On June 20, 2011, the United States Supreme Court issued a landmark decision in Wal-Mart Stores, Inc. v. Dukes, et al, that limits the ability of employees to pursue class action employment discrimination claims against their employers.
In Wal-Mart, three current or former female employees sought to represent a nationwide class of some 1.5 million female employees of Wal-Mart in an action alleging gender discrimination in pay and promotions. The plaintiffs did not allege an express practice of discrimination against women by Wal-Mart, or that Wal-Mart was using a screening or testing method resulting in a disparate impact against female employees. Instead, plaintiffs alleged that Wal-Mart had granted discretion to thousands of managers to make pay and promotion decisions in a largely subjective manner, and that Wal-Mart’s corporate culture and personnel practices left the company “vulnerable” to gender discrimination. Plaintiffs’ claimed that the exercise of discretion by Wal-Mart’s overwhelmingly male population of managers, and bias in the corporate culture, resulted in all female employees falling victim to a common discriminatory practice. The Supreme Court rejected the plaintiffs’ theories.
In doing so, the Supreme Court decided several important and frequently contested issues:
- The Court made clear that the requirement for class certification that there be at least one common question of law or fact means that there must a common contention the determination of the truth or falsity of which will resolve an issue central to the validity of each class member’s claims in “one stroke.” The Court also made clear that such an inquiry will often require that the district court analyze the merits of the plaintiffs’ claims and indicated in dicta that it believes that a district court should apply the Daubert standard to expert testimony offered in support of class certification.
- The Court reaffirmed that granting broad discretion to decision makers is not sufficient, by itself, to raise as a common question an inference of discrimination on a class wide basis; there must be a specific — common — employment policy or practice in addition to the grant of discretion that is challenged.
- The Court rejected the use of national and regional statistical studies of pay and promotion disparity as evidence that decisions made at the store level were discriminatory.
- The Court rejected a “social framework” study that could not determine the percentage of pay and promotional decisions affected, or identity of individuals impacted, by the risk of gender bias found in the study.
- The Court rejected determination of individual damages by statistical sampling and reaffirmed the defendant’s right to raise affirmative defenses to each class member’s damage claims.
- The Court rejected the use of a mandatory class under Federal Rule of Civil Procedure 23(b)(2) where there are individual claims for back pay or damages that are not incidental, and ruled that a class including such claims must satisfy the more stringent requirements of Rule 23(b)(3), including the requirements that common issues of fact or law predominate over individual issues and that a class action be superior to other means of adjudication.
The Court Requires a Rigorous Review of the Existence of a Common Issue of Law or Fact
The decision of the Court addresses two major issues. In the first part of its opinion, the Court addressed the standards under Federal Rule of Civil Procedure 23(a)(2) for establishing whether a common question of law or fact exists, one of the preliminary inquiries necessary in determining if a case can be certified as a class action. The Court clarified the meaning of common questions of law or fact. Citing its 1982 decision, General Telephone Co. of the Southwest vs. Falcon, 457 US 147, 157 (1982), the majority explained that commonality requires the class members “have suffered the same injury.” Specifically, to demonstrate a common question of law or fact, the “claims must depend upon a common contention of such a nature that it is capable of class-wide 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 claims in one stroke.” The court cited as an example of a legitimate common question the assertion of discriminatory bias against the entire class by a single supervisor. By contrast, the Court held that the plaintiffs in Wal-Mart were attempting to resolve in one action the reasons for millions of individual pay and promotional decisions made by numerous supervisors, and concluded that no common question existed.
In reaching that conclusion, the Court made several rulings that may be as instructive for the defense of pending and future discrimination class actions as is the overall holding of the case. The Court noted that the only general policy cited by plaintiffs was the policy of allowing supervisors to exercise broad discretion in making pay and promotional decisions, and stated that, on its face, such a policy was the “opposite of a uniform employment practice.” The Court further noted that demonstrating one manager’s misuse of this discretion would not demonstrate the same misuse by another. The Court explained that it was necessary not only to show delegated discretion, but a “specific employment practice” that affects the entire class.
The Court rejected a sociologist’s “social framework” analysis that concluded that Wal-Mart had a “strong corporate culture” that made it “vulnerable” to gender bias. The Court did so because the sociologist could not estimate what percentage of Wal-Mart employment decisions might be determined by stereotypical thinking. The Court found this failure made the evidence “worlds away” from the “significant proof” of a general policy of discrimination that is required.
Similarly, the Court rejected statistical analyses that did not address the bias of the decision makers at individual stores, but only demonstrated disparities in gender representation at regional and greater levels. The Court noted that evidence of regional and national disparities did not establish the uniform, store-by-store disparity that was necessary to the plaintiffs’ theory of commonality.
Finally, the Court held anecdotal reports of discrimination from 120 female employees in a class of over 1 million employees to be insignificant. Noting that the reports were concentrated in only six states, half of all states had only one or two anecdotes, and 14 states had none, the Court found the evidence insufficient to demonstrate a “general policy of discrimination” on a nationwide basis.
Common Issues of Fact or Law Must Predominate in Class Actions Seeking Individual Monetary Relief
The second major portion of the decision addresses the question of whether claims for backpay (or other substantial individual monetary relief) can be certified as a class under Rule 23(b)(2). In rejecting the certification of the Wal-Mart class, the Court made clear that it was not completely foreclosing certification of a class action in which backpay or other individualized monetary relief is sought on behalf of a broad class. However, the Court’s decision does mean that plaintiffs seeking substantial individual monetary relief must comply with the more rigorous certification requirements of Rule 23(b)(3).
The Court held that the monetary damages must merely be incidental to the requested injunctive relief and declaratory relief for a class to be certified under Rule 23(b)(2). Certification under Rule 23(b)(2), which allows for mandatory classes, with no right to notice and no opportunity to opt out, is not appropriate in a case in which monetary relief is more than incidental. The Court held that back pay is not incidental monetary relief, and that due process requires where back pay is sought that class certification be evaluated under Rule 23(b)(3), which, among other things requires the plaintiffs to prove not only that there are common questions of law or fact, but that the common questions predominate over individual issues.
Significantly, the Court also rejected the Ninth Circuit’s statistical sampling method of determining back pay awards, which the Ninth Circuit relied upon, in part, to conclude that application of Rule 23(b)(2) was appropriate. The Court held that “Wal-Mart is entitled to individualized determinations of each employees’ eligibility for back pay.” The Court further held that “when the plaintiff seeks individual relief, such as reinstatement or back pay, after establishing a pattern or practice of discrimination, ‘a district court must usually conduct additional proceedings…to determine the scope of individual relief.’” At that point, the burden would shift to the company, but the company would have the right to raise any individual affirmative defenses it may have the individual claim.
What Employers Should Take Away From the Wal-Mart Decision
Wal-Mart v. Dukes is an important decision for employers. It requires a much more rigorous review of employment class actions at the class certification stage and gives substantial guidance on the questions of what evidence and procedures are appropriate for determining class certification. The key lessons of the decision for employers are:
- A class action discrimination claim that is based upon numerous decisions of multiple decision makers will be difficult to certify without substantial evidence of a policy or practice that forms the common underlying reason for those decisions.
- Granting individual managers substantial decision making discretion with respect to pay and promotions is an acceptable employment practice when combined with a clear policy prohibiting discrimination, and the absence of evidence of a specific employment practice that can be challenged as discriminatory.
- Certification of class actions seeking individual monetary relief will be more difficult to obtain. Plaintiffs seeking individual monetary awards cannot short-cut the class certification process by asserting that claims for injunctive or declaratory relief predominate over the claims for individual monetary relief, but must demonstrate that common issues of law or fact predominate over the individual issues.
- Certification of class actions where the individual claims for monetary relief are subject to individual affirmative defenses will be more difficult to obtain. Statistical analysis of damages cannot substitute for individual damage determinations where there are statutory affirmative defenses that vary in application from one class member to the next.
- Very large, geographically disbursed employers are far less vulnerable to nationwide class actions challenging individual employment decisions that are not driven by a common screening mechanism or decision-maker.