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High Court Rules for Wal-Mart

The Supreme Court's ruling for the defendant in Dukes vs. Wal-Mart will make it harder for employees to mount class-action suits against companies. "Mere allegations or suggestions about corporate culture are not going to cut it," says one attorney.

Tuesday, June 21, 2011
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When the U.S. Supreme Court announced its decision in Dukes vs. Wal-Mart, it's a safe bet that the leaders at Wal-Mart headquarters in Bentonville, Ark., weren't the only ones smiling with relief.

The decision, employment-law experts say, has made it much harder, if not impossible, for workers to file massive class-action discrimination lawsuits against their employers, particularly large ones.

"It's a good day for employers and a good day for defense attorneys," says Gerald Maatman, an employment attorney at Seyfarth Shaw in Chicago. "The bar's been raised; the standard has been tightened."

Dukes vs. Wal-Mart was the largest-ever employment-discrimination case in U.S. history, involving approximately 1.5 million current and former female Wal-Mart employees, both salaried and hourly, from all 50 states, who alleged that the company discriminated against women on pay and promotion decisions.

In the decision, announced yesterday, the Court reversed an earlier, controversial ruling by the 9th U.S. Circuit Court of Appeals that Dukes v. Wal-Mart could proceed as a class-action lawsuit against the retailer. The nine Supreme Court justices ruled unanimously that the plaintiffs' back-pay claims could not be properly certified under Rule 23 (b)(2) of the Federal Rules of Civil Procedure -- sparing the company from having to potentially pay billions of dollars in back pay to the plaintiffs.

By making it much harder for plaintiffs' lawyers to add claims for back pay to a class claim seeking injunctive relief, the ruling will effectively render class-action lawsuits by employees seeking monetary damages a thing of the past, says John Coffee, a law professor at Columbia University School of Law in New York.

"This decision closes the courthouse door for alleged victims of employment discrimination who are trying to sue on an aggregate basis," he says. "Employees can still sue individually and for injunctive relief, but they cannot sue collectively, as a class, for monetary damages."

The Court was not nearly so unanimous, however, in its 5 to 4 ruling that the class action could not proceed because the plaintiffs had failed to demonstrate "commonality" under Rule 23(a)(2), which requires plaintiffs to prove there are "questions of law or fact common to the class."

Here, the justices split along ideological lines, with the more liberal ones in the minority.

The majority found fault with the plaintiffs' evidence that they, as a group, were the victims of systematic discrimination. That evidence included testimony from William T. Bielby, a sociologist who specializes in "social framework analysis," in which he maintained that Wal-Mart's corporate culture, including its policy of giving local store managers substantial discretion over personnel decisions, resulted in making "decisions about compensation and promotion vulnerable to gender bias."

Writing for the majority, Justice Antonin Scalia found that such evidence was "worlds away ... from 'significant proof' that Wal-Mart operated under 'a general policy of discrimination.' "

In a statement issued after the decision, Gisel Ruiz, executive vice president of people at Walmart U.S., said the ruling has important legal implications, but, just as important, it pulls the rug out from under the accusations made against Wal-Mart over the last 10 years.

"Wal-Mart has a long history of providing advancement opportunities for our female associates, and, over the years, we have made tremendous strides in developing women throughout the organization," she said.

"In fact, we have created specific training and mentoring programs to help prepare women for opportunities at all levels in our company," Ruiz said. "As a result of our efforts, Wal-Mart is often recognized as a great place for women to work."

The ruling means that employees will have a much higher hurdle to surmount in proving that as a class they've been the victims of systematic discrimination, says Elizabeth Papez, an employment attorney and partner at Winston & Strawn in Washington.

"In Title VII cases, especially, the ruling means plaintiffs can't merely allege or plead that their injuries flow from things like an alleged violation of a common statute like Title VII -- instead, they will actually have to prove that the discrimination or adverse employment actions resulted from common discriminatory acts or policies that the employer applied to everyone in the class," she says.

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"It's a much tougher standard than before," Papez says. "Mere allegations or suggestions about corporate culture are not going to cut it." 

The ruling also credits employers that have a written nondiscrimination policy and protects those that give substantial discretion to supervisors on matters such as pay and promotions, she says.

"Those are important lessons because they're saying we're going to credit you with having a written nondiscrimination policy and it's fine to give managers discretion, and the fact that you give them this is not going to be automatically used against you -- instead, the employee-plaintiffs are going to have to prove that the discretion was exercised in a common and discriminatory way," she says.

Companies with decentralized management structures -- such as Wal-Mart -- should cheer the Court's decision, says Michael Droke, co-head of the labor and employment practice at Dorsey & Whitney in Seattle.

"This decision validates the process of delegating to people on the ground-level the autonomy to make decisions based on the information available to them, rather than having things centralized and run through a head office," he says.

The Court's ruling hardly means that all employers will be exempt from class-action discrimination suits, says Papez.

Employees of large companies such as Wal-Mart, with numerous locations spread throughout various regions, will have a much tougher time proving they were victims of systematic discrimination, she says. Smaller companies -- with their more concentrated workforces -- will be a bit more vulnerable, however.

"Smaller employers should be aware that it might be easier for employees to prove commonality and get certification," Papez says.

Maatman predicts that, as a result of yesterday's ruling, plaintiffs' lawyers will go back to the drawing board, crafting smaller, tighter theories in order to obtain class-action certifications for their clients.

Despite the victory for Wal-Mart, says Maatman, the 11 years it spent defending itself as the case wound through the courts should serve as a cautionary tale for HR leaders everywhere, and spur them to ensure managers are aware of and properly trained on their organizations' nondiscrimination policies.

"Not engaging in the sort of behavior that leads to these lawsuits is the best way to stay out of harm's way," he says.

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