representative” evidence of time spent on nonexempt tasks where, after certification, there is evidence of a wide variance among class members regarding how much time each spent on these tasks.  Given the opportunities to deflate a certified class later in the litigation and the prospect of thousands of mini-trials, employers may be down after these recent decisions, but they certainly are not out.  In short, a class action may be certified – though not suitable — for trial.

Court Holds Arbitration Agreement Requiring Employee to Pay Half of Arbitration Costs is Unconscionable

Posted in Arbitration

In Chavarria v. Ralphs Grocery Co., No. 11-56673, 2013 WL 5779332 (9th Cir. Oct. 28, 2013), the plaintiff, a former deli clerk, brought a class action against Ralphs for various alleged wage and hour violations of the California Labor Code.  As a condition of employment, Chavarria signed an arbitration agreement containing a class action waiver.  Ralphs filed a motion to compel arbitration.

The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s ruling that Ralphs’ arbitration agreement was unconscionable and therefore unenforceable.  The Court said the agreement was procedurally unconscionable because it was “presented on a ‘take it or leave it’ basis with no opportunity for Chavarria to negotiate its terms.”  Further, Chavarria was not provided with the terms of the agreement until three weeks after she agreed to be bound by it and the policy required no signature by the employee or Ralphs to become effective.

Regarding substantive unconscionability, the Court found that Ralphs’ arbitrator selection provision would always result in Ralphs’ choosing the arbitrator whenever an employee initiated the arbitration and also explicitly precluded the use of institutional arbitration administrators, AAA or JAMS.  The Court also found that the agreement’s requirement that the arbitrator apportion his or her fees evenly between Ralphs and the employee unless and until the U.S. Supreme Court ordered otherwise was directly contrary to California state law requiring that employers bear the costs of arbitration.  Despite the Supreme Court’s recent pronouncement favoring the enforceability of arbitration agreements, the Court found that American Express Corp. v. Italian Colors Rest., 133 S. Ct. 2304 (2013), did not preclude it from considering the cost the arbitration agreement imposed on employees in order for them to bring a claim.  In this case, the failure to shift the arbitration costs to the employer presented a potentially prohibitive obstacle to having the claim heard.

This decision signals a willingness by the Ninth Circuit to invalidate arbitration agreements which appear to be one-sided.  Employers, therefore, should resist the urge to “gild the lily” and should instead focus on drafting arbitration agreements that meet the fairness rules of their respective states and ensure that the agreements are presented to employees in a non-coercive manner.

Fourth Circuit Finds District Court Erroneously Applied Wal-Mart Stores, Inc. v. Dukes In Denying Leave to Amend Complaint in Pay Discrimination Suit

Posted in FLSA

In its recent decision in Scott v. Family Dollar Stores, Inc., No. 12-1610 (4th Cir. Oct. 16, 2013), the Fourth Circuit ruled that the district court abused its discretion by refusing to allow plaintiffs asserting claims of gender-based pay discrimination leave to file an amended complaint based upon an erroneous interpretation of the Rule 23(a) commonality requirements for class certification set forth by the United States Supreme Court in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  In a 2-1 decision, the majority held that plaintiffs should have been permitted to amend their complaint to challenge discretionary decision making by managers on a nationwide class, reasoning that “the discretionary authority at issue was exercised by high-level managers, as distinct from the low-level type managers in Wal-Mart.” As the dissent argued, this ruling is in tension with Wal-Mart and other courts that have held when discretionary management decisions are involved, the appropriate unit of analysis must be the discretionary decision maker.

Plaintiffs, fifty-one female managers at Family Dollar Stores, Inc. (“Family Dollar”), originally filed a putative class action complaint in 2008, prior to the Supreme Court’s decision in Wal-Mart.  In September 2011, Family Dollar moved to dismiss or strike the class allegations citing the Wal-Mart decision, to which plaintiffs responded by requesting leave to file an amended complaint they argued “’elaborate[s]’ on the original complaint’s allegation of ‘centralized control of compensation for store managers at the corporate level.’”  A Western District of North Carolina court granted Family Dollar’s motion to dismiss and denied plaintiffs’ motion for leave to amend, determining that amendment was futile because the only source of alleged discrimination in the proposed amended complaint was the “discretionary pay of managers,” which the district court found was “foreclosed” under Wal-Mart.

On appeal, after determining it could properly exercise pendent appellate jurisdiction over the denial of leave to amend because that decision was “inextricably linked” to the grant of the motion to dismiss, the majority reasoned that “Wal-Mart did not set out a per se rule against class certification where subjective decision-making or discretion is alleged,” but rather “directs courts to examine whether ‘all managers [] exercise discretion in a common way with[] some common discretion.’”  (Quoting Wal-Mart, 131 S. Ct. at 2554.)  Further, the majority sought to limit Wal-Mart by asserting “Wal-Mart is limited to the exercise of discretion by lower-level employees, as opposed to upper-level, top-management personnel,” as decisions by upper-level management impact a much larger group of employees.  Thus, the majority reasoned  “discretionary authority exercised by high-level corporate decision-makers . . . is more likely to satisfy the commonality requirement than the discretion exercised by low-level managers in Wal-Mart.”

On a related point, the majority believed the amended complaint was not just challenging discretionary decision making by managers, but also the policies and practices that channeled that discretion. These policies consisted of standard ones that channel manager discretion, such as use of salary ranges making pay raises based on performance. According to the majority, the proposed amended complaint “clearly specifies” four company-wide practices that are alleged to be implemented and applied by upper levels of management, and therefore “the proposed amended complaint’s allegations of uniform corporate policies and of high-level corporate decision-making are substantively different from those that the Supreme Court held sufficient in Wal-Mart.”  The court remanded for the district court to consider, consistent with this opinion, whether the proposed amended complaint satisfies the Rule 23 class certification requirements.

In a lengthy dissent, Circuit Judge J. Harvie Wilkinson III argued that the majority “unloaded on the district court the prospect of a massive, nationwide class action whose administrability would in all likelihood prove impossible,” and took issue with the majority’s interpretation of Wal-Mart as applying “only where decisions are left to the complete discretion of low-level managers” and not where “middle managers” exercise delegated discretion.  The dissent further argued that plaintiffs’ repeated assertion in the proposed amended complaint that “[d]efendant engages in centralized control of compensation for store managers at the corporate level of its operations” was an “uninformative bit of boilerplate” that “seeks to subject corporations to nationwide class actions by virtue of their mere existence,” as “[p]laintiffs’ reasoning in this respect would penalize a company for little more than operating on a national scale under the same corporate name.”

Concluding thoughts.  As the dissent noted, Family Dollar is in tension with Wal-Mart’s admonition that there is a lack of class commonality for nation-wide classes regarding discretionary decision making by managers.   First, as the dissent noted, there were almost 500 decision makers making these discretionary decisions, and determining why one acted does not answer why another did.  There are thus at least 500 answers – not one – to each of Plaintiff’s discrimination claims on whether and, if so, why members within the proposed nationwide class were disfavored in the exercise of discretion.  Second, the fact that discretion was exercised within boundaries set by corporate policies does not change the analysis.  This is standard, and the same thing that occurred in Wal-Mart where, e.g., the pay ranges were set by corporate policy.  There is no claim that the salary range policy – which applies equally to men and women – is somehow illegal.  Rather, the claim challenges the managers’ exercise of discretion within that policy, which as Wal-Mart notes, means the claim turns on why each manager acted.  The dissent correctly analyzed the import of Wal-Mart, but Family Dollar must now raise these arguments at the class certification stage, where they will have greater force than at the motion to dismiss stage.  The plaintiffs’ desire to amend the complaint, and the liberal rules regarding pleading standards, were sufficient to defer consideration of the obvious Rule 23 defects in the claims.