What Wal-Mart’s High Court win means for employers, large and small

As reported on this blog yesterday, as well as in a gazillion other news outlets — but probably here first firstish — the U.S. Supreme Court has overturned certification of a potential class of 1.5 million current and former female employees seeking relief against Wal-Mart for alleged gender discrimination.

After the jump, a break down of the Opinion and what it means for employers, big and small.

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Some background on the plaintiff’s claims:

For those who are unfamiliar with the allegations in this case, here is the CliffsNotes version:

  • The named plaintiffs in this lawsuit, representing the 1.5 million members of the certified class, are three current or former Wal-Mart employees who allege that the company discriminated against them on the basis of their sex by denying them equal pay or promotions, in violation of Title VII of the Civil Rights Act of 1964.
  • The parties agree that pay and promotion decisions at Wal-Mart are generally committed to local managers’ broad discretion, which is exercised “in a largely subjective manner,” with little corporate oversight. Promotional opportunity operate in the same way.
  • Notably, the plaintiffs do not allege that Wal-Mart has an express policy to discriminate against women. Rather, they claim that Wal-Mart’s corporate culture is to favor men over women in terms of pay and promotions.
  • Therefore, the women seeks to litigate gender discrimination claims against Wal-Mart on behalf of all female employees in a nationwide class action.

What was at stake before the Supreme Court is not whether Wal-Mart discriminates against women. That is another issue for another day. Rather, the Supreme Court had to decide whether all women could pursue their discrimination claims against Wal-Mart together in a single class-action lawsuit.

SCOTUS: The class claims fail because it is impossible that there is a common answer to the alleged discrimination question.

To pursue a class action, the potential class must prove, among other things, that questions of law or fact are common to the class (i.e, the commonality requirement). Commonality, however, isn’t as simple as it seems. Just because all women have gender discrimination claims against Wal-Mart doesn’t mean that the commonality requirement is met. Rather, the question to ask is whether there are “common answers apt to drive resolution of the litigation. That is, have all class members suffered the same injury?

To prove common injury, the Wal-Mart plaintiffs presented statistical evidence about pay and promotion disparities between men and women at the company. However, the Court brushed this aside as too amorphous and, instead, focused on the more fundamental concept of whether it was conceivably possible that (literally) millions of employment decisions at Wal-Marts around the country share the same nucleus of facts and circumstances. In doing so, the Court found that the class had failed to present “significant proof” that Wal-Mart “operated under a general policy of discrimination.”

As to there being a corporate culture of discrimination against women, the Court did not see how that was possible in a company the size of Wal-Mart:

The only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s “policy” of allowing discretion by local supervisors over employment matters. 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; it is a policy against having uniform employment practices. It is also a very common and presumptively reasonable way of doing business–one that we have said “should itself raise no inference of discriminatory conduct.”

With the plaintiffs unable to identify a “common mode or exercising discretion that pervades the entire company,” they could not meet the commonality requirement. Therefore, the Supreme Court held that the class could not be certified.

So what now?

  • Wal-Mart is not off the hook. Just because the women can’t pursue their claims as a class doesn’t mean they can’t pursue their claims. As noted above, the Supreme Court only ruled on class certification. The Supreme Court never reached the merits of the underlying gender-discrimination claims.
  • Smaller class actions? Given that larger class actions may not be feasible given issues of common injury, expect to see more smaller class actions or individual lawsuits. While each individual lawsuit from a smaller class or individual won’t possibly have the same financial effect on an employer, as if brought by a much larger class, keep in mind that plaintiffs recover attorney’s fees if they win. 10 lawsuits may lead to 10 attorney’s fee awards. Plus the cost of defending 10 lawsuits may dwarf the cost of defending one big lawsuit. Death by a million papercuts, anyone?
  • Smaller companies are not in the clear. It’s all about economies of scale. As Jon Hyman pointed out earlier this month at the Ohio Employer’s Law Blog, smaller companies may still face “bet the company” risk if faced with a class-action lawsuit.