The Impact and Echoes of the Wal-Mart Discrimination Case
When the U.S. Supreme Court issued its 5-4 decision in Wal-Mart v. Dukes in June 2011, no one needed a Richter scale to know it was a Big One. In throwing out a mammoth lawsuit by women employees who claimed that they’d been systematically underpaid and underpromoted by the world’s biggest corporation, the ruling upended decades of employment discrimination law and raised serious barriers to future large-scale discrimination cases of every kind.
Employers rejoiced. Others predicted serious setbacks for women and minorities, especially in employment discrimination cases brought under Title VII of the Civil Rights Act of 1964. That landmark law had opened the way to the use of the class-action lawsuit as a potent weapon for people who could not stand up for their rights on their own.
Two years later, it’s becoming clear just how much the ruling has reshaped the American legal landscape.
The Dukes decision has already been cited more than 1,200 times in rulings by federal and state courts, a figure seen by experts as remarkable. Jury verdicts have been overturned, settlements thrown out, and class actions rejected or decertified, in many instances undoing years of litigation. The rulings have come in every part of the country, in lawsuits involving all types of companies, including retailers (Family Dollar Stores), government contractors (Lockheed Martin Corp.), business-services providers (Cintas Corp.), and magazines (Hearst Corp.). The aftershocks have been felt in many kinds of lawsuits beyond the employment field, as well.
Many of the rulings since 2011 have not been surprising. Some have been relatively narrow. But others have tread into unexpected territory.
This past August, for example, a federal appeals court in Philadelphia upheld the dismissal of a $7 million settlement between the former National City Bank and 153,000 black and Hispanic borrowers who claimed that the bank had discriminated against them in how it charged mortgage points and fees during the housing bubble. Neither side had sought to revisit the 2010 accord, but the courts did so anyway, ruling that because the class action probably wouldn’t have been certified under Dukes, the settlement was suspect, too
“That is pretty extraordinary,” said Gerald Maatman Jr. of Seyfarth Shaw in Chicago, one of the leading law firms in the country defending businesses and employers against class actions. “It shows how much the standards have changed.”
Courts in prior decades had typically rubber-stamped such settlements, he said.
“It’s a whole new world,” Maatman said.
One measure of that change is the difference in the size of employee discrimination settlements as reported in Maatman’s widely read Workplace Class Action Blog. In 2010, the year before the Dukes decision, the top 10 settlements totaled $346 million; in 2012, the first year after Dukes, that total plummeted 87 percent, to $45 million.
Another measure, lawyers representing women and minorities say, is the drop-off in new employment discrimination class-action lawsuits being filed. Before Dukes, it was normal to see 25 or 30 such cases every year, said Jocelyn Larkin, executive director of the Impact Fund, a law firm/national litigation resource center based in Berkeley, Calif., which helped bring the Wal-Mart suit in 2001. Now, Larkin said, the number of new cases is closer to 10 or 12 a year.
Even in this new world, there have been some class-action victories. On Sept. 6, Bank of America and its Merrill Lynch unit settled a sex discrimination class action with female brokers for $39 million. The week before, Merrill agreed to pay another $160 million for discriminating against African-American brokers, the largest class-action settlement ever in a race-bias case. Merrill and Bank of America had tried to argue that the Wal-Mart ruling meant that the lawsuits should not be allowed to proceed as class actions — an argument that, in these instances, a federal court didn’t buy.
But for advocates for women and minority workers, the mood is mostly dispirited. Economic disparities — between people of color and whites and between men and women — have been widening and complaints of mistreatment in the workplace are common. San Francisco’s Equal Rights Advocates, another firm involved in the Dukes case, has seen a tripling of calls to its nationwide hotline, said executive director Noreen Farrell. Many of the calls are from low-wage women facing discrimination on the job and elsewhere.
Even before Dukes, “they already had many obstacles,” Farrell said. To fight these battles individually, “it’s often impossible.”
Edith Arana, now in her early 50s, was a mother of five with 10 years of retail experience when she started working at a Duarte, Calif., Wal-Mart store in the 1990s for $7 an hour. In six years, she received excellent performance reviews but never rose beyond a low-level “support manager.” When she began pressing for a promotion, her supervisors cut her hours, she claimed, finally forcing her out of her job.
“I thought to myself, no one’s going to believe you — you’re just one person,” Arana said.
Eventually, though, Arana found her way to Equal Rights Advocates. The firm had heard many similar stories. Their lawsuit was filed in San Francisco in 2001.
Wal-Mart had a written anti-discrimination policy and insisted that it “does not condone discrimination of any kind.” It also noted that “women hold positions of significant responsibility” at the company. But it left most employment decisions to the discretion of local managers at thousands of stores across the country. That led to systemic discrimination, the women and their lawyers claimed. Wal-Mart’s own wage and promotion data seemed to show pronounced, persistent wage disparities between male and female employees at every level, from hourly workers to senior managers.
“Wal-Mart has had a strong policy against discrimination in place for many years and we continue to be a great place for women to work and advance,” the company said in a statement to ProPublica.
“The opportunities left a lot of discretion to managers to make decisions based on their own personal views and predilections and idiosyncrasies and biases,” said Joseph M. Sellers, a partner at the Washington, D.C., firm Cohen Milstein who eventually helped argue the case before the Supreme Court.
It was a theory that had underpinned many successful employment discrimination cases over the last 50 years. In 2004, the federal judge overseeing the case certified it as the largest sex and employment discrimination class action in U.S. history. The Ninth Circuit Court of Appeals twice affirmed that ruling.
The Supreme Court ultimately thought otherwise. In his opinion, Justice Antonin Scalia rejected the notion that such a vast company should be held responsible for the workplace decisions of thousands of local managers exercising their own discretion, even if those actions ended up having a disparate impact on female employees.
“What the Supreme Court said is that you can’t group dozens and dozens of different classes into one class action and say, ‘Oh everyone’s an employee and everyone’s fighting gender discrimination, so they belong together,’” said Ted Frank, an adjunct fellow with the Manhattan Institute's Center for Legal Policy.
Other experts blamed the plaintiffs for overreaching, and in the process inviting a more conservative Supreme Court to register one of its most significant pro-business rulings.
“When plaintiffs seek to maximize their leverage by suing on a companywide, ‘mega’ basis, they invite judicial reversal,” Columbia law professor John Coffee wrote soon after the decision. “Hubris leads to disaster, and Wal-Mart presents the paradigmatic case of such a train wreck.”
Other aspects of the ruling were also far-reaching. In particular, the court rejected a 35-year-old framework for calculating monetary damages in employment discrimination class actions. Instead of using a statistical formula that assessed damages for the whole class, plaintiffs now had to have individual trials. Many lawyers didn’t see this coming, especially when liberal justices joined conservatives to make that part of the ruling unanimous.
One predictable casualty was the Dukes case itself. This August, the San Francisco federal judge overseeing the lawsuit concluded that even a scaled-back version of the lawsuit, covering only Wal-Mart workers in California, could not move forward. A Texas judge said the same thing last fall about a version of the suit filed there.
Arana, one of the original plaintiffs, lamented the clear implications for female workers like her.
“It can’t just be you out there,” Arana said. “No one person, no one attorney, no one support system is enough.”
Wal-Mart, in its statement, said: “The allegations from these five plaintiffs are not representative of the positive experiences that hundreds of thousands of women have had working at Wal-Mart.”
Beyond Dukes, the greatest disruption has been to what are sometimes called “legacy cases” — the sizable and often significant class-action lawsuits that began before Dukes was decided. The fate of a race discrimination lawsuit against a South Carolina steel factory owned by Nucor Corp. is one example of the ripple effects of the Dukes decision.
The lawsuit, brought by seven black Nucor employees in 2004 on behalf of more than 100 coworkers, alleged a widespread pattern of racist acts and promotion practices at the factory. White supervisors and employees reportedly referred to their black colleagues as “yard apes” and “porch monkeys.” Racial epithets were supposedly broadcast over the plantwide radio system, along with “Dixie,” “High Cotton” and monkey noises in response to the communications of black workers. The lawsuit said the Confederate flag was displayed throughout the plant and even emblazoned next to Nucor’s logo on items sold in the plant’s gift shop. Yet another allegation was that whites circulated emails showing black people with nooses around their necks.
In court documents, Nucor denied the allegations and said that all employment decisions were made for “legitimate, non-discriminatory business reasons.”
In nine years, courts have weighed in at least seven times on whether the case should be certified as a class action, with the Fourth Circuit Court of Appeals in Richmond — not known for being particularly sympathetic to workers — finally deciding that there was ample evidence to let the case proceed as a class action. Then, after Dukes, the class was again decertified for all claims except hostile work environment; earlier this month, Nucor’s lawyers were once again in court arguing that even that limited class action should be thrown out because most of the alleged racist acts were limited to one department.
“The problem with the length of this case is that as the case goes on, the Supreme Court keeps drilling more nails into the coffin of effective civil rights law,” said Armand Derfner, a Charleston, S.C., lawyer representing the workers. “The practical effect of decertification is that even if we win, there will not be the kind of change that Title VII was designed to create. A handful of people will win,” but the company “won’t have to make fundamental changes that they don’t want to make.”
For all of its force, the Dukes decision contained some ambiguity as well. For instance, the decision said that for a class-action lawsuit to proceed, plaintiffs would now have to show “significant proof of a general policy of discrimination” on the part of the employer. What exactly constituted “a general policy” was left unclear.
“The ruling used some new language which nobody quite knew what it meant,” said Joseph Sellers, the Washington lawyer who had helped argue the Dukes case. “This has injected a new level of uncertainty into cases that were already challenging and expensive and time-consuming to bring.”
The uncertainty spawned by the Dukes decision has been compounded by other Supreme Court decisions. All of it has left plaintiffs trying to “reboot” their various cases with new arguments, and defense lawyers responding with “novel” theories of their own, said Maatman, the Chicago lawyer who represents employers. And many lawyers on both sides are watching to see if the Dukes decision gets invoked in major pending cases, including a class-action lawsuit brought against BP for the 2010 Deep Water Horizon drilling disaster in the Gulf of Mexico.
The explicit and enduring ramifications of Dukes, then, are still to be determined.
“We’re still seeing employee class actions — those haven’t died,” said Ted Frank of the Manhattan Institute. “We’re seeing consumer class actions and securities class actions — those haven’t died. Certainly some bad class actions were slapped down, but the legitimate class actions are going forward.”
Indeed, in perhaps the biggest victory for workers in the post-Dukes era, the Seventh Circuit Court of Appeals in Chicago last year refused to throw out the 2005 lawsuit brought by George McReynolds and other black brokers against Merrill Lynch — the case that led to the record $160 million settlement. Writing for a three-judge panel, Judge Richard Posner, a conservative who has displayed a fierce independent streak as well as a willingness to clash with Justice Scalia in a number of recent writings, said Merrill Lynch’s pay and promotion policies were fundamentally different from Wal-Mart’s in how they encouraged systematic bias.
The McReynolds ruling, then, shows one possible way forward for employees and their lawyers, Maatman said.
“You’re seeing plaintiffs’ lawyers recalibrate, making classes much smaller, focusing on an issue that might be doable on a classwide basis, not trying to certify, as they did in Dukes, the whole enchilada,” he said.
Perhaps the next high-profile test of this strategy will come in March 2014 in San Francisco, where Obama appointee Edward Chen — formerly an ACLU attorney specializing in discrimination cases, and now, after a two-year confirmation battle, a U.S. district judge — is set to preside in a trial against Costco and its promotion policies. Citing McReynolds, Chen ruled in 2012 that the sex discrimination suit, brought by 700 of the retailer’s female workers, could move forward as a class.
In the post-Dukes world, “there’s trepidation,” acknowledged Emily Martin, vice president and general counsel for the National Women’s Law Center, which has been closely monitoring the case and its aftermath. “But it’s not as though everyone is rolling up their tents and going home.”