In This Issue:
Ninth Circuit Issues Yet Another Problematic Decision in Dukes v. Wal-MartOn April 26, 2010, the Ninth Circuit issued yet a third appellate decision in the ongoing saga of Dukes v. Wal-Mart Stores, the largest employment class action in history to be certified.
Lewis v. City of Chicago—The Supreme Court Opens the Door for Increased Title VII Disparate Impact Class Action LitigationDisparate impact claims involve challenges to employment practices that are facially neutral in their treatment of different groups of employees but, in fact, fall more harshly on members of a protected class.
By Gregory V. Mersol
On April 26, 2010, the Ninth Circuit issued yet a third appellate decision in the ongoing saga of Dukes v. Wal-Mart Stores, the largest employment class action in history to be certified. This en banc opinion not only affirmed the district court’s decision to certify a class of over 1.5 million women, but also made a number of surprising rulings that, if permitted to stand, will trouble courts and employers for decades. The court downplayed serious concerns about how such a huge class could be managed, approved a paradoxical theory combining centralized control and local subjective decision-making, and relaxed the requirements for plaintiffs’ experts at the certification stage.
Much has been written about the Dukes case’s underlying facts. Wal-Mart is the world’s largest retailer and the largest private employer in the Unites States, with over 3,400 stores. In 2001, six women filed suit against the company charging sex discrimination in pay and promotions. They sought to represent a class of all women employed by Wal-Mart since 1998 who, they claimed, were affected by discriminatory policies.
An analysis of Wal-Mart’s workforce was the core of the plaintiffs’ claims. Although two-thirds of the hourly associates at Wal-Mart stores are women, only one-third of its managers are female. In addition to this statistical argument, the plaintiffs submitted 120 declarations from women who claimed to be victims of discrimination, as well as the testimony of an expert regarding gender stereotyping and the alleged risks of permitting subjective decision-making by managers. The plaintiffs argued that Wal-Mart’s strong corporate culture, combined with this evidence, demonstrated class-wide sex discrimination.
Wal-Mart opposed this evidence on several grounds, including proof that women expressing an interest in advancement were promoted more swiftly than men. It also pointed to the lack of any evidence regarding a corporate culture of discrimination. To the contrary, one of the company’s published basic beliefs is “respect for the individual.”
On June 21, 2004, in an 84-page opinion, the district court certified the class. The court noted that in doing so it was making history, and at least tacitly compared its ruling to that of the Supreme Court in Brown v. Board of Education, fifty years before. The court not only certified a class of all 1.5 million plaintiffs, but also suggested that because of the size and difficulty in managing such a class, it would truncate Wal-Mart’s ability to present evidence as to the reasons for any pay or promotional disparities among the class members. The combined effect of these two holdings was that Wal-Mart would have to defend a gargantuan class, and the plaintiffs could rely on their strongest evidence (the statistics), but there would be little or no opportunity for Wal-Mart to assert its defenses to any particular claim.
Wal-Mart appealed. On February 2, 2007, the Ninth Circuit rendered the first of its three opinions on the case. In a 2:1 decision, the court of appeals affirmed the decision to certify the class, relying largely on the deference to be given to the district court in making class determinations. It also dismissed Wal-Mart’s arguments as to manageability, problems with the plaintiffs’ statistical analysis, due process concerns and the types of damages the plaintiffs sought. A blistering dissent pointed out both mathematical and legal defects in the majority’s analysis, largely agreeing with the many challenges Wal-Mart had made.
Ten months later, on December 11, 2007, the panel denied rehearing, but issued a new opinion correcting some of the technical errors contained in its first decision. The dissent, for its part, noted that the changes did not resolve the fundamental flaws in the initial decision to certify the class. Wal-Mart then sought rehearing en banc.
The 137-page en banc opinion was issued nearly six years after the district court’s 2004 decision certifying the class. As expected, the court of appeals (with six judges in the majority and five dissenting), formed little common ground. Despite its 95-page length, the majority opinion discussed few of the facts or the case’s procedural history. Some Wal-Mart arguments were relegated to footnote references, and, in many instances, it summarily dismissed issues raised by the company based upon its sheer size. The majority opinion began with a discussion of the Rule 23 standards that, for the most part, tracked cases from other jurisdictions. Within that analysis, however, the court began to rely on a series of paradoxical views regarding the nature of the case before it.
For example, in response to concerns raised by Wal-Mart and the dissent regarding the impossibility of managing a case with more members than many large cities, the majority simply noted that because Wal-Mart is a large employer, any class is likely to be big. By contrast, in response to the argument that the plaintiffs had produced only 120 affidavits describing individual claims (or, on average, declarations from fewer than three percent of Wal-Mart stores, or one per 12,500 class members), the court disregarded the company’s large size and found the showing sufficient.
While many aspects of the majority opinion are troubling, a handful stand out. For example, while the court acknowledged, based on Supreme Court guidance, that the district court was required to conduct a “rigorous analysis,” it downplayed the depth of the rigor such an analysis would require.
Similarly, like the district court, the majority drew support for its conclusion from the fact that Wal-Mart had centralized policies, but, like the district court, it failed to identify a single Wal-Mart policy that sanctioned discrimination against anyone. The “centralized” Wal-Mart policies, in fact, prohibited discrimination. To find the necessary taint of discrimination, the court found that the fact that individual managers used subjective criteria also meant that they could discriminate. The court thus relied upon the flawed reasoning that the issues in the case were class wide simply because (a) Wal-Mart had centralized policies and (b) unidentified local managers might subjectively discriminate.
Much of Wal-Mart’s challenge to the plaintiffs’ evidence had focused on the testimony of their experts, such as one on “gender stereotyping” which it contended could not survive the analysis required under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993). The majority dismissed these challenges and, in addressing the dissent’s strong disagreement, noted skepticism over whether Daubert has “the same application at the class certification stage as to does to expert testimony relevant at trial.” One might question, however, the utility of permitting a class on the basis of inadequate expert testimony, only to have that exact evidence thrown out at trial before reaching the merits.
Creating a conflict with at least two other federal courts of appeal, the court held that certification was also proper under Rule 23(b)(2), which is generally reserved for claims of primarily equitable relief, not money damages. Contrary to those courts, the majority also concluded that the prayer for punitive damages, by definition not equitable relief, did not render Rule 23(b)(2) inapplicable.
Perhaps the greatest difficulty with the majority opinion was its failure to address the unprecedented class size and the management difficulties such a class would present if the parties were to be afforded due process. It bears repeating that this putative class has over 1.5 million members, with claims stretching back even a decade. While the court left it to the trial court to determine how best to manage those claims, even granting the parties a skimpy 15-minute hearing per class member would result in a trial of over a century.
The dissent pointed out many of these flaws. Its opening declared: “No court has ever certified a class like this one, until now. And with good reason.” The dissent noted the lack of any company-wide practice or practice of discrimination. It found the problem of individual hearings fatal to the plaintiffs’ claims and the district court’s approach as having the effect of dismissing the company’s affirmative defenses without any remedy. It noted numerous paradoxes, including the fact that some of the alleged perpetrators of discrimination were women who were themselves class members.
For all of the disagreements among the judges, Dukes is distinguishable from virtually any other case because it is unique in so many respects. Wal-Mart is, as the opinion notes, by far the largest employer, and the majority relied on its strong culture and what it found to be stark statistics in support of its conclusions. Defendants will likely point to these distinct facts in opposing certification efforts in the Ninth Circuit in the future.
Wal-Mart has indicated that it will petition the United States Supreme Court for certiorari, and many aspects of the case, its size, novel holdings and conflicts with other circuits, all suggest that review should be accepted. If not overruled, many aspects of the latest Dukes decision will make class action litigation more common and expensive for all employers.
By Stephen C. Sutton
Disparate impact claims involve challenges to employment practices that are facially neutral in their treatment of different groups of employees but, in fact, fall more harshly on members of a protected class. Proof of discriminatory motive is not required in a disparate impact claim. Because they involve discriminatory practices that affect groups of employees, disparate impact claims have historically been a source of class action litigation.
A recent United States Supreme Court decision has paved the way for increased class action litigation by making it easier for class action plaintiffs to avoid challenges to the timeliness of disparate impact lawsuits. In Lewis v. City of Chicago, 560 U.S._, Case No. 08-974 (U.S. Sup. Ct. May 24, 2010), a unanimous Supreme Court held that a plaintiff alleging an unlawful disparate impact under Title VII of the Civil Rights Act of 1964 (“Title VII”) who does not file a timely charge with the Equal Employment Opportunity Commission (EEOC) challenging the adoption of an alleged discrimination employment practice may still assert a disparate impact claim based on a timely charge challenging the employer’s later application of that practice.
In Lewis, a group of African-American applicants for firefighter positions with the City of Chicago alleged that a written examination administered to over 26,000 applicants had an illegal disparate impact against African-American applicants in violation of Title VII. In July 1995, the City administered a written test to applicants seeking employment with the Chicago Fire Department and used the test to determine eligibility of the applicants for hiring. Individuals who scored 89 or above (out of 100), were considered “well qualified” and would move on to the next phase of the hiring process. Those who scored below 65 were deemed “not qualified” and were notified that they would not be considered for a position. Applicants who scored in the range of 65 and 88 were deemed “qualified,” but were notified that it was not likely they would be considered for a position. The City further emphasized that the “qualified” applicants’ names would be kept on record and used to hire from as long as the list was used from the 1995 test.
The City announced in January 1996 that it had scored the July 1995 test and created the hiring classifications from that test. It selected its first hiring class based on the test results on May 16, 1996. The City selected a second class of candidates on October 1, 1996, and repeated this drawing process nine more times over a six-year period.
On March 31, 1997, an individual who scored in the “qualified” range on the 1995 test, but had not been hired as a firefighter, filed a charge of disparate impact race discrimination with the EEOC. Thereafter, five other African–American applicants filed charges. Upon receiving right to sue letters from the EEOC, the unsuccessful applicants filed a class action lawsuit against the City of Chicago alleging that the City’s practice of only advancing the “well qualified” applicants (those who scored 89 or above out of 100), resulted in a racially disparate impact in violation of Title VII. The District Court ultimately certified a class of more than 6,000 African-Americans who scored in the “qualified” range, but had not been hired.
Among other defenses, the City argued that the case should be dismissed because the plaintiffs had failed to file their EEOC charges within 300 days after the City announced the adoption of the cut-off scores and used the test results in 1996 to create a hiring list, which it conceded was unlawful. Under Title VII, in most circumstances, a charge of discrimination must be filed with the EEOC within 300 days of the challenged discriminatory action in order to later bring a lawsuit in court. The District Court rejected this argument, and held that the EEOC charges were timely because the City’s ongoing use of the 1995 test to create later hiring lists was a “continuing violation” of Title VII. Finding for the plaintiffs, the District Court fashioned class-wide relief. Specifically, it ordered the City to hire 132 randomly selected members of the class and awarded back pay to be divided among the remaining class members.
On appeal, the U.S. Court of Appeals for the Seventh Circuit reversed, holding that the lawsuit was untimely because the EEOC charges were not filed within 300 days after the 1996 discriminatory act of classifying applicants into the classes of “well qualified,” “qualified,” and “not qualified.” (Lewis v. City of Chicago, 528 F.3d 488 (7th Cir. 2008)).
A unanimous Supreme Court reversed. The Court found that the real question was whether the plaintiffs had identified a discriminatory employment practice that could be the basis for a disparate impact claim during a 300-day charge filing period. Answering the question in the affirmative, the Court held that the City’s practice of excluding individuals who scored 88 or below until it exhausted the “well qualified” applicant list was an employment practice upon which a disparate impact claim could be based. As a result, though the City adopted the hiring list in 1996, “it made use of the practice of excluding those who scored 88 or below each time it filled a new class of firefighters.”
Writing for the Court, Justice Scalia rejected the City’s argument that the only actionable discrimination occurred in 1996 when it used the examination results to create the hiring eligibility list and notified applicants that it was limiting hiring to the “well qualified” classification. The Court held that “[i]t may be true that the City’s January 1996 decision to adopt the cutoff score … gave rise to a freestanding disparate-impact claim,” but “it does not follow that no new violation occurred—and no new claims could arise—when the City implemented that decision down the road.”
The Court also rejected the City and certain amici’s contention that allowing new claims to accrue based upon prior test results would cause a “host of practical problems for employers and employees alike.” Unpersuaded, Justice Scalia observed that “it is not our task to assess the consequence of each approach and adopt the one that produces the least mischief.” Rather, the Supreme Court is charged “to give effect to the law Congress enacted.”
The decision in Lewis undoubtedly will spark renewed interest in bringing class action disparate impact claims. Employers may now face disparate impact lawsuits by classes of employees based on practices or policies that they have relied on regularly for years. Based on the decision in Lewis, employees may allege disparate impact claims every time an employer takes action based upon an alleged discriminatory practice, even if the practice originated well outside of the 300-day charge filing period.
The decision in Lewis, along with Congress’ enactment of the Lilly Ledbetter Fair Pay Act in 2009, underscores that employers must continue to be cognizant of the potential for class action claims based upon the application of long-standing policies or practices even when those policies and practices have never before been subject to a claim or charge of discrimination, particularly in the realm of testing and other selection procedures. Indeed, it is unclear where the Court will draw the line between the outer limits of this decision and that in AT&T Corp. v. Hulteen, 129 S. Ct. 1962 (2009). In Hulteen, the Court held the application of a bona fide seniority system that, prior to the Pregnancy Discrimination Act (“PDA”), provided less retirement credit for maternity leave than other types of medical leave, and now results in lower pension payments to women, did not violate the PDA or Title VII.
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