In Wal-Mart, Inc. v. Dukes, reversing the largest employment class certification in history, the U.S. Supreme Court appears to have limited the circumstances in which federal courts can certify class actions – and not just in employment cases. The Court held that the lower federal courts had erred by certifying a class that included 1.5 million female employees from virtually every part of the country. The plaintiffs sought injunctive and declaratory relief, punitive damages, and backpay as a result of alleged discrimination by Wal-Mart against female employees in violation of Title VII of the Civil Rights Act of 1964.

The Supreme Court held that class certification was improper because the class failed to meet the “commonality” requirement of Federal Rule 23(a)(3), which provides that a class can be certified “only if…there are questions of law or fact common to the class…” The Court noted that the mere allegation of “common questions” is insufficient under Rule 23. “Th[e] common contention… must be of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the [individual class members’] claims in one stroke.”

The Court held that the Wal-Mart class did not meet the standard for commonality, because the evidence showed that Wal-Mart gave discretion to its supervisors in making employment decisions. The named plaintiffs “have not identified a common mode of exercising discretion that pervades the entire company… In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction.” The Court concluded that, “Because [the named plaintiffs] provide no convincing proof of a company-wide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.”

The lack of commonality found in Wal-Mart can arise in class actions of many kinds. Under Wal-Mart, a question is “common” under Rule 23(a)(3) only if it can be decided on a class-wide basis. In the past, many named plaintiffs, and some lower courts, have overlooked this essential point. And, as in Wal-Mart, in many cases a claim of commonality will fail precisely because there is no way to rule on the question without addressing the individual facts relating to each purported class member. Wal-Mart makes clear that such a lack of commonality is sufficient to defeat class certification.

In addition to meeting all of the requirements of Rule 23(a), a class must comply with one of the three subparts in Rule 23(b). The trial court in Wal-Mart had certified the class under Rule 23(b)(2), which allows a class where the defendant’s alleged conduct “appl[ied] generally to the class, so that final injunctive or declaratory relief is appropriate respecting the class as a whole…” Another issue before the Supreme Court was whether such certification was proper where the class sought recovery of substantial backpay based on Wal-Mart’s alleged discrimination. The Court ruled that the purported class could not be certified under Rule 23(b)(2), holding that “claims for individualized relief (like the backpay at issue here) do not satisfy the Rule.” The Court said that Rule 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.”

Under the analysis in Wal-Mart, in the vast majority of class actions seeking a monetary recovery, the class can be certified (if at all) only under Rule 23(b)(3). Class certification under that provision is often more difficult, because a class plaintiff must prove that common questions “predominate” over individual questions and that a class action is “superior” to individual actions. In addition, under Rule 23(c)(2)(A), individual notice must be given to all members of a Rule 23(b)(3) class at plaintiff’s expense, while such notice is optional, within the trial court’s discretion, if the class is certified under Rule 23(b)(2).

Wal-Mart is an important case in the area of employment law; but the Supreme Court’s holdings on the requirements of Rule 23 are likely to be helpful in defending class actions of all kinds.