Judge Cogburn Certifies Class Alleging that Distributors Are “Employees”

We all know that an employer’s decision to label certain individuals as “independent contractors” is not dispositive of the legal issue whether they are, in actuality, “employees.” And that issue is complicated further because the definition of “employee” varies from statute to statute. But courts have struggled in deciding whether employment status in a misclassification case can be decided on a class-wide basis. On the one hand, the legal issue is the same: are these folks employees or aren’t they? But, as Justice Scalia cautioned in Wal-Mart, merely stating the “common question” is insufficient – the answer to the posed question must “resolve an issue that is central to the validity of each one of the claims in one stroke.”

Judge Cogburn wrestled with this issue in a putative class action brought on behalf of distributors for a baking company. Rehberg v. Flowers Baking Co of Jamestown, LLC, No. 3:12-cv-596 (W.D.N.C. March 23, 2015). The court first determined that the answer to the “status” question under the North Carolina Wage and Hour Act was governed by the FLSA’s “economic realities test,” not the “right to control” test. Applying the test, Judge Cogburn rejected defendants’ arguments that “although common policies may exist, they are enforced so differently that they cannot serve as the ‘common glue’ to establish commonality.” As the court viewed the forecast of evidence, each distributor “carried out the essential functions of the job” only “slightly differently.” This proved dispositive on the issues of commonality and predominance.

Of some interest is that the court certified a 23(b)(2) class as well as a 23(b)(3) class, citing a 2010 decision from Judge Mullen to the effect that “Rule 23(b)(2) can still be satisfied even where a declaratory judgment is ‘merely a prelude to a request for monetary relief.’” That decision, however, predated Dukes, which states that Rule 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.”

Notably, Judge Cogburn cautioned that – as the Fourth Circuit has emphasized – a class certification ruling is inherently tentative and must be modified if later proof indicates that certification was ill-advised. And the Court hints that “issue certification” – which remains a controversial topic might be something the Court considers down the road.

And in a final observation about the proverbial dog catching the car, Judge Cogburn sounds a cautionary note to the plaintiff class members, reminding them that being an employee may not be entirely rosy: “If the court determines that all distributors are indeed employees, distributors would essentially exchange their entrepreneurial opportunities and benefits associated with their ownerships rights in their distributors for the right to earn overtime pay and other employee benefits. Put another way, a decision unfavorable to Defendants in the context of this lawsuit may very well wind up to be unfavorable to distributors in the context of their business endeavors, ability to generate profits and any equity they may have in their distributorships.”

On April 7, Defendants filed a Rule 23(f) petition to the Fourth Circuit, arguing that the District Court’s order was “manifestly erroneous.”