Harris v. KM Industrial, Inc.

Background

Levone Harris alleged that KM Industrial, Inc. violated the California Labor Code and California unfair competition law by failing to provide compliant meal and rest breaks, overtime pay, accurate wage statements, timely final wages, and expense reimbursements. He also alleged procedural violations of the Fair Credit Reporting Act. Harris filed the proposed class action in the Superior Court of California, County of Alameda, on October 24, 2019. KM Industrial removed it to the Northern District of California on November 27, 2019.

KM Industrial relied on information from its personnel and payroll system stating that approximately 442 potential class members worked an aggregate of 39,834 weeks during the relevant period. Its removal calculations assumed, among other things, that employees missed meal and rest periods at specified rates and that other wage violations occurred across the proposed class.

Jurisdictional issue

The dispute concerned federal jurisdiction under the Class Action Fairness Act, or CAFA. CAFA requires the amount in controversy to exceed $5 million, excluding interest and costs. When a plaintiff challenges the amount stated in a removal notice, the defendant must prove by a preponderance of the evidence—that is, that the claimed amount is more likely than not—the amount reasonably at issue.

Harris argued that KM Industrial’s calculations used unsupported assumptions. He contended that KM Industrial had not determined which employees worked shifts long enough to qualify for meal or rest breaks, how many days employees worked each week, or whether employees took time off. He also challenged KM Industrial’s use of the median pay rate and information from a vaguely described computer system.

Court’s reasoning

The court found that several of Harris’s criticisms were unpersuasive. The allegations about security searches, automatic meal-period deductions, the lack of scheduled rest periods, and employees’ inability to take breaks while wearing cleaning gear were sufficiently specific and widespread to support some of KM Industrial’s assumed violation rates for purposes of estimating the amount in controversy.

But the court concluded that KM Industrial had not provided evidence about the employees’ shift lengths or how many employees worked full-time. The calculations assumed that the 442 potential class members generally worked more than 3.5 or 8 hours, the thresholds relevant to the claimed rest- and meal-break violations, but the record did not support that assumption. The court stated that many employees could have worked shorter shifts and therefore might not have been entitled to those breaks. Because the meal- and rest-break calculations supported other calculations for overtime and waiting-time penalties, the court also could not credit those related estimates.

The court held that KM Industrial failed to show that Harris’s claimed damages exceeded $5 million by a preponderance of the evidence. The opinion also notes that KM Industrial conceded that the alleged procedural Fair Credit Reporting Act violation did not itself create federal jurisdiction.

Disposition

The court granted Harris’s motion to remand. The case was remanded to the Superior Court of California, County of Alameda. The order resolved the federal-court jurisdiction issue and did not decide whether Harris or the proposed class would ultimately prevail on the wage-and-hour or Fair Credit Reporting Act claims.