HARRIS v. VECTOR MARKETING CORPORATION

2, 2008, is the proper beginning date for the class period because, in a FLSA collective action, there is a two-year statute of limitations, and while the statute of limitations for a named plaintiff runs from the date that the plaintiff files the complaint, the limitations period for an opt-in plaintiff runs from the opt-in date, which here was August 2, 2010. See 29 U.S.C. §§ 255(a), 256(b). Vector concedes that a longer statute of limitations — three years — is available where there is a willful violation, see id. § 255(a), but here, Vector asserts, there is no evidence of a willful violation.

The Court rejects Vector's position. As Vector admits in a footnote in its opposition brief, see Def.'s Opp'n at 20 n. 10, it entered into a stipulation (in April 2009), which was later formalized as an order, providing that,

[f]or purposes of the statute of limitation, to the extent that Plaintiff moves for conditional class certification under the Federal Fair Labor Standards Act on behalf of the FLSA Class, any class conditionally certified as a result of said motion shall be certified with a class period start date of April 15, 2006.

Docket No. 32 (stipulation and order). Given the strict language of the stipulation, the Court holds Vector to the April 15, 2006, start date.

Vector argues still that the stipulation should not be given any effect given the particular circumstances — i.e., the stipulation was entered into only so that Ms. Harris and the potential collective action members would not be prejudiced as a result of any delay associated with Vector's filing of an early summary judgment motion. Vector notes that the stipulation states that "Plaintiff desires to timely seek conditional certification under the Federal Fair Labor Standards Act on behalf of the FLSA Class," id. (emphasis added), and here Ms. Harris did not timely move for conditional certification after the resolution of the summary judgment motion. Therefore, according to Vector, the stipulation should have no force. While Vector's position is not without some merit, Vector could have asked for relief from the stipulation based on Ms. Harris's delay but it never did so. Furthermore, Vector has not shown sufficient cause to be relieved of its stipulation with Ms. Harris.

F. Final Certification

Accordingly, the Court grants Ms. Harris's motion for final certification and denies Vector's cross-motion to certify. The Court certifies as a collective action Ms. Harris's FLSA claim. The FLSA class is defined as all individuals who worked for Vector in the state of California as Sales Representatives from April 15, 2006, through May 12, 2010.

IV. RULE 23 MOTIONS

In her Rule 23 motion, Ms. Harris seeks class certification for the following state claims only: (1) failure to pay for initial training (California Labor Code § 1197); (2) failure to reimburse expenses (California Labor Code § 2802); (3) violation of PAGA, based on the failure to reimburse and the coerced purchase of the sample knife set; and (4) unfair competition based on the coerced purchase of the sample knife set (California Business Professions Code § 17200). Vector, in its own Rule 23 motion, asks the Court to deny class certification.

Ms. Harris is not moving for class certification with respect to the California Labor Code §§ 226 and 201/203 claims, see Pl.'s Mot. at 1 n. 2 — apparently, not even to the extent she may have a claim for injunctive relief (as opposed to damages which the Court dismissed at the summary judgment phase).

A. Legal Standard

Rule 23 governs class actions. Under this rule, a class action may be maintained only if: (1) each of the requirements of Rule 23(a) is satisfied, and (2) one of the requirements of Rule 23(b) is satisfied. Under Rule 23(a),

[o]ne or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Fed.R.Civ.P. 23(a) (emphasis added).

As for Rule 23(b), Ms. Harris is asking for certification pursuant to subdivision (3), presumably because the primary relief being sought on behalf of the class is damages. Under Rule 23(b)(3), a class action may be maintained if

the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

Fed.R.Civ.P. 23(b)(3) (emphasis added).

B. Claims Related to Training v. Post-Training Claim

Before embarking on a Rule 23(a) and (b) analysis, the Court notes, as a preliminary matter, that a distinction should be made between (1) claims related to the initial training and (2) the post-training claim.

The claims related to the initial training are as follows: the claim for failure to pay minimum wages for the initial training, see Cal. Lab. Code § 1197; the claim for unfair competition based on the failure to pay minimum wages for the initial training and for the coerced purchase of the sample knife set, see id.; the claim for violation of PAGA based on the coerced purchase of the sample knife set, see Cal. Lab. Code § 2698 et seq.; and the claim for failure to reimburse to the extent based on the coerced purchase of the sample knife set. See Cal. Lab. Code § 2802. There is only one post-training claim remaining in this action — the claim for failure to reimburse expenses incurred once Sales Representatives actually started selling knives. See id.

According to Ms. Harris, the coerced purchase of the sample knife set took place during training. Therefore, claims based on the coerced purchase relate to the initial training.

The Court draws a distinction between the above claims because, even though certification generally should be approached on a claim-by-claim basis, see Bertulli v. Independent Ass'n of Cont'l Pilots, 242 F.3d 290, 296 (5th Cir. 2001) (stating that "[a] class should be certified on a claim-by-claim basis"), as a practical matter, the claims related to the training may be evaluated together as each involves the predicate question of whether trainees should be deemed employees for purposes of California law. The post-training claim is different because, there, the issue is not whether trainees should be deemed employees but rather whether Sales Representatives should be deemed employees — a predicate to its substantive claim for reimbursement for expenses incurred under California Labor Code § 2802.

With respect to the issue of whether Sales Representatives (as opposed to trainees) should be deemed employees, the parties agree that the appropriate test to use under California law is the Borello test, where the principal question is "`whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.'" S.G. Borello Sons, Inc. v. Department of Indus. Relations, 48 Cal. 3d 341, 350 (1989). In addition to the factor of the right to control, other factors that are considered include

(1) whether the worker is engaged in a distinct occupation or business, (2) whether, considering the kind of occupation and locality, the work is usually done under the principal's direction or by a specialist without supervision, (3) the skill required, (4) whether the principal or worker supplies the instrumentalities, tools, and place of work, (5) the length of time for which the services are to be performed, (6) the method of payment, whether by time or by job, (7) whether the work is part of the principal's regular business, and (8) whether the parties believe they are creating an employer-employee relationship.

Estrada v. FedEx Ground Package System, Inc., 154 Cal. App. 4th 1, 10 (2007) (noting that "there are a number of additional factors in the modern equation").

The parties dispute, however, what the appropriate test is for the issue of whether trainees should be deemed employees. According to Vector, the Borello test is still applicable. According to Ms. Harris, an eleven-factor test adopted by the California Division of Labor Standards Enforcement ("DLSE") — six of which are the same as the factors used in the DOL/ Portland Terminal test — is the proper test. See DLSE Op. 1998.11.12, at 1-2.

The five additional factors are as follow.

(6) The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

(7) Any clinical training is part of an educational curriculum.

(8) The trainees or students do not receive employee benefits.

(9) The training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program. In other words, on completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program.

(10) The screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program.

(11) Advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

DLSE Op. 1998.11.12, at 2.

The Court does not agree with either Vector or Ms. Harris. Vector's position is problematic because many of the factors in the Borello test are largely inapplicable in a training situation. Cf. Docket No. 176 (Order at 5) (rejecting application of Donovan test for FLSA claim because "some of the factors make little sense in a training situation — e.g., the worker's opportunity for profit or loss"). Moreover, at least one state court has characterized Borello as an economic realities test. See JKH Enters., Inc. v. Department of Industrial Relations, 142 Cal. App. 4th 1046, 1054 (2006). Under an economic realities approach as applied to trainees, the issue is not what are the economic realities of the relationship between Vector and its Sales Representatives, but rather what are the economic realities of the relationship between Vector and its trainees. As previously noted, the DOL/Portland Terminal test uses factors geared toward the latter. For reasons similar to why the Court applies the DOL/Portland Terminal test rather than the Donovan test to trainees, it refuses to apply the Borello test to this context.

On the other hand, Ms. Harris's position is not entirely correct either. Notably, in a DLSE opinion letter issued approximately six months ago, the DLSE rejected the previously used eleven-factor test and concluded that the DOL/Portland Terminal six-factor test should be used. See DLSE Op. 2010.04.07, at 4. This Court adopts the approach of the DLSE in that recent opinion letter — i.e., it shall apply the DOL/Portland Terminal test in determining whether Vector's trainees should be deemed employees.

To the extent Vector argues that the DLSE's opinion should not be given any deference, the Court agrees that the opinion is not controlling. However, DLSE opinions "do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance." Bell v. Farmers Ins. Exchange, 87 Cal. App. 4th 805, 815 (2001) (internal quotation marks omitted); see also Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554, 563 (2007) (noting that DLSE advice and opinion letters are "entitled to no deference" but adding that "this court may adopt the DLSE's interpretation if we independently determine that it is correct"). Here, the DLSE reasonably adopted the DOL/ Portland Terminal test because "the similar definitions for `employee' and `employ' under the FLSA and State law manifest a consistency which warrants similar interpretation." DLSE Op. 2010.04.07, at 4.

C. Certification for Claims Related to Training

For the claims related to the initial training, the Court concludes that certification is appropriate. Both the Rule 23(a) and 23(b) requirements have been met.

1. Rule 23(a)

As noted above, the Rule 23(a) requirements are (1) numerosity, (2) adequacy, (3) typicality, and (4) commonality.

a. Numerosity

In the instant case, Vector has not contested numerosity. See Def.'s Mot. at 2 (stating that "[t]he only [Rule 23(a) requirement Ms. Harris] can meet is numerosity"). Moreover, there is sufficient evidence supporting numerosity — i.e., the number of FLSA class notices that were issued, not to mention the number of FLSA opt-ins. See James v. City of Dallas, 254 F.3d 551, 570 (5th Cir. 2001) (stating that, "[t]o satisfy the numerosity prong, a plaintiff must ordinarily demonstrate some evidence or reasonable estimate of the number of purported class members") (internal quotation marks omitted). Although the Rule 23 motion is for the state claims only, and not the FLSA claim, the FLSA claim provides a good benchmark for numerosity, particularly because the state claim for unpaid training time is based on the same set of facts as the FLSA claim for unpaid training time.

b. Adequacy

Here, Vector contests both the adequacy of Ms. Harris and her counsel. Vector's challenge to Ms. Harris is based on her alleged lack of credibility. Vector's challenge to Ms. Harris's counsel is based on "their blatant failure to verify the veracity of [Ms.] Harris'[s] statements and/or their implicit condoning of her false statements." Def.'s Mot. at 11. Vector also makes an argument that, even if Ms. Harris's credibility is not a problem, she is still an inadequate representative with respect to Sales Representatives who were younger than eighteen years old during the relevant period.

i. Credibility of Ms. Harris

The Court agrees with Vector that Ms. Harris's credibility may be a relevant consideration with respect to the adequacy analysis. As noted by one court, "[t]he honesty and credibility of a class representative is a relevant consideration when performing the adequacy inquiry `because an untrustworthy plaintiff could reduce the likelihood of prevailing on the class claims.'" Searcy v. eFunds Corp., No. 08 C 985, 2010 U.S. Dist. LEXIS 31627, at *15 (N.D. Ill. Mar. 31, 2010); see also In re Computer Memories Secs. Litig., 111 F.R.D. 675, 682 (N.D. Cal. 1986) (Lynch, J.) (stating that "it is self-evident that a Court must be concerned with the integrity of individuals it designates as representatives for a large class of plaintiffs"). Furthermore, "`[a] class is not fairly and adequately represented if class members have antagonistic or conflicting claims,' and a plaintiff with credibility problems may be considered to have interests antagonistic to the class." Ross v. RBS Citizens, N.A., No. 09 CV 5695, 2010 U.S. Dist. LEXIS 107779, at *13 (N.D. Ill. Oct. 8, 2010).

That being said, "[c]redibility problems do not automatically render a proposed class representative inadequate." Ross, 2010 U.S. Dist. LEXIS 107779, at *14; see also In re Computer Memories, 111 F.R.D. at 682 (stating that "questions of personal integrity are but one factor the Court must consider in making the adequacy determination."). "Only when attacks on the credibility of the representative party are so sharp as to jeopardize the interests of absent class members should such attacks render a putative class representative inadequate." Lapin v. Goldman Sachs Co., 254 F.R.D. 168, 177 (S.D.N.Y. 2008) (internal quotation marks omitted). There is "inadequacy only where the representative's credibility is questioned on issues directly relevant to the litigation or there are confirmed examples of dishonesty, such as a criminal conviction for fraud." Ross, 2010 U.S. Dist. LEXIS 107779, at *14; see also Gooch v. Life Investors Ins. Co. of Am., 264 F.R.D. 340, 349 (M.D. Tenn. 2009) (stating that "[a]ny issues of the Plaintiff's credibility should be tied to his claims in this action"; adding that the inquiry "`into the representatives' personal qualities is not an examination into their moral righteousness, but rather an inquiry directed at improper or questionable conduct arising out of or touching upon the very prosecution of the lawsuit'"); Del Campo v. American Corrective Counseling Servs., Inc., No.: C 01-21151 JW (PVT), 2008 U.S. Dist. LEXIS 106837 (N.D. Cal. May 12, 2008) (stating that, "`[g]enerally, unsavory character or credibility problems will not justify a finding of inadequacy unless related to the issues in the litigation'").

In the instant case, Vector argues that there are credibility issues with Ms. Harris that are directly relevant to the litigation. According to Vector, Ms. Harris has lied about, in particular, (1) Vector's level of control over her (no telephone calls with her managers, no reading from the manual, and not calling her managers during the presentations) and (2) the people to whom she made presentations (never made several presentations). Notwithstanding Ms. Harris's arguments to the contrary, there are credibility problems here, as discussed below. But these credibility problems are not directly relevant to the claims related to the training. As discussed above, the Court is not applying the Borello test — where the right to control is a key factor — to the claims related to the training. Both (1) and (2) above are not directly relevant to the claims related to the training because they concern Ms. Harris's conduct post-training. Therefore, credibility problems regarding Vector's level of control does not render Ms. Harris an inadequate representative.

For the claims related to training, therefore, the Court does not find there to be a credibility problem that should bar Ms. Harris from being a fair and adequate representative. Moreover, the Court concludes that Ms. Harris has made an adequate showing that she will be a fair and adequate representative as to these claims. She has participated in this litigation, and there do not appear to be any conflicts between Ms. Harris and the putative class.

To the extent Vector argues that Ms. Harris cannot be a fair and adequate representative for Sales Representatives who were younger than eighteen during the relevant period, the Court disagrees. Ms. Harris would be an inadequate representative only if there were a conflict between her interests and those of Sales Representatives younger than eighteen. See Corley v. Entergy Corp., 220 F.R.D. 478, 483 (E.D. Tex. 2004) (noting that "`[d]ifferences between named plaintiffs and class members render the named plaintiffs inadequate representatives only if those differences create conflicts of interest between the named plaintiffs' interests and the class members' interests'"); Cobell v. Norton, 213 F.R.D. 43, 45 (D.D.C. 2003) (indicating that inadequate representation issues arise where there is a potential or actual conflict between the representative and the class members).

Here, there is no evidence that there would be any conflict. For example, for the claims for failure to reimburse, violation of PAGA, and unfair competition (all based on the coerced purchase of the sample knife set), there is absolutely no difference between Ms. Harris's interests and the interests of Sales Representatives younger than eighteen.

As for the claim for failure to pay for initial training, there is no conflict either. It is true that California "state minimum wage laws specifically exclude outside salesmen from coverage," Grubb Ellis Co. v. Spengler, 143 Cal. App. 3d 890, 897 (1983), and outside salesperson has been defined as "`any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer's place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.'" Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 795 (1999) (quoting Wage Order No. 7-80, 2(I)). But as Ms. Harris points out, she is not asking for compensation for time spent working as a Sales Representative; rather, she is seeking only compensation for time spent in training and therefore the outside salesperson exemption is irrelevant.

ii. Competence of Ms. Harris's Counsel

Because Ms. Harris's credibility problems do not render her inadequate for the claims related to the training, the Court reject Vector's argument that her counsel is also inadequate. The Court also deems counsel adequate based on the information provided by Ms. Harris regarding counsel's experience. For example, the Marlin Saltzman law firm has represented plaintiffs in class actions and complex litigation for some fifteen years. Many of these cases were employment-related actions and involved a significant settlement in favor of the class. See Docket No. 329 (Saltzman Decl. ¶¶ 3-4, 7).

c. Commonality/Typicality

The commonality and typicality requirements of Rule 23(a) tend to merge. Both serve as guideposts for determining whether under the particular circumstances maintenance of a class action is economical and whether the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.

General Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 158 n. 13 (1982).

For the claims related to the initial training, the commonality/typicality requirements are easily met. These claims all share a common question of law — i.e., whether the trainees should be deemed employees under California law. Moreover, the facts to be analyzed with respect to this legal question are largely the same, as discussed above with respect to the FLSA motions.

2. Rule 23(b)(3)

For Rule 23(b)(3), Ms. Harris must make a sufficient showing of (1) predominance and (2) superiority.

a. Predominance

"`The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.'" Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998). "Implicit in the satisfaction of the predominance test is the notion that the adjudication of common issues will help achieve judicial economy." Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996). "When common questions present a significant aspect of the case and they can be resolved for all members of the class in a single adjudication, there is clear justification for handling the dispute on a representative rather than on an individual basis." Hanlon, 150 F.3d at 1022.

In the instant case, common questions predominate for the claims related to the initial training. As noted above, for all of these claims there is a common question of law — i.e., whether the trainees should be deemed employees under California law — and the facts to be analyzed with respect to this legal question are largely the same. As to nearly all the six DOL/Portland Terminal factors, common questions predominate. Even though the predominance requirement of Rule 23(b)(3) is more rigorous than the "similarly situated" test of the FLSA, based on the above analysis of the DOL/Portland Terminal factors, the Court concludes the Rule 23(b)(3) requirement is met.

b. Superiority

Finally, given the predominance of a common question of law and facts, the Court concludes that a class action is superior to other available methods for fairly and efficiently adjudicating the claims related to the initial training.

In its papers, Vector argues that a superior way of proceeding would be to deny Rule 23 certification and to have the state law claims (including the claims related to the initial training) prosecuted as part of the FLSA collective action — in effect, there would be no Rule 23 certification with its opt-out procedure under Rule 23(b)(3). The main opinion relied upon by Vector is Judge Walker's opinion in Leuthold v. Destination Am., 224 F.R.D. 462 (N.D. Cal. 2004).

While some courts have followed Judge Walker's approach in Leuthold, see, e.g., Campanelli v. Hershey Co., No. C 08-1862 BZ, 2010 U.S. Dist. LEXIS 92364, at *15 (N.D. Cal. Aug. 13, 2010), a number of courts have allowed both a FLSA collective action and a Rule 23 class action for any state law claims. See Lindsay v. Government Emples. Ins. Co., 251 F.R.D. 51, 57 (D.D.C. 2008) (citing cases).

Having considered the various decisions, this Court declines to follow Leuthold in this case. First, the parties do not dispute that the FLSA claim here does not preempt the state law claims. Yet if the Court were to require this case to be prosecuted solely under the FLSA, it would in practical terms have a preemptive effect on the state law claims. See Cortez v. Nebraska Beef, Ltd., 266 F.R.D. 275, 294 (D. Neb. 2010). To the extent Vector disputes this effect on the ground that the state law claims are still substantively preserved, only procedurally altered, it ignores the fact that the procedural difference between the FLSA and Rule 23 is significant. Given the likely difference in class sizes between an opt-in FLSA class and an opt-out Rule 23 class, the rights of the class as a whole to prosecute the state claims would be substantially diminished were Rule 23 class certification denied as a result of FLSA certification. The likely practical effect of denial of Rule 23 certification is that the state wage claims, which are substantively different and broader than the FLSA claim, will be dropped.

Second, were FLSA certification to bar Rule 23 certification of state claims, claimants with rights under both the FLSA and state law would be faced with a trilemma. They must either: (1) forego their FLSA claims altogether in contravention of the remedial purposes of the FLSA; (2) forego their state wage claims in violation of the spirit of the savings claims of the FLSA, see 29 U.S.C. § 218(a) (permitting states and municipalities to enact stricter wage and hour laws); or (3) split their claims and prosecute their state claims via class action in state courts while maintaining their FLSA claims in federal court, resulting in a multiplicity of actions. It is highly doubtful that Congress in establishing the FLSA certification procedure would have intended such perverse consequences.

Third, a paradoxical result would obtain if the Court were to deny Rule 23 certification simply because of the existing FLSA claim. Plaintiffs bringing only state claims under Rule 23 would be afforded greater rights than those who bring both state claims and FLSA claims. That paradox cannot be fully rationalized by the contention that those employees who fail to opt-in under FLSA have indicated their conscious refusal to participate in a Rule 23 class action. As the court in Cortez noted, "there may be a number of reasons the employees failed to opt-in to the action that had nothing to do with a belief they were not actually aggrieved." Id. Here, the state law claims are substantively more expansive than the FLSA claim — i.e., they go beyond the failure to pay wages for the initial training. Therefore, a Sales Representative's decision not to opt-in to the FLSA claim is not necessarily an indication that he or she does not want to participate in a lawsuit involving different substantive claims. Furthermore, inadvertence, as opposed to a conscious decision not to participate, is a likely factor in opt-in situations. Fear of retaliation is another possibility.

Fourth, Leuthold notably rests in part on Judge Walker's determination that there was significant hostility to the lawsuit amongst the potential class members. But, in the instant case, there is at most hostility exhibited by the Sales Representatives whose declarations Vector submitted. It is hard to say that, based on these fifty plus declarations, there is significant hostility with respect to the class as a whole, which numbers over 40,000 people.

Fifth, with more than 5,000 opt-ins to the FLSA class, it is hard to argue that the state law claims so predominate that supplemental jurisdiction should be rejected — another part of the reasoning underpinning Judge Walker's decision in Leuthold. The number of opt-ins here is substantial. Moreover, the question of whether state law claims predominate for purposes of

supplemental jurisdiction ultimately turns on "the type of claim, not the number of claimants." Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 162 (S.D.N.Y. 2008); see also Lindsay, 448 F.3d at 425 n. 12 (stating that, "[i]f `state issues substantially predominate, whether in terms of proof, of the scope of the issues raised, or of the comprehensiveness of the remedy sought, the state claims may be dismissed without prejudice and left for resolution to state tribunals'").

Finally, the Court notes that at least some courts have rested their decisions on whether to certify on whether the state law claims were originally brought in state court. If the state law claims were originally brought in state court, then that would favor certification of a Rule 23 class. As explained by one court:

Origination of the suit is an important factor because of the difference between Rule 23's "opt-out" requirement and Section 216(b)'s "opt-in" requirement. In Riddle, the Court was concerned that such a difference would create a scenario in which "the Rule 23 class would likely dwarf the FLSA class, making the state law claims dominate the federal suit." This result would undermine Congress' intent in enacting the FLSA's opt-in requirement by letting plaintiffs into federal court through the state law wage claims, even when plaintiffs did not take action to get there. Here, the plaintiffs brought their IMWL and IWPCA claims in federal court rather than state court, thereby creating the potential for the scenario we were concerned about in Riddle.

Ervin v. OS Rest. Servs., No. 08 C 1091, 2009 U.S. Dist. LEXIS 56062, at *5-6 (N.D. Ill. Mar. 2, 2009). In the instant case, Ms. Harris initially filed in state court. In view of this fact and the number and breadth of the state claims asserted herein, to deny Rule 23 certification because of FLSA certification would allow the FLSA tail to wag the state claim dog.

Vector has raised an objection based on manageability. While manageability is a concern where there is both an opt-in and an opt-out procedure and an attendant risk that class notices might be perceived as contradictory, the confusion can be dealt with by a carefully worded Rule 23 class notice. The fact that the FLSA class notice has already issued in the instant case will substantially lessen the confusion.

3. Certification

For the foregoing reasons, the Court concludes that, for all claims related to the initial training, Ms. Harris has made an adequate showing that the requirements of Rule 23(a) and 23(b)(3) have been satisfied. Accordingly, the Court grants the request for certification of a Rule 23(b)(3) class with respect to the claims related to the training period. The class is defined as all individuals who worked for Vector in the state of California as "Sales Representatives" from October 15, 2004 through the date of the class notice. Cf. Docket No. 304 (Order at 5-6) (agreeing with approach of Judge Armstrong to end the class period on the date of the class notice).

D. Certification for Post-Training Claim

While, for the reasons stated above, the Court certifies for class action treatment the claims related to the initial training, the Court denies certification with respect to the post-training claim, i.e., that part of the § 2802 claim based on expenses incurred as a Sales Representative. For the post-training claim, the Court concludes that there are problems with adequacy, commonality, predominance, and superiority.

1. Adequacy

With respect to the post-training claim, there are significant credibility problems with Ms. Harris. As noted above, for the post-training claim, the Borello test is applicable, and, under the Borello test, the principal question is "`whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.'" Borello, 48 Cal. 3d at 350. During her deposition, Ms. Harris testified about Vector's level of control over her, stating, e.g., that every day either she would call her manager or her manager would call her, with each conversation lasting five to ten minutes. See Docket No. 339 (Wilson Decl., Ex. M-2) (Harris Depo. at 87). But Ms. Harris was never able to provide any telephone records supporting this testimony. As Vector points out, her T-Mobile phone records show no calls being made to or received from her managers. See id. (Wilson Decl. ¶ 3). Ms. Harris's suggestion that she could have used a Boost Mobile phone to communicate with her managers is not substantiated. See id. (Sprint Custodian of Records Decl. ¶¶ 5-6) (stating that no account existed for Ms. Harris). While there is evidence that Ms. Harris exchanged text messages with her managers via her T-Mobile phone, she did not testify about the text messages, which are a far different matter from a five-to ten-minute phone calls. Moreover, there was no text messaging on a daily basis. See Docket No. 343 (Humphrey Decl., Ex. 34) (text messaging records). Furthermore, there were credibility issues raised about her testimony regarding her sales presentations. For example, Vector obtained testimony from persons to whom Ms. Harris allegedly made presentations. Several of these persons testified that Ms. Harris never made presentations to them; others testified that she never, during the presentations, read word-for-word from the training manual or called her managers, as she claimed during her deposition.

2. Commonality

Another issue is whether there is sufficient commonality with respect to the Borello test, in particular, the right-to-control factor. The Court agrees with Ms. Harris that "it is the right to control, not the exercise of the right, which bears on the status of the work arrangement." Borello, 48 Cal. 3d at 357 n. 9. However, the Court does not agree with Ms. Harris that there is sufficient commonality simply because the Sales Representative Agreement gives Vector the authority to terminate the Agreement for good cause. See Docket No. 37 (Arlie Decl., Ex. D) (Sales Representative Agreement ¶ 8). The analysis is more complex.

First, in Borello, the California Supreme Court looked at an employer's right to discharge as one indicia of whether or not there was an employment relationship — i.e., criteria separate and apart from the right to control. See Borello, 48 Cal. 3d at 350 (stating that "the right to control work details is the `most important' or `most significant' consideration" but that there are "`secondary' indicia of the nature of a service relationship," such as the right to discharge at will). But see Isenberg v. California Employment Stabilization Comm'n, 30 Cal. 2d 34, 39 (1947) (in case predating Borello by several decades, stating that "[s]trong evidence of this right [to control] is shown by the right of the principal to discharge the worker").

Second, Vector's theoretical right to terminate, as part of its right to control, it is not necessarily dispositive. Under California law, "[o]ne of the means of ascertaining whether or not this right to control exists is the determination of whether or not, if instructions were given, they would have to be obeyed." Toyota Motor Sales U.S.A. v. Superior Court, 220 Cal. App. 3d 864, 875 (1990) (internal quotation marks omitted). Thus, even if "it is not the control actually exercised, but that which may be exercised which is determinative," id., the control that is actually exercised may be informative of the control that may be exercised. The right to terminate alone does not establish control over the details of the mode and manner of work where the documentation is ambiguous as to the mandatory nature of the employer's directives and whether and how they would be enforced. See Dahl-Beck Elec. Co. v. Rogge, 275 Cal. App. 2d 893, 900-01 (1969) (stating that, "where no express agreement is shown as to the right of the claimed employer to control the mode and manner of doing the work, the existence or nonexistence of the right must be determined by reasonable inferences drawn from the circumstances shown") (internal quotation marks omitted). In this respect, the Court notes that there is evidence of significant variation regarding the actual level of control exercised over Sales Representatives. The evidence presented by the parties indicates that, at the outset, Sales Representatives were more likely to communicate with their managers on a frequent basis but that, over time, as the Sales Representatives became more experienced, that communication — and therefore control — decreased. Thus, while the law appears somewhat nebulous, the actual exercise of control may have some bearing in the analysis here.

For example, the opt-ins generally testified about frequent communication with the managers but the survey respondents and the Sales Representatives who submitted declarations in support of Vector indicated that communications with their managers was much more variable. See, e.g., Docket No. 339 (Saad Decl., Ex. A14).

While the court in Toyota Motor noted that "[p]erhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so," Toyota Motor, 220 Cal. App. 3d at 875 (internal quotation marks omitted), the Sales Representative Agreement allowed Vector to terminate for good cause only, not at will.

Ms. Harris points out that most Sales Representatives worked for Vector for only short periods of time and thus argues that there is sufficient commonality of experience. But even if most Sales Representatives worked for Vector for limited periods of time, the fact remains that the class that Ms. Harris seeks to have certified extends to all Sales Representatives working for Vector and the longer-working Sales Representatives do not appear to be an insignificant number. At the hearing, Ms. Harris suggested that there could be subclasses depending on how long a Sales Representative worked for Vector, but this poses substantial manageability problems. Ms. Harris has not suggested a clear, administrable, and principled way to divide the Sales Representatives into subclasses, particularly in a way that would align with a variety of control levels.

3. Predominance and Superiority

Even assuming commonality were not a problem because the right to control is a dominant factor in the Borello analysis, Rule 23(b)(3) requires that common questions predominate. Regarding predominance, Vector correctly points out that, for the post-training claim, there may be substantial variance as to what kind of expenses were even incurred by Sales Representatives in the first place. Some Sales Representatives may have used a personal car; others may not have ( e.g., they may have taken a bus or walked). Some Sales Representatives may have used a cell phone; others may not have ( e.g., used a phone at the Vector local office). And even if all Sales Representatives used cell phones, the plans likely differed ( e.g., some may have had a flat rate, while others may have incurred extra charges). Furthermore, some Sales Representatives may have incurred expenses the necessity of which is likely to be challenged ( e.g., purchasing clothing). California Labor Code § 2802 provides that "[a]n employer shall indemnify his or her employee for all necessary expenditures or losses incurred." Cal. Lab. Code § 2802 (emphasis added). Ms. Harris has not demonstrated that there were common types of expenses incurred by Sales Representatives, see generally Docket No. 333 et seq. (Humphrey Decl.) (not including deposition testimony about common expenses). More important, she has not demonstrated that evaluation under § 2802 of the "necessity" of various expenses incurred in a variety of contexts may be done on a relatively uniform basis.

The Court acknowledges that, arguably, Vector had a uniform policy or practice of not reimbursing for any expenses and that the different expenses incurred would simply be an issue of individualized damages, which, under Ninth Circuit law, should not alone defeat certification. See Yokoyama v. Midland Nat'l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir. 2010) (stating that "damage calculations alone cannot defeat certification"; "`[t]he amount of damages is invariably an individual question and does not defeat class action treatment'"). But the Ninth Circuit has suggested that a relevant factor in the predominance analysis is whether damages calculations would be straightforward. For example, in Local Joint Executive Board of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152 (9th Cir. 2001), the Ninth Circuit commented:

Individualized issues are few, and most of them are likely to be relatively easy. For example, the damages for individual class members will entail a straightforward calculation of which days and how many hours they would have worked, and how much they would have earned in tips. Because dealers' tips were counted and divided in the casino cashier's cage, Sands has detailed written records of the tips employees earned in the past. Because Sands required its dealers to pool tips, there is no variation in tip earnings based on individual performance. We recognize that there may be some variation among the individual employees, as well as some potential difficulty in proof, in demonstrating that they would have worked on July 4th. But given the number and importance of the common issues, we do not believe that this variation is enough to defeat predominance under Rule 23(b)(3).

Id. at 1163. See also Kamar v. Radio Shack Corp., 254 F.R.D. 387, 402 (C.D. Cal. 2008) (noting that "[d]ifferences in wages and hours often do not prevent class certification, if there are ways to avoid testimony by every class member"; adding that "the Ninth Circuit has suggested that variation in actual wages is a relatively easy issue, where the employer has payroll records that would indicate the actual compensation that each employee received"). Determining the necessity of the variety of expenses incurred by Vector Sales Representatives appears to involve qualitative as well as quantitative analysis, not a "straightforward calculation."

Even if the individualized damages would not defeat the predominance requirement, at the very least, they should be considered on the issue of superiority — more specifically, manageability. As the court in Ortega v. J.B. Hunt Transp., Inc., 258 F.R.D. 361 (C.D. Cal. 2009) acknowledged, "`[t]he amount of damages is invariably an individual question and does not defeat class action treatment'" but "the Court should consider whether and how such individual determinations would need to be made in evaluating `the difficulties likely to be encountered in the management of a class action.'" Id. at 370-71. See also Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1304 (9th Cir. 1990) (stating that the "`manageability' requirement includes consideration of the potential difficulties in notifying class members of the suit, calculation of individual damages, and distribution of damages"). Based on the difficulty of calculating individual damages, the Court has serious concerns about the manageability of the post-training claim under § 2802 under the facts of this case.

4. Certification

For the foregoing reasons, the Court denies class certification for the post-training claim, i.e., that part of the § 2802 claim that seeks reimbursement of expenses incurred while Sales Representatives were actually selling knives.

V. CONCLUSION

For the reasons discussed above, the Court grants final certification for the FLSA collective action. The Court also grants class certification under Rule 23(a) and (b)(3) with respect to Ms. Harris's state law claims related to the initial training, but denies such certification for claims arising out of post-training activities.

In conclusion, the FLSA class certified is defined as all individuals who worked for Vector in the state of California as Sales Representatives from April 15, 2006, through May 12, 2010. The Rule 23 class (for claims related to the training period only) is defined as all individuals who worked for Vector in the state of California as "Sales Representatives" from October 15, 2004 through the date of the class notice.

The Rule 23 class notice shall be mailed no later than November 12, 2010. The deadline for the Rule 23 class members to opt out is December 27, 2010. These are the only modifications to the Court's case management scheduling order. All other deadlines remain the same.

The parties shall immediately meet and confer to reach agreement on the wording of the Rule 23 class notice. If there is any dispute about the wording, the parties must file a joint letter no later than November 10, 2010, stating what the dispute is and the parties' respective positions. The letter shall be no longer than three single-spaced pages. The parties should fax a courtesy copy of the letter to the Court at (415) 522-4200.

This order disposes of Docket Nos. 330, 332, 336, and 337.

IT IS SO ORDERED.