In one of its most important employment law decisions in recent memory, the U.S. Supreme Court, in Dukes v. Wal-Mart Stores, Inc., reversed the certification of a class of approximately 1.5 million current and former female employees of Wal-Mart in a case alleging widespread gender discrimination under Title VII. While Dukes would be noteworthy for the size and scope of the case alone, its most lasting impact will likely be the butterfly effect it has on more typical types of litigation. One area sure to be heavily impacted is wage-and-hour litigation, which has outpaced all other types of workplace class actions in recent years.

Dukes contains two core holdings. First, the Court held unanimously that certification of the class of female Wal-Mart workers was inappropriate under Federal Rule of Civil Procedure 23(b)(2), which permits certification in part where "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 corresponding declaratory relief is appropriate respecting the class as a whole." Second, the Court ruled 5-4 on the preliminary issue that the plaintiffs failed to satisfy the "commonality" requirement of Rule 23(a)(2). Each of these holdings will reverberate in important ways in wage-and-hour litigation.

Class Members' "Dissimilarities" May Now Be What Bind Them

Dukes reiterates that, because class actions are "an exception to the usual rule," a class representative "must 'possess the same interest and suffer the same injury' as the class members." One gauge for measuring whether that requirement has been met is the "commonality" test of Rule 23(a). According to Justice Scalia's majority opinion, commonality requires that class members have suffered the same injury as each other, not just a violation of the same provision of law. Moreover, the common injury must be "capable of classwide 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."

Although Dukes was a discrimination case brought under Title VII, the Court's discussion of the "commonality" prong of Rule 23(a) should serve as an important authority in wage-and-hour cases.

First, many wage claims are brought under state law, either in state court under Rule 23 analogues or in federal court via removal, supplemental jurisdiction, or diversity. In those cases, the Dukes discussion of commonality, and its tightening of the requirements to establish that prong of the Rule 23 test, will be directly applicable.

Second, Dukes should lead courts to narrow their conception of the "similarly situated" requirement in collective actions under FLSA section 216(b). Most courts faced with § 216(b) collective actions now use a two-stage approach: determine whether individuals are "similarly situated". At the first stage, plaintiffs are required to show that the named plaintiffs and other potential party plaintiffs are "similarly situated." Courts have struggled with the meaning of "similarly situated" for almost 65 years because the statute does not define the phrase, and the courts have not settled on a uniform definition. However, courts have consistently approached this question by examining whether common factors are present, such as the geographic scope and job duties of the potential party plaintiffs, as well as whether the individuals were subject to similar practices or policies.

The Similarly Situated And Commonality Standards Are Not So Different

Inquiries under the similarly situated standard are comparable to those that the Dukes Court said must be tightened under the commonality standard of Rule 23(a)(2). In fact, a number of courts have equated "similarly situated" to the commonality requirement of Rule 23(a)(2). Dukes should thus compel lower courts to pay closer attention to the disparities that often exist among members of a putative FLSA collective ? such as variations in supervisors, departments, facilities, divisions, and regions ? because the Court held that the "dissimilarities" in the proposed class, not the common questions raised, have the most potential to determine whether classwide resolution of a matter is permissible. In MacGregor, et al. v. Farmers Ins. Exchange (D. S.C. July 22, 2011), the district court recently denied conditional certification in applying Dukes in just this way, holding that if there is a practice involving decentralized and independent action by supervisors that is allegedly contrary to the company's policies, individual factual inquiries as to each independent supervisor's decisions will predominate, and judicial economy will not be promoted by conditional certification.

The final certification stage of a § 216(b) action requires a more stringent judicial analysis than the first, and typically comes after discovery has been largely completed. At this stage, courts assess whether the differences among the party plaintiffs (all of whom will have opted in by this point following issuance of court-approved notice) outweigh their similarities. If so, the action should be decertified. This "differences" inquiry runs hand-in-hand with the Supreme Court's emphasis in Dukes on dissimilarities in the Rule 23 class context. In another recent decision, Spellman v. American Eagle Express, Inc. (E.D. Pa. July 21, 2011), a district court denied a request to reconsider its earlier order granting conditional certification, but stated that Dukes may be persuasive to its later analysis of what is a "common question" at the final certification stage.

The Dukes Effect Could Create An Early Evidentiary Hurdle For Plaintiffs

Dukes effects will likely be seen in all types of wage-and-hour litigation, whether the alleged violation is of minimum wage, overtime or other legal protections, and whether the claim alleges exempt status misclassification, off-the-clock work, a violation of technical pay practice requirements under state law, or independent contractor misclassification. For example, while differences in the application of pay policies from one facility to the next, or variations in the independent judgment and discretion exercised by employees subject to the "administrative" exemption," have sometimes been relegated to the "decertification" stage of a § 216(b) case, after Dukes these or similar inquiries may be critical very early, at the first, conditional certification stage.

Likewise, in cases raising the "executive" exemption, plaintiffs often contend that they were improperly classified because they did not have the authority to make employment decisions with respect to their subordinates, performed non-managerial tasks as their primary duty, or otherwise. Courts' resolution of certification issues based on these assertions could be based less on anecdotal evidence about the named plaintiff(s) and more on an analysis of whether there is a common thread tying those occurrences together on a collective basis.

The Dukes Court also dispelled the notion that the merits of a case may not be considered during the "rigorous analysis" required to determine if class certification is appropriate. This could lead to challenges at the conditional certification stage about how much evidence is enough to extrapolate to the group. In practice, this may mean that the critical merits question of whether putative class members actually worked off-the-clock, actually failed to take meal and rest periods, or otherwise were subjected to a violation of wage-and-hour law, gets addressed far earlier in the litigation than has been the case until now.

Following Dukes, plaintiffs should now be pressed earlier in litigation to put forth actual evidence, beyond mere allegations, that issues common to all class or collective action members exist. From a due process perspective, this requirement could limit much of the additional burden and expense of conducting broad discovery and litigating decertification where there is no evidence issues common to all class or collective action members. Indeed, this broad discovery is often so costly as to leave employers with little choice but to settle the case, which explains, at least in part, why employers have seen an explosion of wage-and-hour litigation in the last several years.

Show Me [You Are Owed] The Money

In the less controversial section of its decision, the Dukes Court held that Rule 23(b)(2) applies only when "a single injunction or declaratory judgment would provide relief to each member of the class," not when individuals seek an individual award of monetary damages. By its very nature, the recovery of money is central to wage-and-hour litigation. Plaintiffs often argue that damages may be readily quantifiable based on a sample of the employer's pay records or that backpay calculations for a random group of class or collective members can be utilized to extrapolate the damages on a classwide basis.

Although the setting was different, the Court's rejection in Dukes of a "Trial By Formula" approach to class litigation should undermine this formulaic approach to the viability of trials in which the evidence is limited to groups of opt-ins providing representative testimony. The Court held that such an approach not only is inconsistent with Rule 23(b)(2), but also prevents the employer from litigating its statutory defenses to individual claims, thereby violating its due process rights. In Cruz v. Dollar Tree Stores, Inc. (N.D. Cal. July 8, 2011), the court decertified a class in part for this reason. The judge stated, "In light of the Supreme Court's rejection of [the "trial by formula"] approach, it is not clear to the Court how, even if class-wide liability were established, a week-by-week analysis of every class member's damages could be feasibly conducted." Thus, it will be more important than ever for defense counsel to argue that class or collective treatment is inappropriate because the necessary individualized inquiry into each class or collective member's claims could result in a series of mini-trials that undermine the efficiency benefits that class and collective treatment is meant to offer.

Once again, this should be true even outside of the Rule 23 setting in FLSA cases. In particular, when courts examine whether a conditionally certified case should be decertified, typically after extensive discovery, they often require that plaintiffs set forth a trial plan explaining how the claims of the opt-in plaintiffs can be tried by collective proof. Following Dukes, the use of representative testimony to establish such proof simply may not suffice.

In addition to rejecting the "trial by formula," Dukes held that employers are entitled to present individual defenses to each employee's specific claim for back pay, or other damages, even if a violation of the statute is found. Following this holding, employers should now have a strong due process argument in wage-and-hour cases that even if a statutory violation is found, they are entitled to present individual defenses to each class or collective action member's entitlement to the back wages sought in the litigation. The argument is even stronger in FLSA collective actions because an individual must affirmatively consent to be a member of the case, at which point he becomes a party plaintiff for purposes of adjudicating his individual claims.

Brighter Days Ahead For Employers?

As definitive as the Court's opinion in Dukes appears, it does leave some questions in the class action context unanswered. One such question concerns whether the Court's holding will necessarily extend to the Rule 23 analogues in state court actions. In Smith v. Bayer Corp., a decision issued a few days before Dukes, the Court suggested that the answer may be no, as it unanimously held that issues in related federal and state lawsuits were different because the legal standards for certifying class actions under the federal and state versions of Rule 23 differed, even though the language of the state rule tracked the federal rule. Smith could prompt plaintiffs' lawyers to file smaller, more narrowly defined class actions in state court to avoid removal to federal court under the Class Action Fairness Act, and application of the newly heightened requirements of Rule 23 and § 216(b).

The combination of Dukes and Smith could also lead to an increase in the number of state law class actions attempting to get a second bite at class or collective certification after such efforts failed in federal court. Of course, this strategy could raise serious due process issues. During the most recent Supreme Court term, tobacco giant Philip Morris argued that Dukes should be extended to state court class actions under the Due Process Clause of the U.S. Constitution. Wal-Mart also made an argument involving Rule 23 and due process in its briefing. However, the Supreme Court chose not to take up the issue in either case.

While the full lessons of Dukes will not be known for years, the decision has undoubtedly created an environment that will prove more friendly to employers defending against wage-and-hour claims. As always, the strongest defense to potential wage-and-hour claims is vigilant attention to compliance efforts before litigation arises, including the adoption, distribution, and effective enforcement of internal policies against violations of federal and state pay requirements. Such policies remain the most important weapon in the employer's defense arsenal, and their importance will only be magnified after Dukes, since their existence and enforcement on a company-wide basis will underscore the atypical, "one off" nature of any alleged violations that may have occurred.