“Employees Try New Tack With Misclassification Class Actions”
Daily Journal, April 16, 2013
Kenneth J. Lee was pulling 70-hour weeks, coming in on weekends and working through lunch, he said. He and his co-workers, property appraisers for JPMorgan Chase & Co., earned a salary, but the bulk of their pay was based on how many appraisals they completed, which required them to work overtime. But Chase classified Lee and others across the country as working in an administrative capacity, a designation that exempts Chase from paying them for overtime and meal breaks. Now Lee and another former appraiser are suing Chase with the help of Oakland plaintiffs’ attorney Bryan J. Schwartz, contending that appraisers don’t have the decision-making power in their jobs necessary to qualify them as administrators.
“Chase is running an appraisal sweatshop, and it’s time that Chase be required to compensate its appraisers fairly,” Lee said in a statement after he and another former Chase appraiser filed a putative class action against the bank earlier this month.
Lee and Mark G. Thompson are suing for a host of wage and hour violations, all stemming from his claim that the financial company misclassified employees in Lee’s position. The claim hinges on the job classifications available to businesses that let them exempt managers, executives and other employees with discretion in their job activities from overtime pay and other wage and hour requirements.
Misclassification cases are appealing to plaintiffs’ lawyers like Schwartz because they include opportunities for claims under wage and hour laws, California’s Private Attorney General Act, as well as attorney fees. However, appellate courts have set an increasingly high bar for class certification, and changing employer behavior have made the seemingly lucrative cases more challenging to find and win.
“When there’s a misclassification case, there are usually four or five derivative claims,” said Cheryl D. Orr, a defense-side employment partner at Drinker Biddle & Reath LLP in San Francisco. “In some positions and in some industries, whether someone’s classified correctly or incorrectly can be sometimes difficult to ascertain.”
Lee’s attorney Schwartz said there’s no question the property appraisers he represents were misclassified. “They can’t just go off and say, ‘God, I love this apartment building,'” he said. “They’re applying a formula set by people way above their pay grade.”
Randy Renick, a plaintiffs’ attorney in Pasadena with Hadsell, Stormer, Richardson & Renick LLP, said that in general, misclassification claims have to clear a higher bar than they did 10 years ago. They now must do more to prove predominance, or that their employers’ policies or practices affected them in a similar way.
“Plaintiffs have to do a lot more work on the front end,” Renick said. “It isn’t enough anymore to show that folks were just misclassified; you need to show that there was uniform control and that class members were working the same types of jobs under the same policies.”
Renick experienced the change firsthand over the past eight years, as a case his clients won in trial court went through a lengthy appeals process. In 2005, he won class certification for a group of employees allegedly misclassified at Chinese Daily News Inc., a Chinese-language newspaper based in Monterey Park. He then won both a jury trial and a bench trial.
But the case was appealed all the way to the U.S. Supreme Court, which had recently raised the bar for class certification in employment discrimination and wage-and-hour cases by siding with Wal-Mart Stores Inc. in the landmark Dukes v. Wal-Mart case in 2011. The high court ordered the 9th U.S. Circuit Court of Appeals to apply Dukes to the Chinese Daily News case.
Renick said he is confident that the record he established the first time around will withstand heightened scrutiny for class certification. However, because of Dukes and two other precedents set in appellate courts since the plaintiffs’ original victory, the 9th Circuit ruled in March that plaintiffs must argue for class certification anew.
Finding cases of straightforward misclassification has also become harder, lawyers representing both workers and businesses say.
This is partly because businesses have started classifying their workers more appropriately, Renick said. “Over the last seven to eight years, most of the bigger misclassification cases have been filed and resolved, and many employers have amended their practices as a result of those lawsuits,” Renick said.
Partly in response to the increasing difficulty of certifying and winning these cases, lawyers said, workers have found a back door though which to levy penalties against employers for misclassifying them.
Even if plaintiffs aren’t allowed to proceed as a class, employment claims can move forward under the state Private Attorney General Act. Every claim under the statute can reap a penalty against the employer for each pay period of each affected employee. The penalties are split between the state and the plaintiffs.
What’s more, defense attorneys say that while class certification is harder to attain, plaintiffs are still filing and settling these claims.
“I think there are a handful of cases recently that have very much gone our way,” Orr said, “but there are still many, many cases that are getting resolved through the settlement process.”
This of course includes attorney fees, which Naki M. Irvin said is the primary motivation for attorneys filing the cases. Irvin most often defends employers as a partner at Margolis & Tisman LLP in San Francisco but occasionally represents individual plaintiffs in employment cases.
“While it’s commendable that we have labor laws to protect our workers, I think the laws are such that it makes things difficult for employers in California,” Irvin said. “Often these lawsuits are used as leverage for negotiation, and it often comes down to attorney fees.”
It’s not clear how large of a settlement plaintiffs stand to receive from misclassification cases, because they’re easier to defeat at class certification. “They’re generally viewed as not being worth as much as other cases,” said S. Brett Sutton, a partner at Sutton Hatmaker Law Corp. in Fresno who represents both workers and businesses in employment cases.
Orr said the cases are in fact still lucrative at the settlement stage. “Based on what I’m reading other folks are settling for, I’m not sure that process has caught up with a seeming shift in the law.”
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