Wal-Mart Stores, Inc. v. Dukes ― United States Supreme Court Denies Class Certification to One of the Most Expansive Class Actions in History

July 2011

In June 2011, the United States Supreme Court overturned a decision that permitted 1.5 million former/current employees to bring a single Title VII discrimination lawsuit against Wal-Mart. As many employers know, a class action lawsuit can increase the time and costs (exponentially) associated with a company’s defense and if ultimately successful, can result in millions (if not billions) of dollars in liability. The Wal-Mart Stores, Inc. v. Dukes case provides a significant boost to class action defense. The Court found the evidence presented by the plaintiffs was insufficient to establish the “commonality” requirement for class certification (a requirement that there be questions of law or fact common to the entire class), especially when Wal-Mart had an express policy prohibiting discrimination and enforcing equal employment opportunities. The Court also held that, under Federal rules, plaintiffs seeking individualized relief (back pay) cannot proceed as a class action under Federal Rule of Civil Procedure 23(b)(2).

The Facts:  In 2004, a group of current and former female employees sued Wal-Mart alleging that the Company’s policy giving local supervisors discretion in determining pay and promotion matters, discriminated against women in violation of Title VII. The Northern District of California and the Ninth Circuit Court of Appeals approved class action certification for the plaintiffs, which created a class of litigants totaling approximately 1.5 million former/current employees. The class was defined as: “all women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart’s challenged pay and management track promotions policies and practices.”

The plaintiffs did not allege that Wal-Mart had an express policy discriminating against women. Indeed, the opposite was true as Wal-Mart had an express policy forbidding discrimination and imposing penalties for denials of equal employment opportunities. Instead, the plaintiffs claimed that leaving wide discretion with local supervisors resulted in a disproportionate amount of promotions/benefits to male employees ― essentially, the allegation was that Wal-Mart had a “corporate culture” permitting biases against women.

To support their application for class certification, the plaintiffs presented the following evidence: (1) testimony from plaintiffs’ sociology expert, stating that Wal-Mart had a “strong corporate culture,” making it vulnerable to gender bias; (2) statistical evidence about pay and promotion disparities between men and women; and (3) anecdotal reports from 120 of Wal-Mart’s female employees.

The plaintiffs also attempted to certify their claims for individualized back pay as a class action, under Federal Rule of Civil Procedure section 23(b)(2) which allows class treatment when the defendant “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.”

The Analysis:  The Supreme Court held that the plaintiffs were unable to satisfy the requirements of Federal Rule of Civil Procedure section 23(a)(2) (governing class actions).  Specifically, the Court noted the plaintiffs were attempting to sue, as a class, for literally millions of employment decisions ― and without some “glue” to hold together the alleged reasons for those decisions, class action would be inappropriate. The mere possibility that a policy granting store managers discretion may result in discrimination, does not necessarily mean that every employee subject to that discretionary policy was discriminated against ― especially with a company of Wal-Mart’s size and geographic scope.

The Court found the testimony of the plaintiffs’ sociology expert to be unconvincing.  In particular, the expert was unable to give any opinion as to how regularly stereotypes played a meaningful role in Wal-Mart’s employment decisions. The expert admitted that he could not calculate whether 0.5 percent or 95 percent of Wal-Mart’s employment decisions were determined by stereotypes. The Court also stated that mere statistical evidence showing discrepancies between male and female employees was not enough to demonstrate a “common” issue. Finally, the Court held that the anecdotal reports of the 120 female employees were insufficient because the sample size only constituted 1 for every 12,500 employees; 235 out of 3,400 stores; and more than half of the reports were concentrated in only six states. Thus, the Court concluded that the plaintiffs did not meet their burden of establishing “commonality” between the class members.

The Court also made a second ruling. In addition to obtaining class certification for its injunctive/declaratory relief claims (based on discrimination), the plaintiffs also obtained class certification (from the District and Appellate courts) on their individualized back pay claims.  The Supreme Court overturned the grant of class certification, finding that individualized claims could not proceed as a class action under Rule 23(b)(2) because each class member would be entitled to a different form of relief if ultimately successful on their claims. The Court left open the opportunity, however, for individualized claims to proceed as a class under the more stringent and protective Rule 23(b)(3).

The Effect:  The Wal-Mart decision should make it more difficult for aggrieved employees to pursue class action lawsuits against employers particularly when the crux of the employees’ claim is based on a policy that is not, on its face, discriminatory. In light of the Supreme Court’s ruling, plaintiffs will likely have to allege more than the presence of a “corporate culture” of bias in order to proceed as a class action, and it is anticipated that courts will look very carefully at the evidence proffered to support class actions and demand more than mere statistical studies.

Employers of every size can position themselves to favorably utilize the Wal-Mart decision by:

• Establishing clear policies prohibiting discrimination and providing for equal employment opportunities
• Defining standards that govern promotion and pay decisions (minimum years of employment, experience and/or performance reviews)

Finally, although this decision favors employers, smaller employers should also be cautious in putting too much weight on Wal-Mart because the Court considered the size and geographical coverage of Wal-Mart when making its decision. Just because a sample size of 120 employees was insufficient evidence to establish “commonality” in the case of Wal-Mart, does not mean it will be similarly insufficient in the case of a company of only 500.

Please note that the information contained in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.