Supreme Court Sets High Bar for Class Certification

by Brad Williams, Holland & Hart LLP

The U.S. Supreme Court’s Dukes v. Wal-Mart decision is enormously consequential for employers, particularly those facing “bet-the-company” class actions involving allegations of widespread discrimination. In essence, the Court answered a number of outstanding procedural and interpretive questions involving the federal class-action device in such a way as to make obtaining class certification — or even ultimately recovering at trial — much more difficult for employment discrimination plaintiffs.

Sweeping Rules
Rather than resolve the case on narrow, technical grounds relating to the types of relief available under a Federal Rule of Civil Procedure 23(b)(2) class action or the validity of the Wal-Mart plaintiffs’ specific theory of sex discrimination, the Court laid down sweeping rules that will affect all employment discrimination class actions in the future. For example, class plaintiffs must now unambiguously “prove” all the elements required for class certification under Rule 23 and must show that class certification will help generate common answers — not just common questions — relating to potential discrimination.

Common answers generally will be unobtainable if dissimilarities in the proposed class are too pronounced. Potential class-action plaintiffs also must unambiguously present “significant proof that an employer operated under a general policy of discrimination.” In doing so, they may be required to present evidence that overlaps with the merits of their claims or satisfy traditional evidence standards relating to the admissibility of expert testimony.

Deeper Look at Wal-Mart Decision
As applied to the Wal-Mart plaintiffs’ specific allegations, the Rule 23(a)(2) class-action standards preclude the plaintiffs from showing that the company operated under a “general policy of discrimination.” Specifically, the plaintiffs’ suggestions that Wal-Mart had a “strong corporate culture” that rendered it “vulnerable” to sexism are too vague to suggest actual classwide discrimination, at least absent proof that sexism infused the bulk of the challenged employment decisions. Similarly, the plaintiffs’ suggestion that managers’ discretion in making store-level employment decisions resulted in widespread gender discrimination can’t support class certification, at least absent compelling evidence that essentially all managers abused their discretion in essentially the same discriminatory manner.

Notably, the Court looked very closely — and critically — at the Wal-Mart plaintiffs’ proffered statistical and anecdotal evidence of alleged sex discrimination, likely setting a precedent for lower courts to follow in future class certifications. To obtain class certification going forward, employment discrimination plaintiffs will have to present substantially stronger evidence of widespread discrimination than the Wal-Mart plaintiffs presented.

In short, by shoring up the standards for “commonality” under Rule 23(a)(2) and rigorously applying those standards to the facts of the case, the Supreme Court set a high bar for class certification that will affect all potential class-action plaintiffs in the future.

Additionally, the Supreme Court resolved a relatively technical dispute over the types of damages available under a Rule 23(b)(2) class action in such a way that will likely have equally far-reaching effects on employers. Specifically, the Court held that Rule 23(b)(2) class actions may not be maintained when plaintiffs request “individualized” monetary relief such as back pay. Instead, such claims must proceed under Rule 23(b)(3), which requires a more stringent showing that common claims “predominate” over questions affecting individual class members and that a class action is “superior” to other methods of adjudicating the dispute.

Rule 23(b)(3) class actions additionally require that notice be provided and that absent class members receive “opt-out” rights. Such requirements impose significant potential expense on would-be class-action plaintiffs. Interestingly, the Court noted that due process concerns might preclude Rule 23(b)(2) class actions requesting any type of monetary relief or even just injunctive or declaratory relief. In other words, most class-action plaintiffs may eventually have to provide notice and opt-out rights to all absent class members, at least if the Supreme Court follows up on its intimations in future jurisprudence.

In sum, by narrowly defining the type of relief available under a Rule 23(b)(2) class action, the Court essentially barred a path to relief favored by many class-action plaintiffs because of its relatively relaxed certification standards and its more modest litigation costs. Conversely, the Court ensured that future class-action plaintiffs seeking individualized monetary relief will have to satisfy the more demanding “predominance” and “superiority” standards and comply with all relevant due process requirements.

Finally, in perhaps the most unexpected holding in its decision, the Supreme Court weighed in on how trial courts should manage employment discrimination class actions in the future, even assuming they pass the class certification bar. The Court expressly rejected the appellate court’s endorsement of a trial management plan that would essentially have permitted the Wal-Mart plaintiffs to prove a widespread pattern or practice of discrimination and then establish damages on the basis of a formula derived from a number of test cases involving select plaintiffs. In rejecting that plan, the Court reinvigorated decades-old precedent requiring that companies like Wal-Mart be permitted to present individualized affirmative defenses relating to each class member and thereby prove that each member was denied an employment opportunity for lawful reasons.

Bottom Line for Employers
In other words, the Dukes v. Wal-Mart case may effectively diminish the luster of class-action litigation for many employment discrimination plaintiffs by foreclosing the possibility of a large monetary award resulting from a relatively small number of hearings. Instead, both employers and plaintiffs may face a settlement calculus much more analogous to that attained under a proliferation of individual single-plaintiff employment discrimination cases, particularly since each class plaintiff’s individual entitlement to damages is now unambiguously subject to challenge by defendants such as Wal-Mart.

Brad Williams, a contributor to Colorado Employment Law Letter, has extensive experience counseling employers in labor and employment matters and defending employers in employment-related litigation. He is an associate in the Denver, Colorado, office of Holland & Hart LLP.