U.S. Supreme Court Backs Wal-Mart and Halts One of the Most Expansive Class Actions in History

On June 20, 2011, the U.S. Supreme Court issued its much-anticipated decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __ (2011). The decision reversed the Ninth Circuit’s 2010 en banc decision and effectively halted what would have been the largest employment discrimination class action in history against the nation’s largest private employer. The Court’s 5-4 opinion is a decisive victory for businesses that reshapes the landscape for employment-related class action litigation and class action litigation in general.

The Dukes plaintiffs sued Wal-Mart on behalf of a nationwide class of 1.5 million current and former female Wal-Mart employees, alleging that the company discriminated against them on the basis of sex by denying them equal pay or promotions. Plaintiffs claimed that Wal-Mart discriminates against women by allowing Wal-Mart’s local managers to exercise discretion over pay and promotions, which results in male employees disproportionately being favored over female employees. The District Court certified the class action and the Ninth Circuit affirmed, concluding that the District Court properly certified the case as a class action under the Federal Rules of Civil Procedure.

Plaintiffs Failed to Establish a Common Policy of Discrimination

Justice Scalia declared that the “crux of this case is commonality.” In order to commence a federal class action, the named plaintiffs must satisfy the requirements of Federal Rule of Civil Procedure 23(a) by demonstrating that “there are common questions of law or fact” as to all potential class members.

To determine whether plaintiffs could meet the “commonality” standard, the Court scrutinized whether the plaintiffs could demonstrate that Wal-Mart “operated under a general policy of discrimination.” The Court noted that plaintiffs “wish to sue about literally millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.”

After making a detailed analysis of Plaintiffs’ proofs, which consisted largely of statistical evidence about pay disparities, anecdotal reports of discrimination, and sociological testimony from plaintiffs’ expert, the Court held that those proofs failed to identify a “specific employment practice” that resulted in discrimination against women employees, “much less one that ties all their 1.5 million claims together.” Indeed, the only corporate policy that plaintiffs’ evidence convincingly established was “Wal-Mart’s ‘policy’ of allowing discretion by local supervisors over employment matters.” The Court went on to state that “[o]n its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices.” As there was no “convincing proof of a companywide discriminatory pay and promotion policy,” the five-justice majority concluded that plaintiffs had failed to establish “any common question” to satisfy Rule 23(a) and that class certification was therefore improper.

Claims for Backpay Cannot Be Certified Under Rule 23(b)(2)

The Court also unanimously ruled that the District Court improperly certified plaintiffs’ claims under Federal Rule of Civil Procedure 23(b)(2). Rule 23(b)(2) allows a class to be certified if the employer “acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”

The Court noted that one possible reading of Rule 23(b)(2) is that “it applies only to requests for injunctive or declaratory relief and does not authorize the class certification of monetary claims at all.” Notwithstanding, the Court did not need to reach that broader question because it found that “claims for individualized relief (like the backpay at issue here) do not satisfy the rule.” The Court stated that:

Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of money damages.

The Court further reasoned that a class claim for money damages (such as individualized backpay) would fall under Rule 23(b)(3), which requires additional procedural protections, such as mandatory notice and the choice to opt-out. The Court cautioned that a class action for money damages without notice (such as classes certified under Rule 23(b)(2)) could potentially violate the due process clause of the Constitution.

The Impact of Wal-Mart v. Dukes

While the Dukes opinion is clearly a victory for employers, it remains to be seen what its practical impact will be.

National employers that permit local managers to exercise discretion with respect to hiring, firing, promotion, and compensation can take some comfort in the fact that potential class action plaintiffs must now establish sufficient proof of a common policy or practice in order for class certification to be granted. The Dukes decision makes clear that such a policy cannot easily be established via statistical evidence about pay disparities, anecdotal reports of discrimination and/or sociological testimony. Going forward, plaintiffs will not meet their burden by simply alleging or pleading the existence of such a policy — they must be able to demonstrate its existence.

Although the Dukes decision sets a high bar for class action plaintiffs seeking to establish a common policy or practice, the decision does not prevent employment claims from being litigated on a class basis. Although the high hurdle for class certification may result in the end of nationwide employment class actions where no nationwide policy relating to employment matters exists, it may simultaneously produce an uptick in regional or local class actions, in which the decision-making of local managers and local policies and procedures are scrutinized on a regional or area basis.

Employers — particularly those with nationwide operations — should consult with their employment counsel regarding the impact of the Dukes ruling. In order to most effectively defend against potential class action employment litigation, employers should ensure that they not only adopt effective, written equal employment opportunity policies prohibiting workplace discrimination, but also consistently train managers on these policies.

If you have any questions regarding the Dukes decision or its impact on your business, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.

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