By Laura Maechtlen and Matthew Gagnon

In an important marker of the workplace class action landscape, Judge Samuel Conti of the U.S. District Court for the Northern District of California recently ordered the decertification of a class of former Dollar Tree employees in Cruz, et al. v. Dollar Tree Stores, Inc., Case No. 3:07-CV-04012-SC (N.D. Cal. July 8, 2011), based on the Supreme Court’s decision in Dukes v. Wal-Mart Stores, Inc. The Court held that continued class treatment was no longer appropriate in light of “changes in the legal landscape,” fostered by the Dukes decision. Id. at 10. As such, the ruling contains important lessons for employers and their corporate counsel confronting Rule 23 claims over alleged workplace problems.

The Court had previously certified a class of “all persons who were employed by Dollar Tree Stores, Inc. as California retail Store Managers at any time on or after December 12, 2004, and on or before May 26, 2009.” Id.  at 3. Plaintiffs alleged that Dollar Tree had improperly categorized its store managers as executive-exempt employees under California and federal labor laws. The store’s policy was to require its managers to certify every week that they had spent more than fifty percent of their time each week performing “managerial” duties. In partially denying an earlier motion by the defense for decertification, the Court held that the class could proceed for those store managers who had marked “no” on their weekly payroll certification forms at least once during the class period. Id. at 4. Marking “no” meant that those class members had spent less than fifty percent of their time that week on managerial duties. The Court reasoned that those forms provided an element of common proof that could sustain class treatment, as they eliminated the need for individual testimony to determine how those class members actually spent their time – an inquiry that would still have been necessary for individuals who always marked “yes” on those forms.

In light of the Dukes decision, the defense renewed its motion for decertification and argued that those payroll certification forms were not sufficient to meet Rule 23(a)’s commonality requirement. The Court agreed, and held that after Dukes, it was not enough to pose common questions, for those questions must be subject to common resolution. Id. at 12. The Court reasoned that Plaintiffs had failed to provide common proof to serve as the “glue” that would allow a class-wide determination of how class members spent their time on a weekly basis, and the absence of that “glue” was fatal to the commonality determination, as well as the predominance requirement of Rule 23(b)(3). Id.

To a certain extent, the Court’s decision was driven by factual considerations, as a significant percentage of class members stated that they were untruthful when submitting their payroll certifications, or that they could not remember whether they were truthful or not. Id. at 13-14. As a result, Plaintiffs intended to rely primarily on individual testimony by exemplar class members to prove their case.  Id. at 16-17. The Court was unwilling to proceed with class treatment given the absence of the payroll certification forms as common proof of misclassification. Id. at 15, 17.

Plaintiffs attempted to defend the propriety of class treatment by pointing to the fact that the store managers were subject to Dollar Tree’s centralized operational and human resources hierarchy, and shared a number of common employment experiences. Those included uniform training and training-related materials, use of the same on-the-job tools, receipt of “daily planners” that required them to perform certain tasks, and policies intended to standardize the experience of all store managers. Id. at 18. The Court held that while this showed that class members shared certain employment experiences in common, none of those elements could provide proof that the store managers were spending more than fifty percent of their time performing managerial tasks. Id.

The Court also supported its position by noting that Dukes had rejected a “trial by formula” approach to damages, whereby damages are determined by extrapolating the validity and value of all class members’ claims from a sample set of the entire class. Id. at 12-13. The Court interpreted the Dukes decision as holding that such a method of calculating damages would deprive a defendant of its right to assert statutory defenses to the individual claims of all class members. Id. at 13. As a result, the Court concluded that even if class-wide liability were established, it was unclear how a week-by-week analysis of every class members’ damages could be conducted. Id.

Implications Of Cruz

is a significant defense-oriented decision. It shows how Dukes provides defendants with a newly sharpened tool for defeating class certification. Successful advocacy techniques after Dukes require employers to adapt to how Plaintiffs are doing things differently and judges are as well in approaching Rule 23 issues. While Cruz involves certification of wage & hour issues, its lessons are equally important in the context of workplace bias class actions.

The Court’s discussion of its earlier class certification decisions showed that it had primarily been concerned with the predominance requirement of Rule 23(b)(3). The Court noted that recent Ninth Circuit decisions had made it “increasingly concerned that individualized issues will predominate over class-wide issues if this case proceeds to trial as a class action.” Id. at 5. The Court based its decision in the first instance on those recent decisions – such as Marlo v. United Parcel Service, Inc., No. 09-56196, 2011 U.S. App. LEXIS 8664 (9th Cir. Apr. 28, 2011) – in holding that common issues did not predominate over individualized issues given that Plaintiffs’ case would rely on representative testimony in light of the problems discovered with the payroll certifications.

It was only after discussing the predominance factor of Rule 23(b)(3) that the Court addressed Dukes. Rather than focusing on plaintiffs’ use of representative testimony, as it had in discussing the predominance factor, the Court instead noted that the unreliability of the payroll certifications meant that Plaintiffs had failed to demonstrate that the class shared a common question that was subject to common resolution. It was thus a completely different ground for defeating certification, and one that the Court probably would not have relied on prior to Dukes.