Wage & Hour: New Jersey Supreme Court Authorizes Statewide Class Action Against Wal-Mart

June 4, 2007: The New Jersey Supreme Court May 31 authorized two former employees of Wal-Mart Stores Inc to proceed with a statewide class action on behalf of approximately 72,000 workers alleging that they were denied required rest and meal breaks and were forced to work "off the clock" (Iliadis v. Wal-Mart Stores Inc., N.J., No. A-69, 5/31/07).

Reversing the trial court's denial of the two plaintiffs' motion to certify a class action, the supreme court held 5-1 that "common questions of law and fact predominate over individualized questions and that the class-action device is superior to other available methods of adjudicating this dispute."

Wal-Mart did not dispute the trial court's findings that the workers met the four basic requirements--numerosity, commonality, typicality, and adequacy of representation--for bringing a class action.

"By allowing this manageable litigation to proceed, we permit a class of hourly, retail employees to unite and--on an equal footing with their adversary--to seek relief for their 'small claims' that arise from [Wal-Mart's] alleged violation of contractual promises, statutory enactments, and regulatory mandates," Chief Justice James R. Zazzali wrote for the supreme court.

Justices Jaynee LaVecchia, Barry T. Albin, John E. Wallace, and Helen E. Hoens joined in the opinion.

Dissenting, Justice Roberto A. Rivera-Soto asserted that his colleagues failed to identify any basis for finding that the trial court abused its discretion in denying class certification. "What the majority does do--and movingly so--is emote why, if it were a court of first instance, a case could be made for class action certification under the facts presented," Rivera-Soto said.

He also pointed out that at least seven courts have denied class certification in similar lawsuits against Wal-Mart based on findings of a lack of predominance of common questions over individual issues.

Wal-Mart Operates 54 Facilities in New Jersey

According to the opinion, the company operates 44 Wal-Mart stores, one Wal-Mart supercenter, and nine Sam's Clubs in New Jersey. There are 85 job classifications for hourly employees working in Wal-Mart facilities and 100 classifications for Sam's Club jobs.

A corporatewide policy states that employees who work a shift that lasts between three and six hours are entitled to one uninterrupted 15-minute paid rest break and that employees who work a shift exceeding six hours are entitled to two rest breaks. The immediate supervisor is responsible for scheduling the rest breaks. Employees who work at least six hours also are entitled to a 30-minute unpaid meal break. If a break is interrupted by work, the worker is entitled to a substitute break in addition to compensation for the time worked. The policy states that both supervisors and hourly employees are subject to discipline for failure to comply.

The associate handbook directs employees to always clock in before beginning work and states that working off the clock is against company policy and against the law. However, the company has a procedure for employees who worked off the clock to submit documentation to correct payroll records. The handbook includes a disclaimer stating that it "is not a contract."

The two plaintiffs allege that Wal-Mart, in order to reduce costs and increase profits, systematically violates and ignores the written policies as well as the New Jersey Wage and Hour Law. The complaint alleges that store managers have an incentive to violate the policies because they receive financial incentives for increasing store profits and that intentional understaffing creates pressure to work off the clock.

The complaint includes claims for breach of an implied-in-fact contract, breach of a unilateral contract, breach of the covenant of good faith and fair dealing, violation of the state wage-and-hour law and state regulations, restitution, and unjust enrichment. The plaintiffs proposed a class consisting of all current and former hourly workers who worked in the state during the period from May 30, 1996, to the date the complaint was filed.

The plaintiffs' expert witnesses found a statistically significant deficiency in the quantity and duration of earned breaks. One expert also found that when an employee failed to punch out at the end of a shift, the employee often was credited with working only a one-minute-long shift. Another expert found evidence that employees were clocked out but logged on to cash registers or training devices, indicating off-the-clock work. Wal-Mart's expert faulted the findings, assumptions, and methodologies used by the plaintiffs' experts and concluded that their findings are "vague and unsubstantiated."

A July 2000 internal, nationwide audit found more than 76,000 examples of noncompliance with company policy and state law regarding rest and meal breaks. Wal-Mart then changed its policy in February 2001 to no longer require workers to clock out for rest breaks.

The Superior Court denied the plaintiffs' motion for class certification, finding that common questions did not predominate over individual issues and that filing individual claims with the Wage Collection Division of the state Labor Department would be a superior method for resolving their claims. The Appellate Division affirmed (904 A.2d 736 (2006) ).

Class Action Rule Should Be Liberally Construed

New Jersey courts have held that their rule (Rule 4:32-1) governing class actions, which was modeled on the federal courts' rule, should be liberally construed, Zazzali said.

Wal-Mart did not challenge the trial court's finding that the two plaintiffs satisfied the requirements of Rule 4:32-1(a) by showing that the class is so numerous that joinder of all the members would be impracticable, that there are questions of law or fact that are common to the class, that the claims of the named plaintiffs are typical of those of the class members, and that the named plaintiffs can fairly and adequately protect the interests of the class members.

Class action applicants must also satisfy one of the three provisions of Rule 4:32-1(b), Zazzali said. The two former Wal-Mart employees argued that they met the requirements of subsection (b)(3), which requires that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Subsection (b)(3) directs courts to consider the interest of class members in individually controlling separate claims, the existence of any other litigation concerning the controversy brought by class members, and "the difficulties likely to be encountered in the management of a class action."

Zazzali found that there are a number of common questions, "most notably the meaning and significance of Wal-Mart's corporate policies concerning breaks and off-the-clock work," as well as "[t]he impact of the Associate Handbook's disclaimer and the uniformity of new employee orientation."

"A trier of fact may appropriately consider whether Wal-Mart promoted uncompensated work and created a work environment where uniformly applicable policies were ignored as part of a corporate-wide effort to reduce labor expenses," Zazzali said. He also found there are common evidentiary questions regarding both sides' expert reports and company documents.

Although resolution of all the common issues still would leave issues regarding individual class members, "the mere existence of remainder issues is insufficient to defeat class certification in New Jersey," Zazzali said. He found that Wal-Mart will still have the opportunity to pursue its individualized defenses in a class action. "We are confident that, on remand, the trial court and parties' counsel can resolve the practical challenges presented by this litigation's individualized questions of law or fact," Zazzali said.

State Agency Would Be an 'Inferior Forum.'

Turning to the question of the superiority of proceeding as a class action versus other available methods, Zazzali found that filing individual claims with the wage collection division would be "an inferior forum for the adjudication of this controversy."

"[T]he nominal value of each class members' claim counsels in favor of class litigation and against adjudication before the agency," Zazzali said.

"Independently, they lack the financial resources of their corporate adversary. The equalizing mechanism of representative litigation allows them to adequately seek redress." He also found that the administrative procedures "favor parties with greater resources and litigation experience" and that a two-year statute of limitations applies to administrative claims, compared to a six-year limitations period for litigating contract claims.

Class litigation would not compromise Wal-Mart's due process rights and would enable the company to "resolve the claims of its current and former employees across the State in an efficient manner that treats similarly-situated claimants consistently," Zazzali said.

According to Wal-Mart, there are no similar claims pending in court or the state agency, Zazzali said. He observed that there may be "a variety of reasons, including a lack of motivation to redress their small claims, legitimate fears concerning employer retaliation, lack of resources, or a sense of powerlessness when confronting their would-be corporate adversary."

"We cannot ignore the reality that if the proposed class is not certified, thousands of aggrieved employees will not seek redress for [Wal-Mart's] alleged wrongdoing," Zazzali said.

"[W]e are satisfied that the likely manageability obstacles of the present litigation can be overcome," Zazzali said. He pointed out that "courts in California and Pennsylvania have conducted trials--both of which resulted in jury verdicts--of similarly-pled, state-wide class actions against Wal-Mart" and observed that "[o]ur trial courts are equally capable of managing such complex litigation."

Judith L. Spanier of Abbey Spanier Rodd & Abrams in New York represented the workers. Michael K. Furey of Riker, Danzig, Scherer, Hyland & Perretti in Morristown, N.J., represented the company.

The decision appears in Section E and may be accessed on the Internet here.

By Susan J. McGolrick

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