On March 23, 2011, the U.S. Supreme Court heard oral argument in Wal-Mart Stores, Inc. v. Dukes, a case that could redefine how workplace class actions are structured, defended, and litigated.

The U.S. Supreme Court’s review follows a 6 to 5 en banc decision of the U.S. Court of Appeals for the Ninth Circuit in San Francisco – reported at 603 F.3d 571 (9th Cir. 2010) – which affirmed an earlier class-certification order that certified the largest class action in history. The Ninth Circuit upheld an earlier panel decision certifying a class-action gender discrimination lawsuit challenging Wal-Mart’s pay and promotions practices under Title VII. The full Ninth Circuit ruled that the U.S. District Court for the Northern District of California did not abuse its discretion in finding that the large and diverse class – encompassing approximately 1.5 million female employees, both salaried and hourly with a range of positions, who are or were employed at one or more of the company’s 3,400 stores across the country – was united by a system of company-wide discriminatory practices against women where plaintiffs presented expert opinions, factual evidence, statistical evidence, and anecdotal evidence showing a corporate policy and common pattern of discrimination imposed on female employees nationwide.

The U.S. Supreme Court’s forthcoming opinion will address the following questions: (1) whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) and, if so, under what circumstances; and (2) whether the order certifying a class conforms to the requirements of Federal Rule of Civil Procedure 23(a).

Whether the Supreme Court Finds Commonality Under Rule 23(a) Will Affect the Litigation of Class Action Disputes in ihe Hospitality Industry

The arguments related to Rule 23(a) are particularly interesting for the hospitality industry. Under Rule 23(a), Plaintiffs are required to demonstrate a common policy of discrimination on the part of Wal-Mart. Plaintiffs’ theory, which had been endorsed by the District Court and the slim majority of the Ninth Circuit, was that the common policy consisted of two elements: Wal-Mart’s common corporate culture that allegedly embodies sexual stereotypes, coupled with granting in-store managers unfettered discretion in making personnel decisions. Without any other tangible proof of class-wide discrimination, Plaintiffs argued, based on expert opinions, that the subjective decision making in pay and promotional decisions is the common thread among females to pursue class action - a “subjectivity leads to bias theory.” This “subjective decision making” theory raises several practical concerns for hospitality employers.

First, if the plaintiffs’ theory is adopted by the Supreme Court, Dukes opens the door to Title VII class actions challenging the promotion and pay practices of virtually all large decentralized employers, including hotels, restaurants, hotel management companies, gaming and racing establishments, clubs and golf courses, who necessarily rely on individual judgments by local decision-makers to determine which candidates to promote or provide increased compensation. This is the result because, under Dukes, plaintiffs need only offer generalized expert opinions to establish the requisite “commonality” under Rule 23(a), without needing to link those opinions to workplace realities. However, workplace realities dictate that individualized decision making is necessary - and a best practice - because single employers in the hospitality industry often employ people with a wide range of skills (e.g., an employer within our industry might employ chefs, housekeepers, maintenance staff, accountants, executives, professional coaches or sports talent, all at a single property), and individual judgments by supervisors often play an essential role in employment decisions. Indeed, plaintiffs’ theory does not make practical sense because subjective decision making in certain employment decisions is a method endorsed by other Supreme Court guidance, the EEOC’s best practices and human resource literature.

Second, as evidence of a “strong corporate culture” to support a finding of commonality, the Ninth Circuit in Dukes identified that Wal-Mart had certain national programs or policies, including: a common orientation session for new employees; a policy of “promoting from within,” which maintains the effectiveness of prior culture lessons; use of a “Wal-Mart cheer” at meetings; regular meetings about company culture; testimony about a corporate philosophy called the “Wal-Mart Way”; company-wide communications through computers and “Wal-Mart TV”; and frequent transfers between stores, which the court believed demonstrates a high degree of store-to-store uniformity. The court’s reliance on this evidence does not suggest that employers must dilute their company culture to avoid a successful class action, however, employers should be aware that plaintiffs in class-action litigation will look for any evidence that company culture aids discrimination. This issue can pose unique difficulties in the hospitality industry, which often values strong corporate culture and consumer and employee-based brand equity including special focus on brand awareness, brand loyalty, perceived quality and brand image, internally and externally.

Whether Claims for Monetary Relief Can Be Certified Under Rule 23(b)(2) Will Impact All Employers

One of the more controversial aspects in Dukes is plaintiffs’ request to certify a class under Rule 23(b)(2). Rule 23(b)(2) requires that a defendant’s conduct “apply generally to the class, so that final injunctive relief … is appropriate respecting the class as a whole.” FED. R. CIV. P. 23(b)(2). Plaintiffs argued that their claims for injunctive relief predominated over claims for monetary relief, and therefore certification under Rule 23(b)(2) was proper. Wal-Mart argued to the contrary, given the million putative class members at issue and the plaintiffs’ likely request for billions of dollars in damages. The Supreme Court’s analysis of this issue will impact how all employers defend class action lawsuits.

Guidance Expected from the Supreme Court

It is very difficult, if not impossible, to predict what the Supreme Court will decide. The ruling, expected by late June, could change the legal landscape for workplace class-action lawsuits, including those in the hospitality industry. Employers should expect guidance from the Supreme Court about whether and how employers should formulate and implement processes to address decisions that most often rely on subjective decision-making, including performance review processes, hiring, promotion and pay decisions. The decision may also offer guidance to aid in the successful development and implementation of corporate diversity and inclusion programs, whether and how employers can lawfully impose policies and/or practices that require decentralized control of certain employer decisions, and when employers should require centralized or strictly objective decision-making.

Seyfarth will issue a management alert when Dukes is decided. Pending further developments, however, employers should stay aware of the issues raised by Dukes. Employers should review HR practices related to pay and promotion decisions - subjective or not - to determine whether they are adversely impacting any classification of employee. Employers should design any subjective decision-making process and procedure carefully, by linking the process and procedure directly to each position and criteria for performance, ensuring that managers closest to performance are trained to make effective decisions, and consider an appeal process for employees considered but not selected for promotion or training opportunities. Employers should review their programs aimed at increasing diversity and preventing discrimination to ensure that they are being implemented effectively, and should not avoid implementing these programs. Further, employers should continue providing training and communications regarding company policies, including those relating to equal employment opportunities, non-discrimination, open door and the company complaint process.