California Supreme Court Rejects Sampling Method for Determining Liability in Class Actions

Decision: In Duran v. U.S. Bank N.A., the plaintiffs sought to represent a class of loan officers who contended that they were improperly classified as exempt employees under the “outside salesperson” exemption to California’s overtime wage payment law, which applies to employees who spend more than half of their workday engaged in sales activities outside the office. The trial court devised a sampling method to determine the bank’s liability. The court selected a random sample of 21 class members, took evidence regarding their work habits and extrapolated liability (and the average award) to all 239 class members. In selecting this method, the court rejected US Bank’s proposal that all class members’ claims be examined, as well as plaintiffs’ proposal to select a representative sample of plaintiffs using methods devised by the parties’ experts. The court also precluded US Bank from presenting evidence that class members outside the sampled group were exempt. Based on the 21-person sample, the trial court found that the entire class had been misclassified. The court also adopted the calculations of the plaintiffs’ expert regarding the average overtime worked. This resulted in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

In a unanimous decision, the California Supreme Court affirmed the Court of Appeal’s decision rejecting the trial court’s sampling method. The Supreme Court concluded the trial court’s “flawed implementation of sampling” must be reversed because it prevented US Bank from “showing that some class members were exempt and entitled to no recovery.” The Supreme Court noted that a “trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced.”

Impact: While the Duran decision makes clear that use of sampling and statistics in the manner used by the trial court exceeded the permissible limits, the Supreme Court stopped short of indicating when sampling may be used to prove liability in a class action. The Supreme Court suggested that statistical sampling may be better suited to determining damages but provided little guidance as to where the line should be drawn when the methods are less extreme than those employed by the Duran trial court. As such, Duran may raise more questions than it answers.

Sixth Circuit Finds Telecommuting Is a Reasonable Accommodation; Regular Attendance Not an Essential Function

Decision: The plaintiff in EEOC V. Ford Motor Co. suffered from Irritable Bowel Syndrome, which caused her to be frequently absent from work. She requested permission to telecommute from home on an as-needed basis as a reasonable accommodation for her disability. Ford refused on the grounds that plaintiff’s position was not suitable to telecommuting. The district court granted summary judgment to Ford on the plaintiff’s failure to accommodate claim under the Americans with Disability Act (ADA), holding that: (i) the plaintiff was not a qualified individual under the ADA because she could not fulfill her essential job function of regular attendance and (ii) plaintiff’s request was not a reasonable accommodation because her position required face-to-face interactions with other team members. The Sixth Circuit Court of Appeals reversed, holding that there was sufficient evidence that plaintiff was a qualified individual, either because her physical presence at the workplace was not an essential function of her job or because she requested a reasonable accommodation. In so holding, the Sixth Circuit recognized that “communications technology has advanced to the point that it is no longer an unusual case where an employee can effectively perform all work-related duties from home,” and that regular attendance requirements can no longer be assumed to mean regular attendance at the employer’s physical location.

Impact: Courts have typically recognized regular attendance as an essential function of the position, and therefore employers have not been required to offer telecommuting as a reasonable accommodation. The Sixth Circuit’s decision may indicate that courts are becoming more receptive to the idea that employees’ regular, physical presence at the workplace is no longer an essential function of every job and also may result in increased requests from employees with disabilities to work from home. However, the Sixth Circuit reiterated that “whether physical presence is essential to a particular job is a highly fact specific question.” Accordingly, employers should carefully analyze an employee’s request for a telecommuting accommodation rather than summarily denying that request in reliance upon the principle that regular attendance is always an essential job function.

Delegation Clause Directing an Arbitrator to Decide Enforceability of an Arbitration Agreement Enforceable in California

Decision: In Tiri v. Lucky Chances, Inc., the defendant-employer filed a motion to compel arbitration of its former employee’s wrongful discharge action. The parties had entered into a written arbitration agreement that contained an explicit agreement to delegate to the arbitrator any questions about the enforceability of the arbitration agreement, including claims that the agreement was void or voidable. The trial court denied the employer’s motion to compel, holding that the arbitration agreement as a whole was unconscionable and, therefore, unenforceable.

The California Court of Appeal reversed, holding that the trial court lacked the authority to rule on the enforceability of the arbitration agreement in light of the delegation clause. The court explained that any claim of unconscionability must be specific to the delegation clause, not the contract as a whole, and so the court must initially assess whether the delegation clause is enforceable.

In this case, the court first found the delegation clause was clear and unmistakable. It next considered whether the clause was unconscionable. It held that although the clause was a procedurally unconscionable contract of adhesion, it was not substantively unconscionable because there was no identified unfair term in the delegation clause itself. As a result, the arbitrator could determine the enforceability of the arbitration agreement.

Impact: The court’s decision reaffirms the federal policy of upholding delegation clauses in employment arbitration agreements when the delegation clause is: (1) clear and unmistakable and (ii) not itself unconscionable or otherwise invalid. Tiri highlights that parties to arbitration agreements can control the forum in which the enforceability of those agreements is adjudicated. While some employers may seek to delegate enforceability questions to arbitrators, others have concluded that the availability of meaningful judicial review is important and therefore have expressly elected to keep decisions regarding the enforceability of their arbitration agreements in court.