Outside the Beltway

Supreme Court Curtails Class Action Lawsuits In Wal-Mart Case

An important employment law decision today from the Supreme Court.

Doug Mataconis · Monday, June 20, 2011 · 4 comments

In a case that is likely to have major implications for class-action lawsuits across the country, the Supreme Court has ruled that former Wal-Mart employees do not meet the standards required to form a class action under Federal Law:

WASHINGTON — The Supreme Court on Monday threw out the largest employment discrimination case in the nation’s history. The suit, against Wal-Mart Stores, had sought to consolidate the claims of as many as 1.5 million women on the theory that the company had discriminated against them in pay and promotion decisions.

The lawsuit sought back pay that could have amounted to billions of dollars. But the Supreme Court, in a decision that was unanimous on this point, said the plaintiffs’ lawyers had improperly sued under a part of the class action rules that was not primarily concerned with monetary claims.

The court did not decide whether Wal-Mart had in fact discriminated against the women, only that they could not proceed as a class. The court’s decision on that issue will almost certainly affect all sorts of other class-action suits, including ones asserting antitrust, securities and product liability violations.

In a broader question in the Wal-Mart case, the court divided 5-to-4 along ideological lines on whether the suit satisfied a requirement of the class-action rules that “there are questions of law or fact common to the class.”

Justice Antonin Scalia, writing for the majority, said the plaintiffs could not show that they would receive “a common answer to the crucial question why was I disfavored.” He noted that Wal-Mart, the nation’s largest private employer, operated some 3,400 stores, had an express policy forbidding discrimination and granted local managers substantial discretion.

“On its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action,” Justice Scalia wrote. “It is a policy against having uniform employment practices.”

The case involved “literally millions of employment decisions,” Justice Scalia wrote, and the plaintiffs were required to point to “some glue holding all those decisions together.”

The plaintiffs sought to make that showing with testimony from William T. Bielby, a sociologist specializing in “social framework analysis.”

Professor Bielby told the trial court that he had collected general “scientific evidence about gender bias, stereotypes and the structure and dynamics of gender inequality in organizations.” He said he also reviewed extensive litigation materials gathered by the lawyers in the case.

He concluded that two aspects of Wal-Mart’s corporate culture might be to blame for pay and other disparities. One was a centralized personnel policy. The other was allowing subjective decisions by managers in the field. Together, he said, those factors allowed stereotypes to infect personnel choices, making “decisions about compensation and promotion vulnerable to gender bias.”

In his majority opinion, Justice Scalia emphatically rejected the effort to replace factual evidence of a common employment discrimination scheme by Wal-Mart with supposed statistical analysis that proves neither intent, nor the existence of  common facts between the members of the class:

Even if they are taken at face value, these studies areinsufficient to establish that respondents’ theory can beproved on a classwide basis. In Falcon, we held that one named plaintiff’s experience of discrimination was insuffi-cient to infer that “discriminatory treatment is typical of[the employer’s employment] practices.” 457 U. S., at 158. A similar failure of inference arises here. As Judge Ikutaobserved in her dissent, “[i]nformation about disparities at the regional and national level does not establish the existence of disparities at individual stores, let alone raise the inference that a company-wide policy of discrimination is implemented by discretionary decisions at the store and district level.” 603 F. 3d, at 637. A regional pay disparity,for example, may be attributable to only a small set ofWal-Mart stores, and cannot by itself establish the uni-form, store-by-store disparity upon which the plaintiffs’ theory of commonality depends.

There is another, more fundamental, respect in which respondents’ statistical proof fails. Even if it established (as it does not) a pay or promotion pattern that differs from the nationwide figures or the regional figures in all of Wal-Mart’s 3,400 stores, that would still not demonstrate that commonality of issue exists. Some managers will claim that the availability of women, or qualified women, or interested women, in their stores’ area does not mirror the national or regional statistics. And almost all of them will claim to have been applying some sex-neutral,performance-based criteria—whose nature and effects will differ from store to store. In the landmark case of ours which held that giving discretion to lower-level supervisors can be the basis of Title VII liability under a disparate-impact theory, the plurality opinion conditioned that holding on the corollary that merely proving that the discretionary system has produced a racial or sexual disparity is not enough. “[T]he plaintiff must begin by identifying the specific employment practice that is challenged.” Watson, 487 U. S., at 994; accord, Wards Cove Packing Co. v. Atonio, 490 U. S. 642, 656 (1989) (approving that statement), superseded by statute on other grounds, 42 U. S. C. §2000e-2(k). That is all the more necessary when a class of plaintiffs is sought to be certified. Other than the bare existence of delegated discretion, respondents have identified no “specific employment practice”—much less one that ties all their 1.5 million claims together. Merely showing that Wal-Mart’s policy of discretion has produced an overall sex-based disparity does not suffice.

In her dissent, Justice Ginsburg essentially argued that the Court should have accepted the statistical evidence as prima facie proof of discrimination:

Wal-Mart’s delegation of discretion over pay and promo-tions is a policy uniform throughout all stores. The very nature of discretion is that people will exercise it in various ways. A system of delegated discretion, Watson held, is a practice actionable under Title VII when it producesdiscriminatory outcomes. 487 U. S., at 990-991; see supra, at 7-8. A finding that Wal-Mart’s pay and promo-tions practices in fact violate the law would be the firststep in the usual order of proof for plaintiffs seeking indi-vidual remedies for company-wide discrimination. Teamsters v. United States, 431 U. S. 324, 359 (1977); see Albemarle Paper Co. v. Moody, 422 U. S. 405, 415-423 (1975).That each individual employee’s unique circumstances willultimately determine whether she is entitled to backpay or damages, §2000e-5(g)(2)(A) (barring backpay if a plaintiff “was refused . . . advancement . . . for any reason other than discrimination”), should not factor into the Rule 23(a)(2) determination.

As Ed Morrissey notes, though, adopting Ginsburg’s standard would have untenable consequences for any large business that finds it advantageous and efficient to give store managers or similar junior management employees discretion over local hiring decisions:

Ginsburg’s identification of this as a prima facie indication of discrimination would have exposed virtually all US retailers to such class-action lawsuits.  Not only would that have sapped retailers of billions in capital, but it doesn’t make any sense on its face anyway.  If compensation decisions are decentralized throughout an organization, how can that possibly demonstrate a coordinated, centralized, and explicit effort to discriminate on the basis of anything?

Indeed.  If there is evidence of discrimination in an individual case, that claim can be pursued under existing law. The Court is correct however, in denying the class action bar the hammer of the class action lawsuit in a case involving millions of individual hiring decisions by thousands of different people.

The impact of today’s decision cannot be understated. Rejection of statistical analysis as prima facie proof of discrimination, which is what Justice Ginsburg essentially argues that the Court should have adopted in certifying the class, makes it much more difficult to prove discrimination based merely in disparate results. Absent evidence that Wal-Mart engaged in a conscious policy of discrimination, or that its upper management ignored conscious discrimination by store managers, class action employment discrimination lawsuits will be much harder to prove. The decision is also likely to have a significant impact on class certification in a whole range of cases from consumer lawsuits to anti-trust cases. Considering that many of these class actions have devolved into situations where the actual class members get almost nothing from the eventual settlement, while the class attorneys walk away with millions of dollars in legal fees, this isn’t necessarily a bad thing.

Here’s a copy of the decision:

Walmart Stores v. Dukes et al