Posted Mar 01, 2011 10:10 am CST
By many measures, Wal-Mart Stores Inc. has been an American corporate success story. Founded in 1962 in Arkansas by Sam Walton, the company became the nation’s top retailer by revenue in the 1980s, the largest U.S. private employer by 1997, and found itself at the top of the Fortune 500 in 2010.
But the discount retailer has long faced scrutiny over its employment practices, including lawsuits on its overtime practices and about allegedly making employees work through lunch and bathroom breaks. The company has settled many of those suits.
In 2001, six female employees filed a lawsuit alleging sex discrimination in Wal-Mart’s pay and promotion policies in violation of Title VII of the 1964 Civil Rights Act. The suit sought class certification on behalf of all women employed in domestic Wal-Mart stores since Dec. 26, 1998, who may have been subject to the challenged policies.
The suit alleges that many women at Wal-Mart are paid less than men in comparable positions despite greater seniority and higher performance ratings, and that women receive fewer promotions to in-store management positions than men.
In 2004, a federal district court fully certified the class for claims for injunctive relief and back pay, but it limited the promotions class to those women with objective evidence confirming their interest in promotion. Last April, an en banc panel of the 9th U.S. Circuit Court of Appeals, based in San Francisco, largely affirmed the class certification.
On March 29 the U.S. Supreme Court will hear oral arguments in Wal-Mart Stores Inc. v. Dukes. The case takes up one question the retailer appealed: Whether claims for monetary relief can be certified in a section of the Federal Rules of Civil Procedure that deals chiefly with injunctive relief under class actions. And the justices added their own question about whether the certified Wal-Mart class meets the federal rules’ basic prerequisites for certifying class actions.
John C. Coffee Jr., a professor at Columbia University law school and an expert on class actions, says the questions before the high court are of enormous significance to the future of employment discrimination-based class actions.
“The real issue is whether the justices are going to rein in this case in a way that plaintiffs can live with, or make it a game-ender,” says Coffee, who is not involved on either side.
The Wal-Mart case has been closely followed, not least because of its sheer size. At the time the case was certified in district court, the class size was estimated at 1.5 million women. The 9th Circuit majority, which largely excised from the case women who were no longer working for Wal-Mart at the time the suit was filed, estimated the class would amount to about 500,000.
But Wal-Mart’s lawyers point out that each new female employee to join Wal-Mart is potentially eligible to be included, making the size of the class as large as 3 million women or more.
Plaintiff lawyers contend that the class’s large size is “legally irrelevant” and no barrier to certification, noting that the very purpose of class actions is to save the resources of the courts by litigating the claims of similarly situated class members in an economical way.
“There is no exception to the civil rights laws for large companies,” says Joseph M. Sellers, the Washington lawyer who will argue the plaintiffs’ case before the Supreme Court. The class is so big, he adds, because Wal-Mart is such a large employer and operates its stores in a uniform and centralized manner.
Sellers says Wal-Mart has a strong corporate culture, partly inculcated through central training of potential store managers at the company’s Sam Walton Institute. At one such training session, disclosed during discovery, the company answered a question about why there are so few women in management by saying that men are more aggressive in their jobs.
A Wal-Mart human-resources executive saw nothing wrong with a district manager holding his management meetings at a Hooters restaurant, discovery evidence showed, and senior managers of the company’s Sam’s Club division often referred to female store associates as “little Janie Q’s” and “girls.”
And Wal-Mart was aware that its pay and promotion policies were having adverse effects on women, with the company’s “executive vice president for people” warning in an internal memo that it was “behind the rest of the world” on its treatment of women and minorities.
“We are not condemning strong corporate cultures in this country,” says Sellers. “But this is a strong corporate culture that was heavily infused with gender stereotypes, portraying women as less valued in the workforce.”
Wal-Mart stresses that it has a companywide policy expressly barring discrimination based on sex, and that it has consistently sought to foster diversity and ensure fair treatment.
“The extraordinary claim that every single pay and promotion decision was discriminatory flies in the face of the company’s policies,” says Theodore J. Boutrous Jr., a Los Angeles attorney who will argue the case for Wal-Mart.
The company argues that the plaintiffs’ class certification does not come close to satisfying the prerequisites for class actions found in Rule 23(a): commonality, or questions of law or fact that are common to the class; typicality, so that the named plaintiffs’ claims are typical of the class’s claims; and adequacy, so the named plaintiffs will fairly and adequately represent the interests of the class.
“There really are fundamental flaws in the plaintiffs’ theory,” adds Boutrous. “First, they argue there was local discretion [on pay and promotion decisions], which by definition defeats commonality.”
“So they come up with another feature, which is some strong corporate culture, but they point to things that don’t have anything to do with employment, or to pay ranges and other factors that aren’t necessarily discriminatory,” Boutrous says.
He was alluding to evidence, cited by the district judge, that among the indications of Wal-Mart’s centralized control were that it dictated the temperature and background music.
Wal-Mart’s second major issue before the high court involves Rule 23(b)(2), which authorizes certification of class actions that seek injunctive or other equitable forms of relief. The lower courts permitted the Wal-Mart plaintiffs’ claims for back pay to proceed under this provision, rather than under a separate provision that normally covers monetary claims. That provision, Rule 23(b)(3), has additional legal hurdles to class certification, such as mandatory notice and opt-out procedures for class members.
Wal-Mart argues that the substantial back pay awards sought in the suit-potentially in the billions of dollars-“predominate” over the injunctive relief sought by the class (such as the ending of certain practices), and thus the class may not be certified under Rule 23(b)(2).
Andrew J. Trask, a class-action defense lawyer with McGuireWoods in McLean, Va., says the Wal-Mart plaintiffs are seeking to win class certification for significant monetary claims by classifying them as restitution and equitable relief.
“The 9th Circuit bought that [theory] lock, stock, and barrel,” says Trask, who runs a blog called Class Action Countermeasures but is not involved in the case. “That will have a huge impact going forward if it is upheld.”
Plaintiff attorney Sellers says there is no limit under Title VII on the amount of back pay that can be awarded as equitable relief.
“Other than the size, which we agree is large, we don’t think that the principles on which this class is certified are all that unusual,” Sellers says.
University of Connecticut law professor Alexandra D. Lahav argues in a recent law review article that there is no evidence that the company will face ruinous liability if it loses.
“Wal-Mart is only liable for the difference between the pay a woman would have received if she had not been discriminated against and what she actually received,” Lahav wrote. “Many of the claimants are hourly workers whose wages would not be very high even if they were paid comparably with men.”
The views of the justices are not easy to predict, says Coffee. Justice Ruth Bader Ginsburg wrote the opinion for a largely unanimous court in a 1997 decision, Amchem Products Inc. v. Windsor, that reined in a large asbestos class action. But she has also been a champion for gender nondiscrimination.
“This case is, after all, about women’s rights in the employment marketplace,” Coffee says.
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