On June 20, 2011, the United States Supreme Court, in a 5-4 decision, dismantled a putative class action filed on behalf of approximately 1.5 million current and former female employees of Wal-Mart. The plaintiffs in Dukes claimed Wal-Mart had a corporate culture “vulnerable” to “gender bias” and, therefore, its policy of delegating employment decisions, including pay and promotion decisions, to local managers resulted in discriminatory actions against women nationwide. The Supreme Court, however, held that the plaintiffs could not pursue their claims as a class because they could not establish that their claims were sufficiently “common” to warrant a class action.
In order for a class action to proceed, a federal court must “certify” the case as a class action under Federal Rule of Civil Procedure 23. Among other things, the plaintiffs in Dukes had to show that there were “questions of law or fact common to the class” and that the Wal-Mart acted “on grounds that applied generally to the class.” Knowing that these standards exist, the plaintiffs attempted to portray Wal-Mart’s policy of delegation to local managers, and its corporate culture, as common threads applicable to all claims.
Wal-Mart’s policy of delegation to local managers and the plaintiff’s expert testimony regarding Wal-Mart’s corporate culture was, according to the Court, “worlds away” from establishing the required commonality sufficient to justify a class action. The plaintiffs had attempted to “sue about literally millions of employment decisions at once” and without “some glue holding the alleged reasons for all those decisions together,” the Court held that it would be impossible for the plaintiff’s to show the required commonality.
The Supreme Court held (5-4) that plaintiffs in a putative employment discrimination class action may establish the requisite commonality in two ways:
a) showing the employer relied on a “biased testing procedure” for determining hiring decisions or promotions, or
b) presenting “significant proof” that an employer operated under a general policy of discrimination if the discrimination manifested itself in hiring and promotion practices in the same general fashion.
Plaintiffs had not suggested Wal-Mart used any biased testing procedure and they did not present the required “significant proof” that Wal-Mart operated under a general policy of discrimination. In fact, the Court specifically pointed out that Wal-Mart’s explicit employment policy expressly forbids sex discrimination. The only evidence of an overall policy of discrimination was the plaintiffs’ expert testimony that Wal-Mart had a “strong corporate culture” that made it “vulnerable” to “gender bias.” But because that expert could not identify even a rough percentage of the number of employment decisions that might have been affected by such alleged stereotypical thinking, the plaintiffs failed to present sufficient evidence of commonality.
The Court also rejected the assertion that allowing local supervisors to make promotion and pay decisions necessarily established a common policy of discrimination. The Court recognized an employer’s “undisciplined system” of subjective decision-making can result in a system pervaded by discrimination. But recognizing that such a claim is possible does not mean that employees in a company using a system of discretion have common claims. Indeed, the Court found it “quite unbelievable” that all managers in a business of Wal-Mart’s size could have exercised their discretion in a common way, absent some evidence of common direction from the company.
Finally, the Court rejected (9-0) the plaintiffs’ attempt to certify all of the putative class members’ back pay claims. The lower courts were amenable to a procedure in which a formula would be used to calculate Wal-Mart’s back pay obligations to all 1.5 million class members in the event it was ultimately found liable for discrimination. The Court, however, rejected this formulaic approach and held that Wal-Mart was entitled to individualized determinations of each employee’s eligibility for back pay.
In short, the Supreme Court in Dukes clarified the circumstances in which class actions are appropriate for employment discrimination claims. The case, as well as the closeness of the split opinion, highlights the importance of not only having a well documented Equal Employment Opportunity Policy, but assuring that it is implemented throughout the company.
If you have any questions about the Dukes decision or its impact, please contact any member of Varnum’s Labor and Employment Relations Practice Team.