In a much-anticipated development, the Seventh Circuit Court of Appeals issued an opinion last week that clarifies the rules that apply when employees bring class action lawsuits against employers.

In Randall v. Rolls-Royce Corporation, the court grappled with whether two named plaintiffs could represent a class of approximately 500 female employees who alleged that their employer's pay and promotion practices were discriminatory.

Class actions of this sort are governed by Rule 23 of the Federal Rules of Civil Procedure. Generally, when employees attempt to bring class action lawsuits against their employers under Rule 23, they do so under subsection (b)(2) or (b)(3) of the rule. Rule 23(b)(2) typically applies only when employees seek "injunctive" or "declaratory" relief, such as an order declaring that a policy is discriminatory and prohibiting the employer from enforcing it in the future. In contrast, Rule 23(b)(3), broadly speaking, applies when employees seek monetary relief and common questions of law or fact "predominate" over questions affecting only individual employees.

In Randall, the employees sued under Rule 23(b)(2) and asked the court to declare that Rolls-Royce's policies are discriminatory, but took the additional step of asking the court to also award them a substantial amount of "back pay" to compensate them for the lower wages they received because of the alleged discriminatory policies. The plaintiffs were therefore trying to use Rule 23(b)(2) to obtain monetary relief. Explaining the significance of that strategy, the Randall court observed that "Class action lawyers like to sue under [Rule 23(b)(2)] because it is less demanding ... than Rule 23(b)(3) suits." In particular, the court noted that unlike Rule 23(b)(3), Rule 23(b)(2) does not require plaintiffs' attorneys to give notice of the case to members of the class or give class members the opportunity to "opt out" of the litigation, which enables plaintiffs' attorneys to "effectively gather[] clients — often thousands of clients" simply by obtaining class certification under Rule 23(b)(2).

Motivated at least in part by these considerations, the court flatly rejected the plaintiffs’ strategy of using Rule 23(b)(2) to obtain an award of back pay. The plaintiffs' strategy, the court held, would create a situation where the "monetary tail would be wagging the injunction dog." Indeed, the court found that its issuance of an order declaring Rolls-Royce's policies discriminatory would “"merely lay an evidentiary foundation" for determining how much each class member was owed in back pay, a process that itself would be incompatible with a class action because it would require "500 separate hearings."

The Seventh Circuit's ruling is helpful to employers because it increases the probability that employees seeking back pay in a class action will have to bring their claims under the more demanding Rule 23(b)(3) rather than Rule 23(b)(2). But in another notable development, the day before the Seventh Circuit issued its opinion in Randall, the United States Supreme Court heard oral argument in Dukes v. Wal-Mart Stores, Inc. The Dukes case, which involves discriminatory pay and promotion claims by a massive class of female workers, is the largest class action in history and, like Randall, raises the issue of whether a class of employees can obtain monetary relief under Rule 23(b)(2). When the Supreme Court issues its decision in Dukes, which it is not expected to do until June, it is possible that it could alter or overrule the Seventh Circuit's opinion in Randall. Until then, however, Randall remains the law in the Seventh Circuit — which covers Illinois, Indiana and Wisconsin — and persuasive authority in many other jurisdictions.