Much has been made of the United States Supreme Court's ruling in the historic effort to bring a 1.5 million member class action suit alleging gender discrimination against the nation's biggest retailer.  Now, as the dust settles, we break down the case and its immediate aftermath. 

THE FACTS

Wal-Mart, the nation's largest private employer, operates approximately 3,400 stores and employs more than one million people.  In order to be eligible for a promotion or compensation, an employee must meet a certain minimum number of objective criteria. Primarily, however, Wal-Mart gives local managers broad discretion when determining pay for employees or selecting candidates for management training.

The underlying Plaintiffs, Betty Dukes, Christine Kwapnoski and Edith Arana, are current or former Wal-Mart employees and represent the 1.5 million member certified class. Alleging gender discrimination in establishing the rate of pay and in making promotions, Plaintiffs sued Wal-Mart pursuant to Title VII of the 1964 Civil Rights Act.  While recognizing that Wal-Mart has no express corporate policy against the advancement of women, Plaintiffs claimed that the local managers' discretion over pay and promotion decisions was exercised disproportionally in favor of men.  Alleging that Wal-Mart was aware of this effect and failed to remedy the situation, Plaintiffs sought injunctive and declaratory relief, punitive damages and backpay.

THE LAW

In order to be certified in a class action, a party must satisfy the requirements of Federal Rules of Civil Procedure 23. Rule 23(a) requires that a class seeking certification meet certain criteria. First, the class must be so large that "joinder of all members is impracticable." Second, there must be "questions of law or fact common to the class." Third, the claims or defenses of the parties representing the class must be "typical of the claims or defenses of the entire class." Finally, the representative parties must "fairly and adequately protect the interests of the class."

If the party seeking certification meets Rule 23(a), it must then satisfy one of the requirements of Rule 23(b). Rule 23(b)(1) is satisfied if prosecuting separate actions "would result in inconsistent or varying adjudications which would establish incompatible standards of conduct for the party opposing the class or if adjudications with respect to individual class members would impair their ability to protect their interests."  Alternatively, a party will satisfy 23(b)(2) if "the party opposing the class has acted or refused to act on grounds that apply generally to the class so that final injunctive relief or declaratory relief is appropriate respecting the class as a whole."  Finally, a party can meet 23(b)(3) if "the questions of law or fact common to class members predominate over any questions affecting only individual members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." 

DISTRICT COURT

Relying on statistical evidence, anecdotal reports and a sociologist's testimony before the District Court, Plaintiffs moved to certify their class consisting of "all women employed at any Wal-Mart domestic retail store at any time since December 26, 1998."  The District Court granted Plaintiffs' motion and certified their proposed class based on Rules 23(a) and (b)(2).

NINTH CIRCUIT COURT OF APPEALS

A divided en banc Court of Appeals affirmed the District Court's certification order. The majority found that Plaintiffs' claims met the requirements of Rule 23(a). With respect to Rule 23(b)(2), the Ninth Circuit held that Plaintiffs' backpay claims could be certified as part of a (b)(2) class. The Court of Appeals also determined that the action was manageable under the Hilao v. Estate of Marcos approach. Based on this standard, damages are determined by selecting claims at random, referring those claims to a special master for valuation and estimating the value of the untested claims.

THE SUPREME COURT

In a 5-4 decision, the Supreme Court found that Plaintiffs did NOT meet the commonality requirement in Rule 23(a) because they failed to highlight any common corporate policy that led to gender discrimination against female workers at all Wal-Mart stores across the country. The Court explained that, to meet this requirement, class members must suffer from the same injury, and not just the ability to assert a violation of the same provision of law.  Common claim and class wide resolution are needed.      

There are two ways to demonstrate commonality.  First, if there is evidence of a biased testing procedure, a class action on behalf of every applicant or employee who was prejudiced by the test would satisfy the commonality requirement.  This method is inapplicable because Wal-Mart does not use any testing procedure or evaluation method when making employment decisions.  Second, a party can present significant proof that an employer operated under a "general policy of discrimination" that pervades the entire company.  The Court found that Plaintiffs failed to offer significant proof that a general policy of discrimination played a meaningful role in Wal-Mart's employment decisions.  By allowing local supervisors to exercise their discretion,  the Court opined that this created the opposite effect of a uniform policy.    

Turning to Rule 23(b)(2), the Court rejected the Ninth Circuit's approach and held that Rule 23(b)(2) only applies when a single injunctive or declaratory judgment will provide relief to every member of the class.  Highlighting how classes under Rule 23(b)(1) and (b)(2) are mandatory, the Court found that remedies for these types of classes stem from equity and result in a single class-wide order. As a result, claims for individualized relief, such as backpay claims, cannot satisfy Rule 23(b)(2).  Moreover, the Court asserted that claims for backpay entitle an employer to individualized determinations, thus these claims cannot be aggregated for the purposes of establishing a class action.   

THE BOTTOM LINE 

To avoid being the target of this type of class action, employers should establish a uniform non-discriminatory, merit-based method for all managers to use when making promotion decisions.  Within this method, of course, managers retain their discretion, they simply are exercising it pursuant to the same set of rules company-wide.  However, to avoid liability, all employers should periodically review the effects of the methods they wish to impose to determine if there is an unintended, disproportionately negative impact on any protected class (race, gender, etc.).