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December 2010

An Update on the Wal-Mart Sex Discrimination Case: The Implications of the U.S. Supreme Court Agreeing to Hear Wal-Mart's Appeal

Employers can momentarily breathe a sigh of relief in light of the U.S. Supreme Court's recent decision to hear Wal-Mart's appeal in Dukes v. Wal-Mart Stores, Inc.  Wal-Mart is seeking reversal of the Ninth Circuit's affirmance of the lower court's decision to certify a class estimated at over 1.5 million former and current female employees who held different jobs in different stores across the U.S., making it the largest employment class action in history.  As Wal-Mart has pointed out, "the class is larger than the active-duty personnel in the Army, Navy, Air Force, Marines, and Coast Guard combined."  The case is a high priority for all employers and it is being widely debated on national television.  In addition to the analysis below, please click here to view a segment on Fox Business Network in which Mercedes Colwin, Managing Partner of the New York offices of Gordon & Rees, explains the implications of the Wal-Mart case.

The appeal revolves around a procedural issue of statutory interpretation that could have a resounding impact on employment law claims, potentially opening the door to a flood of employment class actions.  The six class representatives are current and former Wal-Mart employees who have alleged a large-scale and ongoing practice of discrimination against female employees.  The discrimination was allegedly carried out by delegating substantial discretion to individual managers, which resulted in the female employees being paid less and receiving fewer promotions.  As a result, the class representatives brought a class action for injunctive and declaratory relief, along with monetary relief in the form of back pay. 

The class representatives applied to certify a massive class, consisting of nearly every female employee employed at any domestic Wal-Mart since 1998.  The district court granted the application and certified the class.  After three rounds of appellate review, the Ninth Circuit issued a sharply divided decision, finally settling on a new standard for determining certification under the circumstances, which deviated from two other already conflicting standards used among the federal circuit courts.

At the heart of the appeal is probably the most important and preliminary matter in any class action lawsuit: the certification of the existence and the parameters of the class of individuals who will be the subjects of the action.  Rule 23 of the Federal Rules of Civil Procedures sets forth the technical requirements that class representatives must satisfy in order to establish an identifiable class for certification.  One such requirement, which falls under Rule 23(b), requires class representatives to establish one of three types of class actions they will pursue.  The second type of class action, under Rule 23(b)(2), permits class certification if the class representatives are seeking declaratory or injunctive relief, while the third type of class action, under Rule 23(b)(3), is appropriate for classes seeking substantial monetary relief. 

In Wal-Mart, the class representatives sought certification under Rule 23(b)(2), despite the fact that they were also seeking monetary relief.  The reason for that strategy was because certification under Rule 23(b)(2) is much easier, with fewer requirements, than having to certify under Rule 23(b)(3), which imposes strict requirements.  As a result, class representatives seeking monetary relief, who are unable to satisfy Rule 23(b)(3)'s burdensome requirements, will often try to squeeze their claim in under Rule 23(b)(2).

Class representatives have been able to accomplish this by invoking language in the Advisory Committee Notes to Rule 23 (often used to interpret provisions in the Rules), which states that Rule 23(b)(2) will not apply where relief sought "relates?predominately to money damages" (emphasis added).  The majority of circuit courts have consistently used that language to hold that Rule 23(b)(2) does allow claims for some money damages.  Generally, when the request for monetary relief is insubstantial, not the primary focus of the action, or subordinate to the equitable relief sought, courts will certify a class under Rule 23(b)(2).

Acknowledging this exception to Rule 23(b)(2), the district court and Ninth Circuit certified the class under that subsection, even though the class representatives also sought substantial back pay.  Wal-Mart objected to permitting the representatives to certify their claim under Rule 23(b)(2) because all of the former employees were seeking sizable monetary damages and would not be entitled to injunctive or declaratory relief.  

Given the Court's current composition and prevalence for adhering to the strict language of legal text, it is entirely possible that the Court decides to prohibit all class actions seeking any monetary relief under Rule 23(b)(2), a decision that Wal-Mart and every other employer would enthusiastically welcome.  On the other hand, if the Court adopts any one of the conflicting circuit court tests (or creates a new one of its own), Wal-Mart could potentially be looking at projected damages of over a billion dollars, which does not even include the enormous costs of defending a class action.  Allowing class representatives, who are seeking monetary relief, to certify under Rule 23(b)(2) would ensure that classes have a fairly accessible litigation tool to exert increased settlement pressure on employers, which would clearly threaten to harm businesses financially.  As a result, employers may have to diligently reexamine their practices and fortify themselves against a possible wave of class actions.


Employment Law

Mercedes Colwin

Employment Law