Walmart Wage-Hour Class Action $187M Verdict Upheld, No ‘Trial By Formula’

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By Ronald Miller, J.D. –Finding that there was a single, central, common issue of liability in the case—whether Walmart failed to compensate its employees in accordance with its own written policies—a divided Pennsylvania Supreme Court ruled that the giant retailer was not the subject of a “trial by formula” in a wage-hour class action proceeding.

Unlike Wal-Mart Stores, Inc. v. Dukes, where the U.S. Supreme Court disapproved of “trial by formula,” in this instance, the evidence of Walmart’s liability to the entire class for breach of contract and state wage-hour violations was established at trial by presentation of Walmart’s employment and wage policies, as well as its own business records and internal audits. Because Walmart had ample opportunity to present evidence to explain any discrepancies its claim that it was denied due process failed, and the court upheld a verdict of over $187 million. Justice Saylor dissented (Braun v. Wal-Mart Stores, Inc., December 15, 2014, per curiam).

Former Walmart and Sam’s Club (hereinafter Walmart) employees brought various class action claims against the employers based on policies relating to rest and meal breaks. According to the employees, Walmart promised them paid rest and meal breaks, but then forced them, in whole or in part, to miss breaks, or work through breaks, and also to work “off-the-clock” after a scheduled shift had concluded. The trial court certified the class consisting of 187,979 members. Thereafter, the trial court conducted a jury trial of this class alleging systemic wage and hour violations. Ultimately, the jury rendered a verdict in favor of Walmart on all claims relating to meal breaks, but in favor of the employees on all claims relating to rest breaks, and off-the-clock work.

“Trial by formula.” Walmart appealed the judgment, and the appellate court affirmed in part and reversed in part. Thereafter, the Pennsylvania Supreme Court granted Walmart’s request for discretionary review on the limited issue of whether the employer was subject to a “trial by formula” in which the employees were relieved of their burden to produce class-wide “common” evidence on key elements of their claims.

In this appeal, much of Walmart’s challenge to the method of trial was premised upon its contention that the class never should have been certified because the employees did not present sufficient, class-wide “common” evidence of contract formation, breach, or unjust enrichment. Moreover, Walmart asserted that the employees’ statistical and extrapolation evidence was flawed in that it failed to show “that class members, on a class-wide basis, missed breaks, took shortened breaks or worked off-the-clock.” Specifically, Walmart claimed that its time clock and cash register records did not show that employees had been forced to miss breaks or work off-the clock, and the employees’ experts failed to account for its actual practices. In essence, Walmart asserted that the class was overbroad, that the employees did not show proper proof of its liability to each “purported” class member, and that it had been denied due process in violation of Pennsylvania law.

Employer policies. Walmart employees are required to punch a time clock. During orientation, new employees receive employee handbooks and are informed that they are entitled to paid rest breaks, and will be paid for all hours worked. Employees are also informed in a variety of means about Walmart’s rest break policy, and its off-the-clock work policy. Under the rest break policy, employees are paid for a 15-minute break if they work between three and six hours, and that an additional 15-minute break is given if an employee works more than six hours. The rest break policy requires that employees take full, uninterrupted breaks. Walmart’s off-the-clock work policy provides that it is against company policy for any employee to perform work without being paid, and that employees will be compensated for all work performed.

At trial, the employees presented testimony from expert witnesses who had analyzed Walmart’s business records regarding hours worked, breaks taken, and wages paid to each employee, as well as the results of an audit. One expert testified regarding rest breaks, another testified concerning off-the-clock work, and yet a third expert testified concerning the variety of means Walmart used to promise all employees paid breaks. In addition, the employees presented testimony from a number of former and current employees who testified that they had regularly been forced to work without taking breaks because the stores were chronically understaffed. For its part, Walmart presented the testimony of current and former employees who countered that they had never been forced to miss a rest break, and an expert statistician to refute the methods used by the plaintiffs’ experts.

Due process. Despite Walmart’s assertion that the class in this case should not have been certified, the Pennsylvania high court stressed that the focus of the appeal should primarily be on the proofs offered at trial and whether the proceeding conducted by the trial court amounted to a trial by formula that relieved the employees of their burden to produce common evidence on key elements of their claims.

As an initial matter, the state supreme court pointed out that due process in legal proceedings requires an opportunity to confront and cross examine adverse witnesses. The Third Circuit has observed that the validity of an argument challenging the manner in which a trial has been conducted and alleging that it was so highly prejudicial so as to amount to a denial of due process must be measured against the background of the trial as a whole; the complexity of the litigation; the length of the trial; the quantity of evidence received; and, the difficulty of the task that confronted the factfinder.

Extrapolation evidence. In Wal-Mart Stores, Inc. v. Dukes, the U.S. Supreme Court voiced its disapproval of “trial by formula,” which was directed at a plan to try a sample set of class members’ claims of sex discrimination and, if discrimination was found and the claims were meritorious, to then multiply the average back-pay award to determine the class-wide recovery without further individualized proceedings.

In this case, contrary to Walmart’s assertions, the now-disapproved “trial by formula” process at issue in Dukes was not at work here, because there was no initial or prior adjudication of Walmart’s liability to a subset of employees that would then be extrapolated to the rest of the class. Instead, the extrapolation evidence Walmart challenged in this appeal involved the amount of damages to the class as a whole. Here, the evidence of Walmart’s liability to the entire class for breach of contract and state wage-hour violations was established at trial by presentation of Walmart’s employment and wage policies, as well as its own business records and internal audits. These records were sufficient to support a factfinder’s determination that there was an extensive pattern of discrepancies between the number and duration of breaks earned, and the number and duration of breaks taken.

Class commonality. Moreover, both parties had ample opportunity to present evidence to explain the discrepancies; that is to show that the discrepancies were or were not evidence of class-wide wage-and-hour violations. As a result, Walmart’s claim that it was denied due process failed. Additionally, in this case, where systemic wage-and-hour violations were alleged, evidence was presented by the employees that supported an inference that Walmart managers company-wide were pressured to increase profits and decrease payroll by understaffing stores, and that factors, including the managers’ annual bonus compensation program, impeded the ability of employees, across the board, to take scheduled, promised rest breaks. Thus, the lack of proof of class commonality present in Dukes was not present here.

Calculation of damages. Turning to Comcast v. Behrend, also cited by Walmart, the U.S. Supreme Court found that a district court and Third Circuit erred in perceiving no need for the plaintiffs to “tie each theory of antitrust impact” to a calculation of damages. Because the damages methodology used in Behrend identified damages that were not the result of the specific antitrust violation for which the class had been certified, the High Court reversed the order upholding the class certification. However, the Court in Behrend did recognize that where a theory of liability is capable of class-wide proof, calculations of damages need not be exact.

Unlike the plaintiffs in Behrend, who failed to translate the legal theory of their harm into an analysis of its economic impact, the employees here offered data and analysis from Walmart’s own business records to support their claim of damages related to systemic wage and hour violations. The essence of Walmart’s appeal is an assertion that the class-action device, in this instance, had “run amok,” resulting in a “trial by formula” during which the employees were not required to prove the essential elements of their claims as to each class member. The Pennsylvania Supreme Court disagreed, finding that Walmart’s liability was proven on a class-wide basis.

Dissent. Justice Saylor filed a separate dissenting opinion in which he agreed with Walmart that the trial court implemented and the appellate court approved, a severely lax approach to the application of substantive law to sustain an almost $200 million verdict. Saylor found the outcome of this case very troublesome because gross generalizations and assumptions permitted the simple averaging and extrapolations offered by the employees’ expert witnesses to stand in support of the conclusion that rest breaks were foregone on account of payroll pressure exerted in the Wal-Mart boardroom that would never hold up to peer review as a matter of science.

Source: Employment Law Daily Newsfeed

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