Today, June 20, 2011, the Supreme Court issued its highly anticipated decision in Wal-Mart Stores Inc v Dukes.pdf Case No. 10-277 (U.S. S. Ct. June 20, 2011). The Court not only reversed the Ninth Circuit, but issued several clear pronouncements regarding the plaintiff’s burdens and the quality of evidence necessary to certify an employment class. The Dukes case will change the complexion of class employment litigation immediately, and will likely result in numerous issues being decided in the years ahead that may make defense of such cases less difficult for employers.

Most employers are already generally familiar with the facts of the Dukes case, which was the largest employment class action ever certified. Wal-Mart is the world’s biggest private employer, with over 1,000,000 employees. Each of its 3,400 stores may have upwards of over 50 departments and anywhere between 80 and 500 positions.

The plaintiffs in Dukes were women with garden-variety gender discrimination claims arising out of workplace issues as diverse as having been yelled at by a manager, being frustrated in seeking promotions, claimed pay disparities and a dispute over a demotion. They brought suit in the United States District Court for the Northern District of California under Title VII of the 1964 Civil Rights Act, 42 U.S.C. §§ 2000e et seq. They also sought to represent a class of all female employees at Wal-Mart, contending that they were all subject to class-wide gender discrimination.

There was no dispute that Wal-Mart had no nationwide policy favoring sex discrimination – in fact, the opposite was true as the company’s policies stressed the need for fair, non-discriminatory treatment. The plaintiffs therefore argued that an unwritten country-wide practice of discrimination existed. They pointed to the gender make-up of Wal-Mart’s workforce, emphasizing that while the company’s hourly workforce was two-thirds female, only one third of its managers were women. They argued that Wal-Mart had a strong “corporate culture” and that individual store managers were given discretion in employment decisions. To bolster that assertion, they also presented the testimony of a sociologist named William Bielby, who opined that those given discretion may tend to discriminate based on stereotypical thinking. They further presented statistical testimony regarding the breakdown of positions by gender by region of the company. Finally, they submitted declarations from approximately 100 women regarding alleged discriminatory actions against them.

Wal-Mart, for its part, emphasized that employment decisions were undertaken at a local level and that there was no nationwide policy of discrimination against women. It also introduced its own expert testimony regarding the gender makeup of the workforce, including testimony that women expressing an interest in promotions tended to progress more quickly than men. It also challenged the plaintiffs’ experts, and repeatedly argued that the class was simply too large, too complex, and too diverse to be certified.

The District Court certified a class of 1.5 million women pursuant to Rule 23(b)(2) and a divided Ninth Circuit affirmed en banc. Both courts largely swept aside the arguments Wal-Mart raised. In many instances, those courts appeared to contend that the company’s arguments strayed too far into arguing the merits, or that its objections could be resolved by sampling or other means.

The Supreme Court reversed and at least two aspects of the decision were surprising. First, the Court’s conclusion, at least in part, was unanimous. Second, the majority concluded that the plaintiffs had failed to satisfy even the requirements of Rule 23(a), meaning that no such class could ever be certified.

The majority decision, authored by Justice Antonin Scalia, not only accepted Wal-Mart’s arguments, but also addressed other troubling rulings made by the courts below. As to the principal issues in the case, the majority concluded that it was improper to certify the case under any part of Rule 23 because there was no “commonality” under Rule 23(a)(2). The Court found that commonality was lacking because there was insufficient evidence that Wal-Mart “operated under a general policy of discrimination.” Quoting General Telephone Co. of Southwest v. Falcon, 457 U.S. 147 (1982). The Court noted the lack of any illegal policy and specifically rejected the viability of proffered expert testimony as to the potential bias of hiring managers. It similarly rejected the statistical approach as too general, and found that the anecdotal evidence was of such a small portion of the workforce that it proved “nothing at all.” That the ruling turns on commonality is highly significant because the majority found the plaintiffs’ evidence lacking under the more lenient standard of Rule 23(a) and never had to reach the predominance issues that are tougher for plaintiffs under Rule 23(b)(3). Further, the majority expressly left open the question of whether the Rule 23(a) requirements of typicality and adequacy of representation were satisfied.

The Court’s discussion of this issue will likely shape employment class jurisprudence for many years to come. The opinion repeated the admonition that courts should engage in a rigorous review of the class action elements, but also emphasized that the inquiry went beyond the pleadings and would also frequently involve consideration of the merits. Cutting against the arguments often raised by plaintiffs, the Court rejected the view that general allegations that a statute was violated would suffice but found, instead, that there must be a narrow contention whose “truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.”

In the second part of its holding, largely agreed to by all of the justices, the Court concluded that the case could not be certified under Rule 23(b)(2), for equitable relief. In doing so, the Court resolved a long-standing split among the Circuits as to whether Rule 23(b)(2) applied when plaintiffs were seeking back pay and other monetary relief. The majority appeared to side with the more defense-friendly holding in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998), and rejected the Ninth Circuit view that a court should determine whether the claim for monetary relief predominated. The dissent agreed that Rule 23(b)(2) was inapplicable, but would have remanded the case for consideration under Rule 23(b)(3). By contrast, the majority found no class proper at all because Rule 23(a) was never satisfied.

Justice Scalia’s opinion also addressed several other aspects of the case that should be of interest for employers. For example, many courts have recognized that expert testimony at the certification stage must meet the standards of Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). With respect to the district court and Ninth Circuit’s pronouncement that Daubert standards did not apply to certification decisions, Justice Scalia’s opinion comments “[w]e doubt that is so.” The Court’s opinion also comments on issues regarding subjective decision making and disparate impact claims, questions that were left largely unanswered in the Court’s splinter decision in Watson v. Fort Worth Bank & Trust, 487 U.S. 977 (1980). The majority was also dismissive of some of the “rough justice” attempts by the lower courts to address many of the individual issues by estimates, sampling, and extrapolation, referring to them as “Trial by Formula” (capitalization in original). Taken together, the majority’s analysis and commentary suggest a far more rigorous and fact-specific analysis than that advocated by the lower courts.

The Bottom Line: The Court’s decision in Dukes is a major victory for employers on its face, but the Court’s discussion also appears to clarify standards in a way that will make the defense of employment actions more predictable and less difficult.