Wal-Mart, the largest retailer in the world (with 3,400 stores globally), has been accused of sex discrimination in its promotion and compensation policies by a group of female employees. The case, Dukes v. Wal-Mart Stores, was filed in 2001, and no ruling on the merits of the case have yet occurred. The litigation so far has centered on whether the courts will allow the plaintiffs to pursue the case as a class action. Should the Supreme Court side with the plaintiffs’ class action request, the case will involve between one and 1.5 million plaintiffs, the largest discrimination class action in US history.

Under the Federal Rules of Civil Procedure, plaintiffs who seek class action certification must satisfy four requirements: 1) a sizable number of plaintiffs (not a problem in this case); 2) common questions of law or fact; 3) similar or common claims or defenses by the class representatives; and 4) a representative plaintiff who will adequately protect the interests of all members of the class. The primary issue before the Court is the second prong of the test: whether Wal-Mart’s promotion and compensation policies are sufficiently similar or common across the company to meet the test of “commonality” under the Federal Rule. In order to satisfy this portion of the test, the plaintiffs must identify one or more corporate policies that result in pay and promotion decisions that, in this case, are less favorable to women than to men.

At the oral argument, held on March 29, 2011, the Justices focused primarily on the plaintiffs’ assertion that Wal-Mart had a centralized pay and promotion policy dictated by the corporate headquarters which permitted local store managers “unchecked discretion” to set the pay rates for workers in their stores. With respect to the discretionary nature of the store managers’ decisions, the plaintiffs argued that the “common effect” of many subjective, discretionary decisions resulted in an overall corporate policy of sex discrimination, despite the company’s stated policy of nondiscrimination. Both Justices Kennedy and Scalia suggested that these two allegations were contradictory, suggesting that discriminatory results of “unchecked discretion” could not be “dictated” from a corporate headquarters. Chief Justice Roberts questioned whether the pay and promotion disparities cited by the plaintiffs were actually a result of a corporate policy or decisions made by a few “bad actors” which, in a company the size of Wal-Mart, could be more than a minimal number. While other Justices - including Breyer, Ginsburg and Kagan - appeared to accept the concept that a corporate policy of permitting local managers unfettered discretion on pay and promotion may result in systemic sex discrimination. However, Justice Kennedy’s skepticism with respect to the plaintiffs’ arguments is particularly noteworthy because he is often viewed as the “swing vote” between the conservative and liberal wings of the Court.

The plaintiffs also argued that Wal-Mart’s “corporate culture” inculcated stereotypes about women that infected the subjective pay and promotion decisions of its store managers. The plaintiffs’ attorney cited training materials from the Sam Walton Institute, where every store manager is trained prior to assuming that role. The materials ask, in a question and answer format, why there are so few women in management, and the response given is because men are more aggressive in seeking advancement. That argument did not impress Justice Scalia, who characterized the comment on aggression as an “assessment of why the percentages” of managers who are women is different, not an instruction to discriminate against them.

The female Justices were somewhat more sympathetic to the plaintiffs’ arguments. Justice Kagan noted that the Supreme Court in earlier cases had found that corporate policies permitting subjectivity in employment decisions could be evidence of discrimination. Justice Ginsberg agreed, noting that subjective policies encourage managers to prefer people who “look like” them. And Justice Sotomayor noted that the plaintiffs’ statistical evidence had shown a disparity in pay, with women being paid less than men at a proportion of the stores.

In order to prevail in their quest for class action certification, the plaintiffs have to demonstrate, according to Justice Kagan, “that there is a practice, a policy of subjectivity that on the whole results in discrimination against women, not that each of these women were themselves discriminated against.” This issue was the sticking point for the Justices, several of whom were unconvinced that actions taken by local store managers, when aggregated to the corporate level, constituted a “corporate policy” of sex discrimination. Furthermore, whether a mandatory class in a Title VII context would deprive Wal-Mart of the right to put on individualized defenses and would bind potential plaintiffs outside the class to a judgment to which they were not a party raised due process concerns for the Justices.

The outcome of this quest for class certification has great significance for US businesses, particularly those, like Wal-Mart, that have many locations around the country (or around the world, since US employment law protects US citizens who are employees of US corporations doing business abroad). Justice Alito noted that the gender gap in pay at Wal-Mart was less than the nationwide gender gap in pay, and was concerned that large companies whose pay practices resulted in disparities between the pay of men and women that were at or better than the national average could be vulnerable to class action Title VII lawsuits. And the problem of identifying a fair and efficient method of determining what compensation—if any—was due to each class member, took up much of the time of the oral argument.

Although the class certification question is far from resolved, even if class certification is ultimately denied, the underlying Title VII case remains to be determined. The issues raised in the oral argument suggest strategies for companies who wish to avoid such litigation:

  1. Even if a company's employment statistics on a company-wide basis suggest that its employment practices are lawful, it is prudent for employers to review employment data on the basis of individual stores (if a retail operation) or business units. A company may be held responsible for the allegedly biased decisions of one manager, even if there is no pattern of alleged bias overall.
  2. Management training should avoid the use of stereotypes about characteristics of protected classes, even if there is research to demonstrate that, as a group, those stereotypes may be true. Attributing to an individual a characteristic alleged to be common to a class is potentially inaccurate and could be evidence of illegal bias.
  3. Companies committed to diversity, with a strong anti-discrimination policy, such as Wal-Mart’s, can improve the representation of diverse employees by making special efforts to encourage members of underrepresented groups to apply for promotions, assume additional responsibility that will earn them additional compensation, or take other steps to communicate to diverse employees that they are valued by the company and would be welcome in management and leadership positions.
  4. Should the Court allow the class action to go forward, it will signal that discrimination cases built primarily on statistics—rather than on evidence of individual employment decisions alleged to be biased—may be easier to prove. Employers, particularly those with numerous locations where employment decisions are decentralized, should monitor their employment statistics to ensure that they support the company’s policy of nondiscrimination.