June 21, 2011

High Court Rules Against Certification of Class of 1.5 Million Workers

 

Submitted by Shaun Haley, Of Counsel with the Las Vegas office of Ogletree Deakins. The article was drafted by the attorneys of Ogletree Deakins, a national labor and employment law firm that represents management. This information should not be relied upon as legal advice.

 

This morning, the U.S. Supreme Court ruled that a case brought on behalf of some 1.5 million female current and former employees of Wal-Mart should not have been certified as a class action. According to the Court, the plaintiffs were required to show that their claims depended on a common contention of such a nature that it was capable of classwide resolution – in this case, evidence that Wal-Mart "operated under a general policy of discrimination." But, the Court found that "[o]ther than the bare existence of delegated discretion, respondents have identified no 'specific employment practice' – much less one that ties all their 1.5 million claims together." Wal-Mart Stores, Inc. v. Dukes, No. 10–277, U.S. Supreme Court (June 20, 2011).

 

Factual Background

 

Three current and former Wal-Mart employees filed suit alleging that the company discriminated against them because of their sex by denying them equal pay or promotions, in violation of Title VII of the Civil Rights Act. The workers sought judgment against the company for injunctive and declaratory relief, punitive damages and back pay, on behalf of themselves and approximately 1.5 million other female Wal-Mart employees.

 

The plaintiffs alleged that their local managers' discretion over pay and promotions was exercised disproportionately in favor of men, leading to an unlawful disparate impact on female employees and that, because Wal-Mart was aware of this effect, its refusal to properly restrain its managers' decision-making authority constituted disparate treatment. Moreover, the plaintiffs argued that this discrimination is common to all of Wal-Mart's female employees. According to the plaintiffs, Wal-Mart has a strong and uniform "corporate culture" that permits bias against women to affect the discretionary decision-making of all Wal-Mart's managers. As a result, the plaintiffs claimed, every female employee is the victim of one common discriminatory practice.

 

The plaintiffs asked the trial judge to certify a class consisting of "[a]ll women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart's challenged pay and management track promotions policies and practices." The trial judge certified the plaintiffs' proposed class and the Ninth Circuit Court of Appeals substantially affirmed the certification order. The case eventually reached the U.S. Supreme Court.

 

Legal Analysis

 

Federal Rule of Civil Procedure 23 governs whether a case may proceed as a class action. Under Rule 23(a), the party seeking certification must demonstrate, among other things, that "there are questions of law or fact common to the class" – the so-called commonality requirement of Rule 23(a). To meet this requirement, Justice Antonin Scalia wrote (on behalf of a 5-4 majority), the plaintiffs must show that their claims depended on common contentions that are 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."

 

In this case, Justice Scalia noted, proof of commonality necessarily overlaps with the merits of the plaintiffs' claim that Wal-Mart engages in a pattern or practice of discrimination because the crux of a Title VII inquiry is "the reason for a particular employment decision." Thus, to satisfy the commonality requirement, the Court ruled, the plaintiffs must show that Wal-Mart "operated under a general policy of discrimination."

 

The high court ruled that the plaintiffs did not show significant proof of such a policy. In arriving at this conclusion, Justice Scalia noted that Wal-Mart's announced policy forbids sex discrimination and that it imposes penalties for denials of equal employment opportunity. Moreover, the Court found that the only policy that the plaintiffs have shown "is Wal-Mart's 'policy' of allowing discretion by local supervisors over employment matters." In a company using such a system of discretion, the Court ruled, "demonstrating the invalidity of one manager's use of discretion will do nothing to demonstrate the invalidity of another's."

 

In the absence of a corporate policy of discrimination, the Court also disregarded the testimony of the plaintiffs' sociological expert as well as their statistical and anecdotal evidence. Thus, because the plaintiffs did not provide "convincing proof of a company-wide discriminatory pay and promotion policy," the Court concluded that they have not established the existence of any common question.

 

The Court next turned to whether the plaintiffs' claims for back pay were properly certified under Rule 23(b)(2), which applies when "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." According to the Court, Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class – not when each individual class member would be entitled to a different injunction or declaratory judgment or when each class member would be entitled to an individualized award of monetary damages. The Court ruled that claims for monetary relief may not be certified under Rule 23(b)(2), "at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief." Thus, the Court held that the plaintiffs' claims for back pay were improperly certified under Rule 23(b)(2). Significantly, all members of the Court joined in that part of the majority opinion.

 

Practical Impact

 

According to Meg Campbell, a shareholder in Ogletree Deakins' Atlanta office: "The Dukes majority quite thoroughly analyzed and harmonized the Court's class action precedent to provide lower courts – and defendants' counsel – with a helpful framework for testing rigorously the plaintiffs' proof of commonality, including expert and anecdotal evidence, in considering class certification motions. The majority particularly focused on the 'common answers' test of commonality, and emphasized the requirements of 'significant proof' of a general policy of discrimination and identification of a 'specific [discriminatory] employment practice' that ties all of the putative class members' claims together. The Court thus reaffirmed that the bar for class certification in Title VII cases is a high one, and the practical effect ought to be that there will be fewer company-wide cases filed, certified, and settled."

 

According to Craig Cleland, a shareholder in the firm's Atlanta office: "By disapproving the Ninth Circuit's relaxed standard for establishing commonality, the Supreme Court brings much needed rigor to Rule 23(a)(2)'s commonality requirement. Of course, from the four dissenters' point of view, the majority improperly imports into the commonality requirement the higher hurdle of predominance under Rule 23(b)(3). That said, even the dissenters agree with the majority that this class cannot be certified under Rule 23(b)(2). What's also remarkable is the majority's wholesale rejection of the plaintiffs' statistical and anecdotal case, including their proposal to try the case using a statistical formula. The Court brings sanity to these areas, too. Where will plaintiffs turn now? I never underestimate the creativity of the plaintiffs' bar. But even so the landscape has changed dramatically and unfavorably for them today."

 

According to Elizabeth Washko, managing shareholder of Ogletree Deakins' Nashville office: "The Supreme Court's decision in Dukes is good news for employers. Much of this good news relates to important, legal and technical issues concerning statistical analyses and class action rules. However, the decision also provides some helpful language supporting certain common aspects of business operations and decision-making."

 

"Initially, the Court provided very helpful reinforcement to the concept that a court assessing a Rule 23 class certification request must apply a 'rigorous analysis' and may need to and is permitted to evaluate merits evidence when conducting this analysis. The Court noted that the class action device is an 'exception' to the concept of litigation on an individual basis. This kind of reinforcement is comforting in the current litigation environment in which some plaintiffs' attorneys seem to have reached the conclusion that every discrimination claim should proceed on a class basis."

 

"With regard to commonality, the decision makes clear that simply raising a number of facially common questions will not suffice; the plaintiffs must establish that the class action device will result in a common answer to those questions. In addition, while claiming not to have done so, the decision seems to have negated the concept that alleging that an employer permits decision-makers to exercise discretion – without evidence that the employer has directed those decision-makers in a fashion designed to create discriminatory results – will not establish the commonality required to certify a class."

 

"While the decision is highly technical and focused on class certification issues, we can glean some practical guidance from it. The Court's rejection of the plaintiffs' complaint about discretionary decision-making provides some validation for the business need for decision-makers to exercise discretion when making employment decisions. As the Court observed, this concept is a 'common and presumptively reasonable way of doing business.'" Notably, employers that permit their decision-makers to exercise discretion should take steps to ensure that such discretion is not being used inappropriately or in a manner that may expose the employer to at least individual claims of discrimination. In addition, the Court's several references to the fact that Wal-Mart's stated company policy prohibited discrimination highlight the importance of employers having effective, well-established EEO policies that clearly prohibit discrimination in connection with employment decisions, having means to enforce those policies and punish violators, and, in fact, enforcing the policies."

 

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