Seventh Circuit Distinguishes Comcast and Rejects "Bean Counting" of Common Issues -- Butler v. Sears II

In Butler v. Sears II, a class of consumers alleged that the "low volume and temperature of the water" in certain frontloading washing machines had resulted in mold growth and bad odors that amounted to a breach of warranty.  Sears argued that while it never eliminated these alleged design defects it had implemented changes in successive models that tended to reduce the problem.  As a result, Sears argued that class treatment was improper because the variations between the different models created "individualized" issues that would supposedly predominate in the case. 

The Court rejected this argument, holding instead that whether the alleged design was a breach of warranty was the "predominant" issue. The differences between the models merely went to the calculation of damages.  Writing for the court, Judge Posner further explained that the touchstone for class certification is the efficiency to be achieved by deciding common issues just once for an entire group of plaintiffs.  

Sears thinks that predominance is determined simply by counting noses: that is, determining whether there are more common issues or more individual issues, regardless of relative importance. That's incorrect. An issue “central to the validity of each one of the claims” in a class action, if it can be resolved “in one stroke,” can justify class treatment. . . . [P]redominance requires a qualitative assessment . . . it is not bean counting.

If the issues of liability are genuinely common issues, and the damages of individual class members can be readily determined in individual hearings, in settlement negotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not preclude class certification.

Butler II, also distinguished the U.S. Supreme Court decision in Comcast v. Behrund, which contains confusing verbiage about the role of a particular damage model in an unusual antitrust case in an unusual procedural setting.  Butler II confirmed however that Comcast did not "cut the ground out from under" the normal rule that damage calculations do not prevent class certification.

Finding of Independent Contractor Status for Tax Purposes is Binding for Wage and Hour Purposes -- Happy Nails & Spa v. Su

The legal determination of whether a worker is properly classified as an employee or an independent contractor triggers a variety of legal consequences under various statutes.  These include whether the employer is required to: (a) withhold and pay various federal and state payroll taxes;  and (b) whether the employer must comply with minimum wage, overtime and expense reimbursement under the California Labor Code or federal FLSA.  

These separate legal obligations are enforced by different governmental agencies which may each use slightly different tests for distinguishing between employees and independent contractors.  This could result in multiple prosecutions with different results -- e.g., that the same workers may be contractors for tax purposes but employees for wage payment purposes.  The Fourth District Court of Appeal opinion in Happy Nails & Spa of Fashion Valley L.P. v. Su, addressed this precise scenario. 

In 2004 the California Employment Development Department (the "EDD"), which is charged with collecting unemployment insurance taxes and paying benefits to employees, brought an action claiming that the manicurists at Happy Nails were employees subject to these provisions.  After an administrative trial an administrative law judge decided that they were properly classified as contractors.

In 2008, however, the Division of Labor Standards Enforcement ("DLSE"), which is charged with enforcing the California Labor Code and Wage Orders, brought its own action claiming the manicurists were  employees for purposes of the Labor Code. Despite the company's objection that the issue had already been decided the Labor Commissioner decided that Happy Nails was properly "subject to the civil penalties because the cosmetologists are employees, not independent contractors."    

The Appellate Court overturned this second decision however on the ground that it was barred by the result of the 2004 EDD determination.  In particular, the Court explained that different enforcement divisions of the same government are should be deemed to be in "privity" with one another.  Moreover, the independent contractor test used both agencies was essentially the same and, despite the passage of time, there had been no "material" changes in the facts.  Thus,

Giving preclusive effect to the Board's decisions [that the workers were independent contractors] fosters the integrity of both administrative and judicial proceedings. The California Supreme Court has held that “the possibility of inconsistent judgments which may undermine the integrity of the judicial system would be prevented by applying collateral estoppel to the [administrative] decision.”

The rule in Happy Nails will help employers avoid multiple challenges to the classification of their independent contractors.  But it is just as clearly a double-edged sword because an administrative determination that a contractor is misclassified will be equally binding in future actions for unpaid taxes or wages.  

In short, Happy Nails raises the stakes in administrative proceedings involving independent contractor status.           

Finding of Independent Contractor Status for Tax Purposes is Binding for Wage and Hour Purposes -- Happy Nails & Spa v. Su

The legal determination of whether a worker is properly classified as an employee or an independent contractor triggers a variety of legal consequences under various statutes.  These include whether the employer is required to: (a) withhold and pay various federal and state payroll taxes;  and (b) whether the employer must comply with minimum wage, overtime and expense reimbursement under the California Labor Code or federal FLSA.  

These separate legal obligations are enforced by different governmental agencies which may each use slightly different tests for distinguishing between employees and independent contractors.  This could result in multiple prosecutions with different results -- e.g., that the same workers may be contractors for tax purposes but employees for wage payment purposes.  The Fourth District Court of Appeal opinion in Happy Nails & Spa of Fashion Valley L.P. v. Su, addressed this precise scenario. 

In 2004 the California Employment Development Department (the "EDD"), which is charged with collecting unemployment insurance taxes and paying benefits to employees, brought an action claiming that the manicurists at Happy Nails were employees subject to these provisions.  After an administrative trial an administrative law judge decided that they were properly classified as contractors.

In 2008, however, the Division of Labor Standards Enforcement ("DLSE"), which is charged with enforcing the California Labor Code and Wage Orders, brought its own action claiming the manicurists were  employees for purposes of the Labor Code. Despite the company's objection that the issue had already been decided the Labor Commissioner decided that Happy Nails was properly "subject to the civil penalties because the cosmetologists are employees, not independent contractors."    

The Appellate Court overturned this second decision however on the ground that it was barred by the result of the 2004 EDD determination.  In particular, the Court explained that different enforcement divisions of the same government are should be deemed to be in "privity" with one another.  Moreover, the independent contractor test used both agencies was essentially the same and, despite the passage of time, there had been no "material" changes in the facts.  Thus,

Giving preclusive effect to the Board's decisions [that the workers were independent contractors] fosters the integrity of both administrative and judicial proceedings. The California Supreme Court has held that “the possibility of inconsistent judgments which may undermine the integrity of the judicial system would be prevented by applying collateral estoppel to the [administrative] decision.”

The rule in Happy Nails will help employers avoid multiple challenges to the classification of their independent contractors.  But it is just as clearly a double-edged sword because an administrative determination that a contractor is misclassified will be equally binding in future actions for unpaid taxes or wages.  

In short, Happy Nails raises the stakes in administrative proceedings involving independent contractor status.