U.S. Supreme Court Raises the Bar for Class Actions

In Wal-Mart Stores, Inc. v. Dukes, et al.—a seminal decision in what is described by Justice Antonin Scalia as “one of the most expansive class actions ever”—the United States Supreme Court held that the certification of a class brought on the behalf of 1.5 million current and former female employees against Wal-Mart for injunctive relief, declaratory relief, and backpay for alleged discrimination in violation of Title VII of the Civil Rights Act of 1964 was not consistent with Rules 23(a) and (b)(2) of the Federal Rules of Civil Procedure, which govern class action claims. The immediate result of this decision is that any of the 1.5 million employees who wish to pursue a claim against Wal-Mart will have to file an individual lawsuit based on facts specific to her claim of discrimination. However, the long-term effect of this decision is likely far reaching because this ruling will make it more difficult for plaintiffs to bring sweeping class action employment discrimination against employers.

The Court’s opinion was divided into two sections. In the first section, a 5-4 split decision, the Supreme Court examined the facts to determine if there were “questions of law or fact common to the class” to meet the commonality requirement of Rule 23(a). The Court explained that to meet their burden of proof on this issue, the employees would have to demonstrate either a “testing procedure or other companywide evaluation method that can be charged with bias” or “significant proof” that Wal-Mart “operated under a general policy of discrimination.”  Otherwise, a class action, even if successful, would not be able to produce a common answer as to why each employee was allegedly disfavored. In other words, the employees would have no glue to hold their claims together.

However, rather than arguing that Wal-Mart had a common evaluation method or policy (most likely because Wal-Mart actually had a national policy against sexual discrimination), the employees argued just the opposite; they claimed that Wal-Mart’s policy of allowing discretion by local supervisors over employment matters violated Title VII by discriminating against women. In particular, the employees claimed that the local managers’ favor of men when exercising their discretion over pay and promotions caused a disparate impact on female employees and that Wal-Mart’s failure to remedy the disparate treatment resulted in discrimination of all Wal-Mart’s female employees.

In reversing the Ninth Circuit, the Court found that the employees’ argument fell short of meeting their burden of showing commonality and held that Wal-Mart’s policy of allowing managerial discretion “is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices. It is also a very common and presumptively reasonable way of doing business.”   Finally, the Court applied “good old common sense” in reasoning that that “in a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction.”

Perhaps as important to the Court’s holding was the Court’s rejection of the evidence proffered by the employees for proof of commonality. The employees submitted the anecdotal cases of 120 employees, statistical evidence, and the testimony of a sociologist who had conducted a “social framework analysis.” The Court rejected this evidence as proof of commonality. Furthermore, it held that even if the evidence could show that Wal-Mart’s policy of discretion had produced disparity across the company, such evidence would not “raise any inference that all the individual, discretionary personnel decisions are discriminatory.”

In short, the Supreme Court’s interpretation of evidence needed to meet the commonality requirement of Rule 23(a) raised the bar country-wide for plaintiffs who seek to file any class action in federal court. Particularly, in a workplace bias class action, plaintiffs will have to show that the type of discrimination alleged was a result of a companywide policy, testing procedure, or other evaluation method or another “common mode of exercising discretion that pervades the entire company.” 

If the first part of the opinion did not produce enough momentous decision for one case, the second portion offers another important development. In a unanimous decision, the Supreme Court also held that the Wal-Mart employees’ claims for backpay were improperly certified under Rule 23(b)(2) of the Federal Rules of Civil Procedure. The Supreme Court held Rule 23(b)(2), which permits class-action requests for injunctive or declaratory relief, is inapplicable to claims for individualized relief, such as backpay in an employment discrimination case, unless the individualized damages are merely incidental to the injunction or declaratory relief.  The Court declined to determine if monetary damages could ever be incidental to the injunctive or declaratory relief, but found that they were not in Wal-Mart’s case. The Court reasoned that Wal-Mart is entitled to “individualized determinations of each employee’s eligibility for backpay.”

Thus, if plaintiffs seek individualized damages, and particularly backpay, their claims must meet the more rigorous procedural protections of Rule 23(b)(3) of the Federal Rules of Civil Procedure. The procedural protections for Rule 23(b)(3)—which are absent from Rule 23(b)(2)—are designed to allow the judge to determine whether class action is a best method for adjudicating a particular dispute.

In short, Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes will no doubt make the certification of class actions more difficult for plaintiffs in the future. This is particularly likely to be true in employment discrimination cases.

This article was authored by Heather D. Hovermale, Jackson Kelly PLLC.