On June 20, 2011, in Wal-Mart Stores, Inc. v. Dukes, the U.S. Supreme Court in a 5-4 ruling rejected class certification for a putative class of approximately 1.5 million women alleging that Wal-Mart discriminated against them in pay and promotions based on gender. The case drew significant media and legal attention because it was the largest employment discrimination class action ever certified and was brought against the largest employer in the United States. The case has far-reaching consequences not only for future attempts to obtain class certification in employment discrimination cases, but also for obtaining class certification generally.
In reversing the Ninth Circuit, the Court made two significant rulings. First, the Court did not find any common liability question with respect to the class's claim of gender discrimination. Wal-Mart provided its local managers with discretion to implement the company's anti-discrimination policies, and the case turned on literally millions of separate and unconnected employment decisions. Second, the Court rejected plaintiffs' efforts to obtain a monetary award of back pay for the class through Rule 23(b)(2) certification, holding that monetary awards were permitted under Rule 23(b)(2) only in narrow circumstances in which the award was incidental to injunctive relief granted by a district court.
As to the "commonality" requirement of Rule 23(a)(2), Justice Antonin Scalia, who wrote for the majority, held that the putative class of female employees could not demonstrate that "there are questions of fact common to the class." He found that the putative plaintiffs could not provide "a common answer to the crucial question, why was I disfavored?" He also noted that Wal-Mart had an clear policy banning gender discrimination and granted discretion to local managers to implement the policy. Justice Scalia concluded that Wal-Mart had "the opposite of a uniform employment practice that would provide the commonality needed for a class action." Rather, "[i]t is a policy against having uniform employment practices." The case involved "millions" of employment decisions, and the putative plaintiffs, according to Justice Scalia, could not demonstrate that there was any "glue" holding the reasons for all of those decisions together. In the District Court, the putative plaintiffs offered statistical and anecdotal evidence that Wal-Mart might encourage disparities through a centralized personnel policy that allowed subjective decisions to be made by local managers, who in turn could make decisions about job compensation and promotion susceptible to gender bias. The majority rejected this evidence, finding that it did not demonstrate that Wal-Mart had a consistent policy of discrimination applicable to all putative plaintiffs. The class "had little in common but their sex, and this lawsuit."
Despite the clear split on the commonality question, the Court unanimously agreed that plaintiffs may not seek back pay pursuant to Rule 23's provision allowing injunctive or declaratory relief, unless it was purely incidental to the type of court orders sought by plaintiffs. The Court explained that Rule 23(b)(2) is intended to allow certification based on the indivisible nature of injunctive relief as applied to a class as a whole. Claims for back pay, however, turn on individualized evidence and inquiries resulting in individualized awards of monetary damages.
We expect the Dukes decision will be a significant obstacle to plaintiffs seeking to certify nationwide classes. Dukes underscores that Rule 23(a)(2) is a significant certification hurdle that requires real evidence that there exist "common questions" of law and fact common to all class members. Employment decisions typically depend on individual facts and circumstances, and, under Dukes, plaintiffs must now show a common corporate policy or course of conduct applicable to all class members to satisfy Rule 23(a)(2). And, even outside the employment context, large companies with truly decentralized practices will have a strong defense against class certification going forward. Dukes also makes recovery of monetary damages more difficult by requiring that those cases satisfy Rule 23(b)(3), which permits certification only when common questions "predominate" over individual questions—a much more difficult standard to satisfy.
With such disincentives to bringing huge national class action suits, we expect that corporate defendants will less frequently face the Hobson's choice between the cost of litigation and the cost—and negative precedent—of settlement. At the same time, the new, more hostile environment in the federal courts may push plaintiffs and their attorneys to file larger class actions in more hospitable state courts, and to split up a large federal action into a number of federal actions with smaller, more closely related putative plaintiff classes.
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