A Huge Win for Employers

In a decision of great importance to employers throughout the country, the U.S. Supreme Court ruled unanimously today that a class action lawsuit in which up to 1.5 million women sued Wal-Mart Stores, Inc., for sex discrimination in pay and promotion could not be certified as a class action.

Background

In the case, a class of up to 1.5 million current and former female Wal-Mart employees sued for injunctive and declaratory relief, punitive damages and back pay, claiming that Wal-Mart had discriminated against them because of their sex, in violation of Title VII of the Civil Rights Act of 1964. They claim that Wal-Mart local managers exercise their discretion over pay and promotions disproportionately in favor of men, which has an unlawful disparate impact on female employees. They also claim that Wal-Mart’s refusal to limit its managers’ authority subjects them to disparate treatment.

The U.S. District Court in San Francisco certified a class seeking an injunction against further discrimination and back pay. The U.S. Court of Appeals for the Ninth Circuit substantially affirmed, concluding that the plaintiffs had showed that their claims involved questions common to the whole class and that their claims for individualized back pay did not dwarf their claims for an injunction barring future discrimination. The Ninth Circuit also ruled that the class action could be manageably tried without depriving Wal-Mart of its right to present defenses to employees’ individual discrimination claims if the District Court selected a random set of claims for valuation and then extrapolated the validity and value of the untested claims from the sample set.

The Supreme Court Ruling

The Supreme Court disagreed at every turn. First, it ruled unanimously that the plaintiffs had not presented a “common question” for decision as is necessary to have a class action under Rule 23(a)(2) of the Federal Rules of Civil Procedure. The Court stated that to meet this standard, the plaintiffs’ claims must depend upon a common contention that 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 every class member’s claims in one stroke. Put another way, all the plaintiffs need to show that their claims “will produce a common answer to the crucial question why was I disfavored.”

To show a common question, class plaintiffs need to demonstrate “[s]ignificant proof that an employer operated under a general policy of discrimination.” The Court found such proof lacking. It noted that Wal-Mart’s announced policy forbids sex discrimination and penalizes denials of equal opportunity, and that the only evidence of discrimination generally – a sociologist’s analysis asserting that Wal-Mart’s corporate culture made it vulnerable to gender bias – was “worlds away” from “significant proof” needed to show that Wal-Mart “operated under a general policy of discrimination.” Moreover, the Court said, the only common “policy” the plaintiffs identified, Wal-Mart’s “policy” of giving local supervisors discretion over employment matters, could not support their claim because in a company of Wal-Mart’s size and geographical scope (3,400 stores with over one million employees nationwide), it is unlikely that all managers would exercise their discretion in a common way without some common direction, and the plaintiffs failed to show sufficient evidence of such a common direction.

The Court further ruled (this time 5-4) that the plaintiffs could not recover back pay in a class action certified under Rule 23 (b)(2). In a huge win for employers, the court ruled that class actions for back pay cannot be certified under Rule 23 (b) (2) unless the monetary relief is simply incidental to the requested injunctive or declaratory relief. This would apply only where a single, indivisible remedy would provide relief to each class member. In this kind of case, where back pay depends on individual decisions made about each plaintiff’s employment, Wal-Mart is entitled to an individualized hearing on each class member’s claim for back pay, the Court ruled.

Implications for Employment Discrimination Class Actions

We will provide further analysis of the Wal-Mart decision. But it is clear that it will significantly limit class action employment discrimination lawsuits. The requirement that a “common question” be one that can be resolved simultaneously for all plaintiffs will be difficult to meet absent proof of a policy that is both discriminatory and applies to the entire class in the same way. And the requirement that a defendant have the opportunity to present individual defenses in a Title VII case before back pay can be awarded will sharply limit the size of potential class actions because it will simply be unmanageable to conduct thousands of individual hearings.