Ninth Circuit Affirms Certification of a Historic Class Action in Dukes V. Wal-Mart, Inc.

February 27, 2007

Employers suffered a major set back when a panel of the Ninth Circuit Court of Appeals recently affirmed the certification of a class action lawsuit against Wal-Mart. This action will include an estimated 1.5 million current and former female employees. The action asserts the company engaged in sex discrimination in violation of Title VII of the 1964 Civil Rights Act. Wal-Mart, which denies the allegations and has contested the class designation, has vowed to ask the 11 judges of the full appeals court to reconsider the February 6, 2007 ruling and, if that fails, to seek review by the United States Supreme Court. Unless the decision is overturned, employers, particularly those in the eleven western states covered by the Ninth Circuit, face the prospect of many more class claims. [Dukes v. Wal-Mart, Inc., 9th Cir., No. 04-16688, 2/6/07]

Background

Plaintiffs, seven female employees of Wal-Mart, claim that the retailer's female employees nationwide receive lower pay, and receive fewer and slower promotions than their male counterparts. They also allege gender-based discrimination in company-wide corporate practices and policies based primarily on statistical data and subjectivity in personnel decisions. According to the Plaintiffs, these actions violated Title VII of the Civil Rights Act of 1964. They filed a lawsuit against the Company in the federal District Court in San Francisco.

Plaintiffs offered certain common factual, expert, statistical and anecdotal evidence of alleged gender disparities in support of their class claims. The District Court agreed with their contentions and in 2004 allowed the case to proceed as a class action. Wal-Mart appealed. The Ninth Circuit's affirmance allows the class claims for injunctive and declaratory relief to go forward, but upheld the denial of plaintiffs' class claim for back pay. The Ninth Circuit agreed with the District Court that "it would be better to handle this case as a class action instead of clogging the federal courts with innumerable individual suits litigating the same issues repeatedly."

The Ninth Circuit Court's Analysis: A Focus on "Commonality"

The Court of Appeals reviewed the District Court's decision for abuse of discretion, which it said afforded "very limited" review. The Ninth Circuit's analysis focused on whether plaintiffs met the requirements for class certification. To prevail they had to show: (1) the class is so numerous that joinder of all members as separate litigants is impracticable; (2) there are questions of law and fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the classes; and (4) the representative parties will fairly and adequately protect the interests of the class, as prescribed by the Federal Rules of Civil Procedure. The Court found the District Court to be within its discretion in finding that all four prongs were met.

The Court devoted much of its opinion to the issue of "commonality," specifically, whether plaintiffs had provided evidence sufficient to support their contention that significant factual and legal questions are common to all class members. The District Court had found:

"Plaintiffs have exceeded the permissive and minimal burden of establishing commonality by providing: (1) significant evidence of company-wide corporate practices and policies, which include (a) excessive subjectivity in personnel decisions, (b) gender stereotyping, and (c) maintenance of a strong corporate culture; (2) statistical evidence of gender disparities caused by discrimination; and (3) anecdotal evidence of gender bias. Together this evidence raises an inference that Wal-Mart engages in discriminatory practices in compensation and promotion that affect all plaintiffs in a common manner."

The Ninth Circuit's review scrutinized whether there was significant proof of a "corporate policy of discrimination," and whether there was subjective decision-making.

The Asserted Corporate Policy of Discrimination

Analyzing the first question, the Ninth Circuit distinguished the factual evidence from the expert and statistical evidence presented by plaintiffs. The factual evidence included: personnel and management structure information across stores; Wal-Mart's extensive oversight of store operations; company-wide policies; centralized corporate culture; consistent gender-related disparities in every domestic region of the company; and, gender stereotyping.

More interesting was the Ninth Circuit's review of expert testimony relying upon a "social framework analysis" to support the class finding. This compared Wal-Mart's policies and practices "against what social science shows to be factors that create and sustain bias and those that minimize bias." Testimony focused on the subjective discretion of managers. The plaintiffs' expert was of the opinion that "social science research demonstrates that gender stereotypes are especially likely to influence personnel decisions when they are based on subjective factors," because substantial decision-maker discretion tends to allow people to "seek out and retain stereotyping-confirming information and ignore or minimize information that defies stereotypes." This logic led the expert to conclude that: (1) Wal-Mart's centralized coordination, reinforced by a strong organizational culture, sustains uniformity in personnel policy and practice; (2) that there are significant deficiencies in Wal-Mart's equal employment policies and practices; and (3) that Wal-Mart's personnel policies and practices make pay and promotion decisions vulnerable to gender bias.

With regard to statistical evidence, the Court discussed evidence from two of plaintiffs' experts. The first, a statistician, provided a regression analysis to conclude there were statistically significant disparities between men and women in terms of compensation and promotion, that the disparities were wide-spread across regions, and that they can be explained only by gender discrimination. A labor economics expert conducted a "benchmarking" study that compared Wal-Mart with twenty of its competitors and concluded that Wal-Mart promotes a smaller percentage of women than its competitors.

Alleged Subjective Decision-Making

On the second issue of commonality, the presence of subjective decision-making, the Ninth Circuit was quite brief. Relying on a "well-established rule that subjective decision-making is a 'ready mechanism for discrimination' and that courts should scrutinize it carefully," the Court of Appeals found that the District Court did not abuse its discretion when it held that "Wal-Mart's decision to permit its managers to utilize subjectivity in interpreting pay and promotion policies," provides support for plaintiffs' contention of commonality.

Wal-Mart presented various arguments against class certification. The Court, however, gave no weight to those arguments, finding that the evidence – factual, opinion, statistical and anecdotal – gave support to the District Court's ruling. The Ninth Circuit also spurned Wal-Mart's claims that it would suffer a lack of due process by virtue of not having individualized hearings on each claim.

The Dissenting Opinion

Judge Kleinfeld's dissenting opinion is notable not only for explaining how the rationale for the class actions in the Federal Rules of Civil Procedure does not square with Wal-Mart's case, but also for its derision of the majority's decision. The dissent attacks the majority's holding on commonality. It contends "Plaintiffs' only evidence of sex discrimination is that around 2/3 of Wal-Mart employees are female, but only about 1/3 of its managers are female… [p]laintiffs' statistics do not purport to compare women who want to be managers at Wal-Mart with men who want to be managers at Wal-Mart, just female and male employees, whether they want management jobs or not."

The dissent also states that the seven named plaintiffs do not have claims typical of the class, addressing the third element of the certification inquiry. Finally, the dissent criticizes the majority for giving short shrift to whether the named plaintiffs can fairly and adequately protect the interests of the class. Judge Kleinfeld suggests there are divergent interests between women who work at Wal-Mart and those who have left, and women in management and those not yet promoted. The dissent disagrees with the majority as to whether the class is correctly certified because, in Judge Kleinfeld's view, declaratory and injunctive relief do not predominate in this case, as they should. Here, rather, the plaintiffs' claim seeks billions in punitive damages. Finally, the dissent cites the risk to due process to women with genuine claims and to Wal-Mart by allowing class certification.

Observations and Recommended Next Steps

This Ninth Circuit decision is controversial, complex and historic. It is likely we will hear more about the issues it raises for Title VII class claims for years to come. Although the U.S. Supreme Court denies review in the overwhelming majority of cases, this is a case of such import that eventually it may be heard by the High Court. This case could be a harbinger of a new trend in employment class actions supported largely by expert testimony marrying sociological concepts with demographics and statistics.

Unfortunately, judicial review and assessment of this case is likely to take a great deal of time. In the meantime, large employers with a multi-state presence will need to consider the impact of this decision on their uniform workforce management practices. Our recommendations are as follows:

1. Analyze your data for potential disparities in key employment actions – hiring, terminations, starting pay, merit increases, bonus decisions and promotions. If you are a federal contractor, you likely are already capturing this data to prepare affirmative action plans. This decision instructs how you should analyze the data as might a plaintiffs' expert statistician in an effort to discover your company's demographics. This decision provides insight into that process. If you are not collecting this data, Dukes suggests a thoughtful consideration for doing so, with the advice of counsel.
2. Review, inventory, and scrutinize subjective decision-making in employment: salary, promotions, and performance management decisions typically have significant subjective components. This often will be apparent in the records of these decisions. Consider whether there are better metrics that are objective, and less susceptible to being labeled as gender-based or as "stereo-typing confirming information."
3. Consider a risk management review of your practices that includes a review of your prior litigation, assesses present legal risk and helps you anticipate the specific exposures, including your vulnerability to future possible class action claims.

Remember that any self-analyses may be discoverable in litigation and may be the plaintiffs' best evidence of discriminatory practices, as where an employer was aware of a problem and responded inadequately, thus arguably condoning the practice. To afford some degree of protection under the attorney-client or work product privileges, consider conducting such analyses in coordination with counsel.

Jackson Lewis LLP

Jackson Lewis is ready to assist your organization assessing the import of this decision to your organization, undertaking the necessary internal review, and mitigating the potential for class claims. The Class Actions Practice Group can provide you with strategic pre-litigation assistance to assess and avoid class action claims of the type that is the subject of Dukes. The Class Action Practice Group has the trials skills to provide your organization with the most sensible approach to defending class action litigation.

A copy of the Dukes v. Wal-Mart decision is available through the link below.

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