In what can only be described as a substantial victory for large employers, the Supreme Court, in Wal-Mart Stores, Inc v Dukes (131 S Ct 2541 (2011), has reversed the Ninth Circuit's certification of a class action brought on behalf of 1.5 million female employees who claimed that Wal-Mart violated Title VII by engaging in a pattern and practice of gender discrimination. Continuing its recent trend of trimming the availability of class actions, the court articulated a standard for class certification under Rule 23 that may dramatically limit the size and scope of large class action litigations because it raises the procedural and evidentiary bars that plaintiffs must satisfy before a court will permit a nationwide class action.
In Wal-Mart, rather than alleging that the company had an express corporate policy against the advancement of women, the plaintiffs claimed that Wal-Mart's policy of leaving pay and promotion decisions to local managers' broad discretion led to an unlawful disparate impact on female employees because local managers exercised their discretion disproportionately in favour of men. The court stated that:
"The basic theory of [the plaintiffs'] case... [was] that a strong and uniform 'corporate culture' permits bias against women to infect, perhaps subconsciously, the discretionary decisionmaking of each of Wal-Mart's thousands of managers – thereby making every woman at the company the victim of one common discriminatory practice."
The court emphasised that what matters with respect to class certification under Rule 23(a)(2)'s commonality requirement, which mandates that a plaintiff show that there are common questions of law or fact:
"is not the raising of common 'questions' – even in droves – but rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation [and that] [d]issimilarities within the proposed class are what have the potential to impede the generation of common answers."
Applying that standard, the court found that the plaintiffs had not satisfied the commonality requirement because they:
"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' claim for relief will produce a common answer to the crucial question why was I disfavored."
Making clear that plaintiffs in a putative class action carry a heavy evidentiary burden when it comes to establishing the commonality requirement, the court expressly rejected the sufficiency of the evidence that the plaintiffs had presented in their attempt to provide the requisite "significant proof" that Wal-Mart "operated under a general policy of discrimination". First, suggesting strongly – without explicitly holding – that the same standard applicable to the admission of expert testimony at trial also applies to expert testimony offered in the context of class certification, the court disregarded the testimony of a sociological expert, who relied on a so-called 'social framework' analysis to conclude that Wal-Mart's corporate culture made it "vulnerable" to gender bias, because the expert could not determine with any degree of specificity the frequency with which gender stereotypes actually played a role in Wal-Mart's employment decisions. In addition, the court found that the plaintiffs' statistical evidence, which examined regional and national employment data, fell "well short" of establishing that Wal-Mart's managers exercised their discretion in a common way because:
"information about disparities at the regional and national level does not establish the existence of disparities at individual stores, let alone raise the inference that a company-wide policy of discrimination is implemented by discretionary decisions at the store and district level."
The court similarly rejected as insignificant the 120 affidavits reporting experience of discrimination because they represented accounts from only a minuscule percentage of the class members and related to just a tiny fraction of Wal-Mart's 3,400 stores.
Separately, the court also held that the plaintiffs' claims for backpay were improperly certified under Rule 23(b)(2) because that rule applies "only when a single injunction or declaratory judgment would provide relief to each member of the class", and not when "each class member would be entitled to an individualized award of monetary damages". Thus, the court held that class claims for backpay and other types of individualised monetary damages award may be certified only under Rule 23(b)(3).
While Wal-Mart does not eliminate altogether the threat to employers of large class actions, it does impose on plaintiffs tougher procedural and evidentiary hurdles to overcome before a nationwide class action may be maintained. It is no longer sufficient for plaintiffs to identify general common questions. Instead, in order to obtain class certification, plaintiffs must now offer "significant proof" of a specific employment practice that was commonly applied to all members of the class. Consequently, plaintiffs will likely be hesitant to pursue, and courts reluctant to certify, large nationwide classes. Instead, plaintiffs are likely to focus on smaller, more localised classes with narrower class definitions. Moreover, to the extent that plaintiffs hope to recover monetary damages such as backpay through a class action, they are now limited to Rule 23(b)(3), which is more difficult to satisfy than Rule 23(b)(2) in that it requires additional proof that common questions of law and fact predominate, and that a class action is superior.
For further information on this topic please contact Kevin B Leblang or Robert N Holtzman at Kramer Levin Naftalis & Frankel LLP by telephone (+1 212 715 9100), fax (+1 212 715 8000) or email ([email protected] or [email protected]).