Co-authored by Robert Whitman, Cameron Smith, and Meredith-Anne Berger

Former brokers of Fordham Financial Management will have to put this one in the “loss” column. Judge Paul Crotty of the Southern District of New York granted Fordham’s motion to decertify the FLSA collective in their lawsuit alleging they were misclassified as independent contractors.

The brokers initially succeeded in obtaining conditional certification of their misclassification claims under the relatively lenient FLSA standard in Griffith v. Fordham Financial Management, Inc. About a year later, the Plaintiffs moved for class certification under Rule 23, but the court denied the motion because they “failed to demonstrate that the primary dispute–whether Defendants ‘misclassified potential class members as independent contractors, rather than employees’–was capable of resolution by classwide proof.” Buoyed by that success, the Defendants then sought decertification of the FLSA collective action.

The court granted that motion. The court noted that plaintiffs must meet a higher standard at the second stage of the FLSA certification analysis – specifically, a burden “similar to Rule 23’s commonality requirement.” Taking the analogy further, Judge Crotty said that “functionally there is little difference” between the commonality inquiry and the second stage of FLSA certification.

Judge Crotty then held that the issue of employee vs. independent contractor status for the Fordham brokers “require[s] highly individualized inquiries.” Specifically, he noted that the deposition testimony of the opt-ins revealed widely differing schedules and contractual arrangements, as well as varying levels of control exercised over the plaintiffs’ daily responsibilities. On the whole, the court said, the case would require “individualized inquiries into each plaintiff’s work schedule, compensation, and the level of control Fordham exerted.”

Judge Crotty further noted that the low opt-in rate among the potential members of the collective, while not dispositive, suggested an “apparent lack of enthusiasm” and that individualized actions were more appropriate. (He did not state how low the rate was.)

Griffith is a potent reminder that all is not lost when FLSA conditional certification is granted. Where there is compelling evidence that the ultimate issue will require individualized factual determinations, employers can and should return to the judge to highlight those distinctions among the opt-in plaintiffs–and, if applicable, the low opt-in rate–in an effort to reverse their fortunes without the yoke of the “lenient standard” of stage one. Given the importance of certification to the outcome of cases, the effort can yield high dividends.

Co-authored by Coby M. Turner and Adam J. Vergne

In the Central District of California—often known as a magical kingdom for plaintiffs in wage-hour lawsuits—Judge Fernando Olguin brought everyone back to reality by denying class certification. Plaintiff Aladdin Zackaria alleged Wal-Mart incorrectly classified its Asset Protection Coordinators (“APC”) as exempt and moved to certify a class of all APCs that worked in California. After a close inspection of the evidence presented by Wal-Mart, however, Judge Olguin found the disparate experiences of APCs at different Wal-Mart stores prevented the case from being resolved by “common proof on a class-wide basis.”

Despite finding that APCs operated under uniform corporate guidelines, had identical training, and had the same pro forma job responsibilities, the court noted the “touchstone” of analysis under the executive and administrative exemptions is the way in which employees actually spend their time at work. Based on detailed statements in declarations from putative class members gathered by Wal-Mart, Judge Olguin concluded the day-to-day activities and level of discretion exercised by employees varied greatly from one APC to the next. With such individualized experiences, the court held there was no showing of common proof to support trying the case as a class action. Although it may be too early to say it’s a whole new world for employers in California facing misclassification class actions, employers presenting evidence employees’ experiences are varied can position themselves to defeat class certification.

Beyond California, the standard applied to motions for class certification continues to vary somewhat from jurisdiction to jurisdiction and even judge to judge. But as courts gain experience in wage-hour matters, the granting of class certification is not a forgone conclusion as some had treated it. Even when applying the two-step certification analysis for collective actions under the FLSA, courts have shown a willingness to consider testimony in the form of declarations from putative class members in order to defeat evidence in the form of self-serving declarations submitted by named plaintiffs. Employers should take note. By spending the time to gather evidence early, a substantive opposition to class certification can be made—as opposed to mere hypothetical arguments. Although the costs of mounting such an opposition can be substantial, the value of defeating class certification makes such a challenge worthwhile … even in California.

Authored by Geoffrey Westbrook

After more than four years of litigation, Citibank hauled in a significant victory last week against putative class and collective actions in Ruiz v. Citibank. Personal bankers from California, New York, Washington D.C. and other states alleged that Citibank withheld overtime pay under a nationwide scheme encouraging off-the-clock work. Although finding “systematic violations at the branch level,” a New York federal district court held that the plaintiffs failed to produce sufficient evidence to connect those violations to an uniform, overarching company practice. The court denied the plaintiffs’ bid for class certification of state law claims and decertified a collective action under the Fair Labor Standards Act.

Ruiz is part of a growing trend among trial courts emphasizing the need for evidence of an unlawful company policy in nationwide class and collective actions. Modern class actions must satisfy the “rigorous” Rule 23 certification standard articulated by the U.S. Supreme Court in Wal-Mart Stores, Inc. v. Dukes. Collective actions, however, are assessed under the FLSA’s “similarly situated” test. As explained below, the court in Ruiz blurred the lines between these two distinct standards, requiring evidence of an illegal company policy or uniform nationwide managerial conduct supporting the plaintiffs’ claims in both types of actions. Without such evidence, even with nationwide violations at the local level, under Ruiz both must fail.

Background

Digna Ruiz, a New York resident, filed a complaint seeking to represent a nationwide collective action under the FLSA and a class action under state labor law. He alleged that Citibank failed to compensate its personal bankers for overtime hours by setting high production targets and strictly limiting overtime work. A month later, residents of Washington, D.C., Illinois, Virginia and California filed nearly identical collective and class actions under the FLSA and laws of their respective states. These matters were consolidated in the U.S. District Court for the Southern District of New York.

After limited discovery, the court granted conditional certification of the FLSA collective action. More than 400 personal bankers opted in, and discovery proceeded in anticipation of the plaintiffs’ motion for class certification and Citibank’s motion to decertify the collective action.

Denial of State Law Class Certification Based on Rule 23 and Dukes

Class certification was denied based almost entirely on the “commonality” requirement of Rule 23. To certify a nationwide class, among other requirements, there must be some evidence of a common policy or management practice that is subject to testing at the class-wide level. The court likened the case to Dukes, where written corporate policies were lawful and managers were lawfully given significant discretion over pay and promotions. In the absence of an illegal policy, Dukes requires evidence showing an unlawful corporate practice connecting Citibank’s more than 900 branch offices across the country. Evidence of a local or even regional policy will not likely be sufficient to certify a nationwide class.

The plaintiffs failed to show Citibank’s lawful policies uniformly translated themselves into unlawful managerial behavior across the country. Anecdotal evidence demonstrated conflicting experiences among bankers nationwide in which some personal bankers felt pressured to work off the clock, while others had no issue meeting performance goals. There was significant evidence that certain managers pressured bankers not to report overtime hours, but at those and other branches many were properly paid overtime, indicating at best an inconsistent practice. Knowledge of overtime violations rarely percolated above the district level, and when it did, immediate efforts were made by area management to rectify the violations. Thus, the plaintiffs could not establish a common management approach — on a nationwide basis — in exercising their considerable discretion and resulting in unpaid overtime through Citibank branches as a whole. Evidence of even systematic violations at the branch level (and in some cases reaching up to senior management) was not sufficient to certify a nationwide class.

Decertification of FLSA Collective Action

In decertifying the FLSA collective action, the court followed a rising trend analogizing the “commonality” requirement of Rule 23 to the “similarly situated” test for collective action ultimate certification. In this vein, the Ruiz court granted Citibank’s decertification motion. It relied on the same evidence underlying its class action certification denial, holding that “Plaintiffs have advanced the ball very little in demonstrating a common plan or scheme.” Secondhand statements regarding an alleged companywide policy to force unpaid overtime by branch managers, in the face of Citibank’s lawful overtime and performance policies, was not sufficient to show personal bankers across the country were “similarly situated.” All told, evidence of individual overtime violations at the district level will not alone carry the day for purposes of class and collective action certification.

Conclusion

Ruiz represents a growing movement of the courts seeking to bridge the analytical differences between class and collective actions. The result of this trend is a greater uniformity in wage and hour decisions based on parallel theories. Logically, a putative class of plaintiffs failing to meet Rule 23 “commonality” requirements should not be permitted to proceed with a collective action either. We will continue to track district courts throughout the country in hopes that this common sense line of cases increases in popularity.

Authored by Gena D. Usenheimer

Hourly pharmacists for CVS in California were forced to swallow a bitter pill late last year when Judge S. James Otero of the Central District or California denied their motion for class certification on claims for unpaid off-the-clock and overtime work.

The plaintiffs alleged that they were forced to work additional hours without pay in order to serve the pharmacy’s customers.  They argued that they could establish their claims on a class-wide basis by relying on CVS’s “Rx Connect” software system, which allows pharmacy employees to perform various daily tasks such as obtaining prescription information, verifying insurance data, and printing labels.  To access the system, employees must enter a three-letter credential that is obtained by inputting employee ID and password information each day.  The plaintiffs claimed they could establish liability for off-the-clock (and overtime) work by cross-referencing time records with the prescription records tracked in the Rx Connect database.

Judge Otero found the plaintiffs’ argument deficient in two main respects.  First, during the class period, CVS used two different computer systems, both of which allowed for the sharing of log-on credentials among multiple employees, making it nearly impossible to determine who was working when.  Second, the Rx Connect system (used for the majority of the class period) did not keep a record of which credentials were active for which employee at any given time.  This, too, made it nearly impossible to determine who was working when.  The court thus agreed with CVS that the only reliable way to learn whether pharmacy employees actually performed off-the-clock work is to ask them.  The need for such individualized inquiries defeated Rule 23(a)’s commonality requirement.

The same problem plagued the plaintiffs’ proposed overtime class:  there was no reliable method to track hours worked, and the evidence varied from manager to manager as to whether pharmacy employees were permitted to work overtime.  The court also found that the proposed class representatives were inadequate based on an “inherent tension” between supervisory pharmacists and those with subordinate titles.

The decision, Howard v. CVS Caremark Corp., serves as another helpful reminder that the presence of individualized inquiries remains a powerful weapon in the fight against Rule 23 class certification.