Today, the U.S. Supreme Court issued its long-awaited decision in Dukes v. Wal-Mart Stores, Inc. This opinion will transform Rule 23 law and dramatically change how workplace class actions are structured and defended and, in doing so, will also assist employers in defeating certification in wage and hour cases.
The 5 to 4 ruling reverses the Ninth Circuit in holding that class action certification should not have been granted in the case. The ruling will be significant to employers because it holds plaintiffs in class litigation to a strict burden under Rule 23(a) of establishing commonality among all putative class members as to the reason for a particular employment decision--the “glue” that holds the alleged unlawful conduct together. The Court ruled that proof of commonality will frequently overlap with the merits of the case. This is contrary to plaintiffs’ usual position that it is inappropriate to consider the merits of plaintiffs’ claims at the certification stage of class litigation. In addition to commonality, the Court severely limited the use of Rule 23(b)(2), pertaining to cases seeking class-wide injunctive and declaratory relief, to back pay, ruling that such money damages may only be awarded under this rule when they are truly incidental to the requested equitable relief.
Through its decision today, the Supreme Court radically changed the playing field for class action litigation. See Seyfarth Shaw’s Workplace Class Action blog post for a more in-depth discussion of the Court’s decision. While this change predictably will be most immediately seen in the way discrimination class claims are now litigated, the Court’s opinion in Dukes will also have dramatic and important consequences for wage and hour class and, by logical extension, collective actions.
In federal court, plaintiffs’ state law wage and hour class claims are litigated under federal Rule 23, the same rule at issue in Dukes. Even when litigated in state court, the class action rule applied there is often similar if not identical to Rule 23. Even in those states, such as California, that technically or more substantively have a different procedure, state courts still look to federal procedural rules in applying their Rule 23 equivalent. As a result, the Court’s rulings in Dukes strictly applying the rule’s commonality requirement, allowing consideration of the merits along with certification issues at least where there is overlap, and restricting back pay damages under Rule 23(b)(2) only when incidental to the claimed equitable relief will be of substantial help to employers in their defense of state law wage and hour claims.
Commonality is often an issue in defending against broad nationwide, and even less ambitious wage and hour claims. Plaintiffs typically contend that a company-wide policy is at play causing the alleged wage and hour violations. This is almost always so in classification and off-the-clock cases where plaintiffs allege that all putative class-members’ claims raise common issues of law and fact despite the many differences that may exist among them because of the class members’ varied supervisors, departments, facilities, divisions, and regions. Similarly, plaintiffs’ attempts at certification based on a claimed “policy” that is dependent on an alleged company culture that supposedly encourages off-the-clock work are, as a result of Dukes, now clearly doomed. This latter attempt at establishing commonality has been especially frequent in off-the-clock claims in settings that include the retail industry, where plaintiffs allege that pressures to control labor costs lead to a culture of unpaid work time, as well as in the ever-popular call center cases, where adherence to productivity goals and required start and stop times are often claimed to lead to unpaid pre- and post-shift work and unpaid break and rest periods. Under Dukes, evidence of “culture” alone, without specific evidence of legal violations across the entire putative class, will fail.
The Court also dispelled the oft-repeated argument raised by plaintiffs that the trial court may not consider the underlying merits at the class certification phase. To the contrary, the Court made clear that the “rigorous analysis” required to determine if class certification is appropriate frequently will overlap with the merits of the underlying claims. As applied to an off-the-clock case, for example, the critical question is whether employees who claimed that they worked off the clock did so for the same reason. If the reason for the alleged off-the-clock work is tied to local practices or the conduct of specific supervisors, certification of a class beyond those particular parameters would be improper absent evidence of some unifying unlawful policy or practice. The same will hold true in misclassification cases, when the duties performed by allegedly similar employees must be examined rigorously notwithstanding the possibility that they could justify a determination that putative class member may be properly classified as exempt.
The Court also ruled, in cases where monetary relief is not incidental to injunctive or declaratory relief, that certification under Rule 23(b)(2) is improper. The Court made clear that individualized monetary claims, such as back pay, should be analyzed under Rule 23(b)(3) with its attendant due process protections, and not Rule 23(b)(2), which is a mandatory class that provides no opportunity for individuals to opt out. Under the Court’s reasoning, it is difficult to envision a wage and hour class action that could pass muster under Rule 23(b)(2) because of the inevitable focus on back pay damages.
Although Dukes is decided under Rule 23, the decision is likely to have significant impact on collective wage and hour litigation brought §216(b) of the FLSA. Collective actions under §216(b), instead of requiring “commonality,” consist of groups of individuals whose claims are “similarly situated.” It is generally accepted that at the conditional certification phase, this standard is more lenient than the Rule 23(b)(3) predominance-of-common-issues standard. Although the case law regarding the meaning of “similarly situated” is not well developed, many courts equate the similarly situated analysis with the commonality standard found in Rule 23(a). If the claims of the putative class members are not common, it is difficult to envision how they are similarly situated. Thus, the Court’s decision in Dukes also may influence the evidence trial courts will require for the conditional certification of collective actions. Additionally, at the decertification phase, many courts rely on a stricter standard akin to that found in Rule 23(b)(3) and require that plaintiffs set forth a trial plan explaining how the claims of the opt-in plaintiffs can be tried by means of collective proof. Here, the Ninth Circuit believed that a court could conduct a trial in which a sample set of class members would be selected, upon which the percentage of claims found as valid and their associated back pay recovery would be applied to the entire remaining class, all without individualized proceedings. This “Trial by Formula” -- which some courts endorse in FLSA collective actions under the guise of representative testimony – was rejected by the Court. The disapproval of such a trial plan may extend to FLSA collective actions as well.