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Wells Fargo Class Action Defense Cases–In re Wells Fargo: Ninth Circuit Reverses Certification Of Labor Law Class Action Holding District Court Erred In Relying On Employer’s Uniform Exemption Policy To Exclusion Of Other Factors

Labor Law Class Action Certification Order Reversed because District Court Abused its Discretion in Relying on Wells Fargo’s Internal Policy of Treating Employees as Exempt “To the Near Exclusion of Other Relevant Factors Touching on Predominance” under Rule 23(b)(3) Ninth Circuit Holds

Plaintiffs filed a putative class action in California against their employer, Wells Fargo Home Mortgage, alleging labor law violations; the class action complaint – brought individually and on behalf of roughly 5000 other current and former Wells Fargo home mortgage consultants (HMCs), who market and sell mortgages – alleged defendant paid HMCs by sales commission until 2005, when “Wells Fargo changed the commission system to include a minimum, non-recoverable draw against commissions.” In re Wells Fargo Home Mortgage Overtime Pay Litig., 571 F.3d 953 (9th Cir. 2009) [Slip Opn., at 8325, 8328-29]. According to the allegations underlying the class action, prior to 2005 Wells Fargo did not track the hours worked by HMCs or pay them overtime because “it treated nearly all of its HMCs as exempt from state and federal overtime requirements.” Id., at 8329. Several plaintiffs filed various putative class action lawsuits against Wells Fargo alleging state and federal labor law violations, which the Judicial Panel on Multidistrict Litigation ultimately consolidated in the Northern District of California. Id. The plaintiffs in this particular California class action (Mevorah) alleged that Wells Fargo’s conduct violated California’s Unfair Competition Law (UCL) by violating the federal Fair Labor Standards Act (FLSA), id. Plaintiffs’ counsel moved the district court to certify the litigation as a class action; defense attorneys opposed the motion in part on the ground that “individual issues predominated and that class treatment was not superior,” and “pointed to a number of exemptions under the FLSA (applicable through the UCL) and California labor law that would require individualized inquiries.” Id. The district court agreed that “individual inquiries would be necessary with respect to five exemptions: the federal outside sales exemption…, California’s outside sales exemption…, California’s commissioned sales exemption…, and the federal highly compensated employee exemption….” Id., at 8329-30. Specifically, the federal court found that these inquiries “would require an analysis of the job experiences of the individual employees, including the amount of time worked by each HMC, how they spend their time, where they primarily work, and their levels of compensation.” Id., at 8330. On the other hand, the district court concluded that common issues existed only as to two exemptions – “whether Wells Fargo qualifies as a ‘retail or service establishment’ for purposes of a federal exemption for commissioned sales…, and whether the employees earned ‘commission wages’ under California’s commissioned sales exemption….” Id. The court nonetheless granted class action treatment “relying on Wells Fargo’s uniform exemption policies,” id., at 8330-31. The Ninth Circuit reversed, holding that while “uniform exemption policies” – such as “an employer’s internal policy of treating its employees as exempt from overtime laws” – is relevant to the predominance test in Rule 23(b)(3), “it is an abuse of discretion to rely on such policies to the near exclusion of other relevant factors touching on predominance.” Id., at 8328.

The Ninth Circuit explained at page 8332: “The question here is whether the district court abused its discretion in finding Rule 23(b)(3)’s predominance requirement was met based on Wells Fargo’s internal policy of treating all HMCs as exempt from state and federal overtime laws. To succeed under the abuse of discretion standard, Wells Fargo must demonstrate that the district court either (a) should not have relied on its exemption policy at all or (b) made a clear error of judgment in placing too much weight on that single factor vis-a-vis the individual issues.” The Circuit Court construed Wells Fargo’s arguments “as a challenge to the weight accorded to the internal exemption policies” in that the district court “[considered] the proper factors but committing clear error in weighing them.” In re Wells Fargo Home Mortgage, at 8332. Specifically, defense attorneys argued that the weight afforded by the district court to Wells Fargo’s exemption policy “was tantamount to estoppels.” Id., at 8332-33. The Circuit Court agreed, finding at page 8333 that the district court’s class action certification order “was clearly driven by Wells Fargo’s uniform exemption policy.” That finding, in turn, “leads to the central question: whether such heavy reliance constituted a clear error of judgment in assaying the predominance factors.” Id.

The Ninth Circuit recognized that “uniform corporate policies will often bear heavily on questions of predominance and superiority,” In re Wells Fargo Home Mortgage, at 8334, and that “centralized rules, to the extent they reflect the realities of the workplace, suggest a uniformity among employees that is susceptible to common proof,” id., at 8335. But the Court found this rule inapplicable in the present case because “[i]n contrast to centralized work policies, the blanket exemption policy does nothing to facilitate common proof on the otherwise individualized issues,” id., at 8335. Accordingly, “the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry.” Id., at 8335-36. The Circuit Court therefore reversed the class certification order and remanded the matter to the district court for further proceedings consistent with the Court’s opinion, id., at 8336.

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