New Supreme Court class certification decision: Gattuso v. Harte-Hanks Shoppers, Inc.

Last week, in Gattuso v. Harte-Hanks Shoppers, Inc., ___ Cal.4th ___ (Nov. 5, 2007), the Supreme Court held that the Court of Appeal had improperly affirmed the trial court's order denying class certification of certain Labor Code claims:

The remaining issue is whether the trial court abused its discretion in denying plaintiffs’ motion to certify a plaintiff class defined as all current and former Harte-Hanks outside sales representatives who were not reimbursed for the expenses they incurred in using their own automobiles after January 1, 1998, to discharge their employment duties.

Under Code of Civil Procedure section 382, a class action is permitted “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” Class certification requires both an ascertainable class and a well-defined community of interest among class members. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326; accord, Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089.) Here, the trial court concluded that plaintiffs had established an ascertainable class but also that they had failed to satisfy the “community of interest” requirement.

“The ‘community of interest’ requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 326.) The trial court here concluded that plaintiffs had failed to show the existence of predominant questions of law or fact.

The trial court’s ruling on the class certification motion is reviewed for abuse of discretion. (Sav-On Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 326.) If supported by substantial evidence, a class certification ruling “generally will not be disturbed ‘unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation].’ ” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436; accord, Sav-On Drug Stores, Inc. v. Superior Court, supra, at pp. 326-327.)

In concluding that common issues did not predominate here, the trial court reasoned that plaintiffs’ claims under section 2802 would “turn[] on the determination of two issues (1) whether each individual Harte-Hanks outside sales representative has an agreement about the manner in which he is compensated for expenses, or (2) whether the compensation paid to each individual sales representative is reasonable to compensate for business expenses incurred” and that both determinations would require “an individualized inquiry as to each outside sales representative.”

The class that plaintiffs sought to certify consisted of all Harte-Hanks outside sales representatives “who were not reimbursed for the expenses they incurred in using their own automobiles after January 1, 1998.” We construe this to refer to the Harte-Hanks outside sales representatives who were not separately reimbursed, apart from their base salary and commissions. Not included in the proposed class, therefore, are the relatively few Harte-Hanks outside sales representatives who received automobile expense reimbursement through a separate payment, whether as the result of an individually negotiated compensation package or otherwise. (See fn. 2, ante, at p. 2.)

Harte-Hanks has taken the position that as to the members of this proposed class, it fulfilled its reimbursement obligation under section 2802 by paying them higher commission rates and higher base salaries than it paid to inside sales representatives. As we explained in the previous section, the validity of this claim will turn on the resolution of these questions: (1) Did Harte-Hanks adopt a practice or policy of reimbursing outside sales representatives for automobile expenses by paying them higher commission rates and base salaries than it paid to inside sales representatives? (2) If so, did it establish a method to apportion the enhanced compensation payments between compensation for labor performed and expense reimbursement? (3) If so, was the amount paid for expense reimbursement sufficient to fully reimburse the employees for the automobile expenses they reasonably and necessarily incurred?Neither the trial court nor the Court of Appeal framed the class certification issue in that way, and so neither court considered whether these inquiries are capable of resolution on a class-wide basis. Accordingly, the class certification issue is to be reconsidered upon remand.

Slip op. at 24-26.