The Ruling Made Simple

So, what does this historic ruling really mean? Here’s my take:

• Does it mean the end of all class actions as we know them? Not even close.
• Does it mean the end of all mega-humongous-nationwide-one-size-fits-all class actions? Maybe. Possibly. Potentially. It depends.

The Court stopped far short of condemning all class actions. It also stopped short of prohibiting nationwide class actions such as the one facing Wal-Mart. Instead, the Court ruled that for a nationwide class action to survive it must offer clear evidence of a nationwide policy or practice that actually damaged the class.

The Court found no such policy or practice on Wal-Mart’s part. Like most companies, Wal-Mart’s corporate policy officially forbade discrimination. And, like most companies, managers were given considerable discretion in enforcing the policy and making pay, promotion and other decisions.

The key sentence in the opinion (in my opinion): “In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” Justice Scalia wrote. For that reason, a single class action was deemed inappropriate.

What Others Are Saying

Here are some other reactions from around the nation . . .

The New York Times offered up seven different op-ed pieces expressing varying views. In its main article on the ruling (Wal-Mart Case Is a Blow for Big Cases and Their Lawyers), it offered a nice summary of the Court’s reasoning behind the decision. In short, the problem with allowing massive class actions is that plaintiffs don’t have to show real injury but instead get paid based on a formula:

In his opinion, Justice Scalia said it was unacceptable to allow employment discrimination lawsuits to proceed as huge class actions when monetary awards would be based on a broad formula per plaintiff, without having an individual assessment of how much each plaintiff had suffered.

He wrote that to allow that to happen in the Wal-Mart case, the largest employment class action in American history, would have been hugely unfair to Wal-Mart because it might have had to pay out damages without many of the plaintiffs demonstrating how much they were injured.

The Associated Press called the ruling a “blow to class actions” and opined that “mounting a large-scale bias claim against a huge company will be more difficult.

Not surprisingly, business groups (many of which filed briefs in support of Wal-Mart’s position in the case) heartily embraced the decision. “We applaud the Supreme Court for affirming that mega-class actions such as this one are completely inconsistent with federal law,” said Robin Conrad of the U.S. Chamber of Commerce. She added: “Too often the class-action device is twisted and abused to force businesses to choose between settling meritless lawsuits or potentially facing financial ruin.”

Others were decidedly less enthusiastic. Marcia Greenberger of the National Woman’s Law Center said that the ruling “strikes a blow to those who face discrimination in the workplace to be able to join together and hold companies, especially large companies, accountable for the full range of discrimination they may be responsible for.”

Joseph Sellers, the lead lawyer for the plaintiffs in the Wal-Mart case, noted that the decision would likely result in even more class actions at the store/regional level. He predicted the decision would hurt both his clients and Wal-Mart because it “will be splintered into many cases that may take longer and be harder to resolve” based on “checkered” legal standards that vary from jurisdiction to jurisdiction.

Law scholars generally agreed that the ruling will discourage plaintiffs’ lawyers from pursuing large-scale class actions. Columbia University professor John Coffee said the ruling “significantly changes the balance between employers and employees. And it largely eliminates the monetary threat facing big employers.” “Lawsuits are expensive to bring,” he said, “and if there is no money relief at the end of the road, there is no incentive to bring the suit.”

Several bloggers weighed in as well. Daniel Schwartz of The Connecticut Employment Law Blog has a nice summary here. Jon Hyman of the Ohio Employer’s Law Blog has a detailed legal analysis here. And Evil HR Lady has a piece entitled Why the Wal-Mart Ruling Is Good for Women.

The Court’s full opinion is available here.

What Should Employers Do?

Here are some lessons employers should learn from this ruling:

1. Implement company-wide policies and practices prohibiting discrimination.
2. Communicate the policies and practices to all employees on a regular basis.
3. Train managers on proper enforcement of the policies and practices.
4. Promptly and thoroughly investigate any and all complaints.
5. Take appropriate steps to address any violations.
6. Never ever retaliate against any complainant.

The Supreme Court has ruled in what could have been the largest employment discrimination case in world history.

The Ruling

Moments ago, the Court unanimously ruled that a gender-discrimination suit against Wal-Mart cannot proceed as one massive class action. In short, The court ruled that the plaintiffs did not have enough in common to join all of their claims into a single case.

The opinion was authored by Justice Scalia. The court’s four other conservative justices joined the opinion in its entirety. The court’s four not-all-that-conservative members joined parts of the opinion but dissented from others.

The Facts

The case started in 2001 when a greeter named Betty Dukes and a handful of other female employees complained that they were paid and promoted less than males. Among other things, they contended that women make up more than 70% of Wal-Mart’s hourly workforce but less than a third of store management and that the company’s “strong, centralized structure fosters or facilitates gender stereotyping and discrimination.”

Many of the facts have been hotly disputed. For example, Wal-Mart claimed that a company-sponsored study showed that there is no statistically significant pay disparity between women and men in 90% of its stores. On the other hand, the plaintiffs’ experts alleged they found evidence of gender discrimination in every single Wal-Mart region.

Previous Court Rulings

In 2004, a federal district court judge sided with the plaintiffs. Wal-Mart appealed. In 2010, a federal court in San Francisco officially certified the case as a class-action, making it potentially the largest employment discrimination lawsuit ever. The case could have included as many as a million plaintiffs seeking more than a billion dollars in back pay and punitive damages.

In addition to disputing the facts, Wal-Mart assailed the size and scope of the suit, calling it “historic” and arguing that it would be virtually impossible to litigate in a one-size fits all manner. One spokesperson said: “We do not believe the claims alleged by the six individuals who brought this suit are representative of the experiences of our female associates.”

What This Means for Employers

Employers all over the nation just breathed a huge sigh of relief.

The decision is a key victory for Wal-Mart and others in the business community who contended that a ruling in the opposite direction would have resulted in unprecedented waves of class actions that could cripple the economy. While the “Class Action Crescendo” previously described here on the Blawg will probably continue, it won’t reach quite the cacophony it could have had the Supremes ruled differently.

Want More?

To read the entire decision, click here. Click here for The Wall Street Journal’s take.

What Does This Mean?

While Concepcion isn’t an employment law case, it could have a significant impact on the workplace. Employment lawyers will no doubt argue that employers can now avoid class actions by requiring employees to sign arbitration agreements that require resolution of claims on an individual basis.

Should We Change Anything?

Should employers rush off and require all employees to sign arbitration agreements? Maybe. Many have refrained from doing so because arbitration is getting more and more expensive and more and more like actual court litigation. However, this ruling could be the tipping point for companies concerned about the recent class action crescendo described previously here.

Many employers will wait to see how the Supreme Court rules in the mammoth Dukes v. Wal-Mart class action before making sweeping changes. Some are speculating that the Court’s ruling in Concepcion signals that it may use Dukes to impose further restrictions on the class action process. That decision is expected in July.

What About the Arbitration Fairness Act?

The Concepcion decision could reopen debate on passage of the Arbitration Fairness Act, previously discussed here. The AFA would prohibit agreements mandating arbitration of employment disputes (as well as franchise and consumer disputes). Most believe that passage of the AFA remains a long shot, however.

Stay tuned.

Today’s topic: CLASS ACTIONS.

Few things get the heart of an HR professional or employment lawyer racing faster than the mention of those two little words. A single class action can easily be the equivalent of 100 (or more) individual suits in terms of potential liability as well as effort, resources and defense costs.

So, what’s the latest? According to Seyfarth Shaw’s new 2011 Workplace Class Action Litigation Report, employers can expect 2011 to be a “tipping point for workplace-related class actions, with major Supreme Court decisions expected, a crescendo in wage-hour class actions, plus stepped-up enforcement litigation by the Obama Administration.” Yikes.

Here are the major trends identified in the report . . .

1. Record $$$. Class action settlements increased four-fold in 2010 over 2009 and the top ten settlements increased to a whopping $1.16 billion, the highest amount ever.

2. Workplace Class Actions Waaaay Up. While securities and commercial class actions remained stable, workplace class actions spiked considerably. 2010 saw one of the largest employment discrimination verdicts ever: $253 million in the Velez v. Novartis case previously described here on the Blawg (eventually settled for a mere $175 million).

3. Wage & Hour #1. Wage & hour cases continue to be most companies’ #1 exposure. “We expect to see even more and bigger cases brought in 2011,” said Jerry Mattman, Seyfarth’s resident class action guru. Continuing effects of the downturn and layoffs continue to fuel overtime class actions under the Fair Labor Standards Act and various state laws (especially California). Seyfarth dubbed 2010 the “Year of the Misclassified Employee” in light of the government crackdown (and resulting high number of cases) claiming that employers misclassified employees under exempt/non-exempt rules.

4. Increased Enforcement. As we discussed here yesterday, the Obama Administration is stepping up enforcement actions – particularly in systemic “pattern and practice” cases – through increased budgets, hiring, investigation and employee education activity.

5. Beware Copy-cat Filings. Recent class action successes (see the Novartis case above) are likely to inspire copy-cat filings and drive up settlement demands by plaintiffs and their attorneys. Plaintiffs’ attorneys continue to pursue creative new methods to expand the dimensions of classes and the scope of damages.

6. Supreme Court Busy. In March, the Supremes will hear arguments in the Dukes v. Wal-Mart action that could be the largest discrimination case in history with more than 1.5 million class members (described previously here on the Blawg). The Court will also decide whether arbitration agreements can bar class actions and the extent to which one court’s refusal to certify a class is binding on another court.

What should employers do? Take proactive steps to reduce litigation exposure NOW. As Maatman says, “Clearly, the dominant lesson of 2010 is that shoring up potential weaknesses in compliance and identifying class action vulnerabilities should remain a priority” for all employers. 

In other words, imagine what the world’s toughest plaintiffs’ firm would sue you for and fix it before they get a chance.

Stay tuned for more.