Hunton Employment & Labor Perspectives

This week, the United States Supreme Court issued its decision in what has been called the “most important class action case in more than a decade.”  In Wal-Mart Stores, Inc. v. Dukes, et al., No. 10-277, 564 U.S. ___ (June 20, 2010), the plaintiffs, current and former employees of the Nation’s largest private employer, Wal-Mart, sought judgment against the company for injunctive and declaratory relief, punitive damages, and backpay, on behalf of themselves and a nationwide class of some 1.5 million female employees, alleging sex discrimination in violation of Title VII of the Civil Rights Act of 1964.

The plaintiffs sought to certify the class of current and former employees under Rule 23(b)(2) of the Federal Rules of Civil Procedure, which prescribes the rules for class actions seeking injunctive relief rather than money damages.  But, the Supreme Court, in an opinion delivered by Justice Antonin Scalia, held that the certification of the plaintiff class was inconsistent with both Rules 23(a) and 23(b)(2).

Under Rule 23(a)(2), the plaintiffs needed to show that there were “questions of law or fact common to” all of the plaintiff class members.  According to the Court, commonality requires the plaintiffs to demonstrate that the class members have suffered the same injury, which does not mean merely that they have all suffered a violation of the same provision of law.  Rather, “[t]heir claims must depend upon a common contention -- for example, the assertion of discriminatory bias on the part of the same supervisor.”  Slip op. at 9.

The common contention, moreover, must be “affirmatively demonstrate[d]” because “Rule 23 does not set forth a mere pleading standard.”  Id. at 10.  One way to demonstrate a common contention is by 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, such as through entirely subjective decisionmaking processes.”  Id. at 12-13 (citations and quotations omitted).  However, the Court found that “significant proof” is “entirely absent here.”  Id. at 13.  Although the Court recognized that Wal-Mart had a common “policy” of allowing discretion by local supervisors over employment matters, which can be the basis of Title VII liability under a disparate-impact theory, the mere existence of the policy does not lead to the conclusion that every employee in a company using a system of discretion has such a claim in common.  Rather, the Court found that “[t]o the contrary, left to their own devices most managers in any corporation -- and surely most managers in a corporation [like Wal-Mart] that forbids sex discrimination -- would select sex-neutral, performance-based criteria for hiring and promotion that produced no actionable disparity at all.”  Id. at 15.

The Court, in a 5-4 decision, thus concluded that, because the plaintiffs failed to identify a common mode of exercising discretion that pervades the entire company, they failed to establish the existence of a common question, and reversed the class certification order.  Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented from the Rule 23(a) ruling, arguing that the majority blended Rule 23(a)(2)’s commonality requirement with Rule 23(b)(3)’s inquiry into whether common questions “predominate” over individual ones.  Justice Ginsburg added that “[t]he evidence reviewed by the District Court adequately demonstrated that resolving [plaintiffs’ claims of gender discrimination] would necessitate examination of particular policies and practices alleged to affect, adversely and globally, women employed at Wal-Mart’s stores.  Rule 23(a)(2), setting a necessary but not sufficient criterion for class-action certification, demands nothing further.”  Dissenting op. at 8.

The Court also held that the plaintiffs’ claims for backpay were improperly certified under Rule 23(b)(2) because the monetary relief sought was not incidental to injunctive or declaratory relief.  Under Rule 23(b)(2), a class may be certified 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.”  Rather than involving monetary damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief, the Court found that this case would require additional hearings to resolve the disparate merits and scope of each individual’s relief; and that contrary to the Ninth Circuit’s view, Wal-Mart is entitled to individualized determinations of each employee’s eligibility for backpay.  “[A] class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.”  Id. at 27.  The Court thus concluded, in a 9-0 decision, that, “at a minimum, claims for individualized relief (like the backpay at issue here) do not satisfy the Rule.”  Id. at 20.