The U.S. Supreme Court recently handed down a decision in Wal-Mart Stores, Inc. v. Dukes, a landmark case involving 1.5 million female current and former Wal-Mart employees who attempted to challenge the retail giant’s employment practices. Essentially, the women complained that local stores have too much discretion in making decisions about compensation and promotions, resulting in numerous discriminatory employment decisions. The case redefines (and narrows) a key requirement to certification of class-action suits ― that is, commonality among the members of the proposed class. The Court’s decision offers some relief to employers facing class-action wage and hour litigation suits.
General Class-Action Requirements
Class-action suits must first be certified by the trial court. To gain certification, the proposed class must prove four elements of their case:
1. numerosity, which requires the proposed class to show that there are so many plaintiffs that adding parties, like a person would in a normal lawsuit, will not work;
2. commonality (the requirement under scrutiny in this case), which requires members of the class to share common questions of law or fact;
3. typicality, which requires the proposed class to show that the claims or defenses of the class members are typical of the claims or defenses of the entire class; and
4. that the representatives of the class will fairly and adequately protect the interests of all members of the class.
In addition to these four requirements, the class must satisfy one of three other requirements. The Wal-Mart employees attempted to use the requirement that injunctive relief (i.e., an order issued by the court to stop the practice at issue) was appropriate for the class as a whole.
Facts
The Wal-Mart case was filed on behalf of three women formerly employed by Wal-Mart, the nation’s largest private employer. The women claimed that the company’s discretionary policy governing promotions and pay increases led to a “corporate culture” of local managers disproportionately favoring men over women, thus constituting discrimination by denying female employees equal promotions and pay in violation of Title VII of the Civil Rights Act of 1964.
The women filed suit on behalf of themselves and 1.5 million female current and former Wal-Mart employees and sought to certify the suit as a class action. The trial court certified the class, finding commonality of all the members based on (1) evidence regarding disparate pay and promotion statistics between men and women at the company, (2) 120 anecdotal reports from female employees, and (3) the testimony of a sociologist who concluded that the culture and personnel policies made the company “vulnerable” to discrimination.
The Ninth U.S. Circuit Court of Appeals affirmed, finding the commonality requirement was met because all the females were subject to a single set of corporate policies that may have unlawfully discriminated against them in violation of Title VII. Furthermore, the Ninth Circuit determined that individualized monetary relief sought by the class didn’t predominate injunctive relief. The court, which relied on a former Ninth Circuit case that used a “trial by formula” approach to calculate compensatory damages for each individual in a class-action suit, held that the case was still manageable.
Supreme Court’s review
The U.S. Supreme Court agreed to review the case to determine whether such a large class action is consistent with the reason we have class actions ― that is, to efficiently process large cases that don’t fit the traditional mode of an individual party (or a handful of similarly situated parties) filing suit. Justice Antonin Scalia delivered the Court’s opinion stating that class actions are the exception to the rule of individual relief. He said the crux of the case was commonality.
Because almost every complaint of a proposed class will raise a common question, the Court determined that commonality requires something more. Instead, in a claim of common contention, commonality entails analysis into whether the employees suffered the same injury. The Court said that the common contention must be of such a nature that determination of its truth or falsity will resolve an issue that is central to the validity of each claim in a single stroke. The Court held that proposed class members can’t merely allege that will happen; rather, they must introduce a sufficient factual basis to prove it will happen.
The inquiry into commonality was whether an alleged pattern or practice of discrimination existed, which required investigation into the reasoning behind each particular employment decision. The Court concluded that the representatives of the proposed class were attempting to sue for literally millions of employment decisions at once. Therefore, a common reason must underlie each of the millions of decisions for class certification to be granted. That could be proven, for example, by showing the employer used a testing procedure that was biased against a certain race or gender or by proffering significant proof that the employer operated under a general policy of discrimination.
The Court drew attention to the fact that Wal-Mart’s policy forbids sex discrimination and the suing party’s reliance on an expert’s opinion that between .5 percent and 95 percent of Wal-Mart’s decisions were determined by stereotype. The Court found that those two pieces of evidence were worlds away from significant proof that Wal-Mart operated under a general policy of discrimination. To the contrary, giving local managers discretion in promotion and pay decisions is the exact opposite of having a uniform employment practice.
The Court found that no inferences of discriminatory conduct can be raised by a discretionary policy because “left to their own devices, most managers in any corporation ― and surely most managers in a corporation that forbids sex discrimination ― would select sex-neutral performance- based criteria for hiring and promotion that produce no actionable disparity at all.”
Statistical and anecdotal evidence rejected
The statistical evidence offered by the female employees was insufficient to establish a theory of discriminatory practice on a classwide basis. That’s because merely proving that a discretionary system produced racial or sexual disparity is not enough; there must be specific employment practices to tie the claims together. Regarding the anecdotal evidence, the Court brushed aside the 120 affidavits, which represented only one of every 12,500 class members and only 235 of the 3,400 Wal-Mart stores.
Back pay not uniform
The Court went on to determine that a claim for back pay was equally uncertifiable in a class-action proceeding, stating that at a minimum, claims for individualized relief don’t allow for class certification when each individual class member would be entitled to a unique award of monetary damages. Relying on the basis of that rule, the Court justified that the basis for class actions stems from the impossibility of individual adjudications. However, for monetary damages to be proper, they must result from the liability of the class as a whole and from the class’ claims forming the basis of the injunctive relief.
Trial by formula rejected
Finally, the Court rejected the “trial by formula” procedure used by the Ninth Circuit, which took random sample cases out of a large class, valued the cases, and allowed the employer to raise individual defenses against them. The Supreme Court voiced its disapproval of that novel project, refusing to certify a class on the premises that Wal-Mart wouldn’t be able to use defenses for each employee’s individualized claim of back-pay eligibility. Wal-Mart Stores v. Dukes.
Bottom line
This case represents a marked change in the way class actions are certified and the hurdles representatives of a proposed class must overcome to gain class certification. The Supreme Court has raised the level of proof required to find commonality among class members. Specifically, certain determinations of back pay may be uncertifiable because doing so may require an individual adjudication of each member’s Title VII damage claim. Some lower courts, however, may still allow class claims to proceed when there are individual damages if the common liability would allow for a more efficient adjudication of the case as a whole. Finally, the proper form of determining each employee’s back pay cannot be circumvented by a “trial by formula.”
Additionally, the Court’s decision provides employers an opportunity to better foresee and predict how their companywide policies and practices may affect class certification status. You should carefully review your policies and practices to better understand how certain centralized policies may cause or allow for discrimination or produce disparate results. Based on the Court’s decision, you may have local managers make discretionary promotional and pay decisions so long as the decisions aren’t based on discriminatory reasons.
Remember that denial of class certification doesn’t mean each person loses her individual claim for discrimination. Employees may still sue their employers individually, which, in some cases, may be more costly than a traditional class action.
Megan E. Snyder is an attorney at Axley Brynelson, LLP. She can be reached at (608) 283-6799 or msnyder@axley.com.