The Employment Discrimination Class Action Is Alive and Well

Just when some thought it might be safe to presume that class action discrimination lawsuits under Title VII of the Civil Rights Act and the Age Discrimination in Employment Act were on the wane, several recent decisions involving the huge retailer, Wal-Mart, Inc., should give many employers pause for thought. In February 2007, the Ninth Circuit Court of Appeals upheld the lower court decision that had certified a nationwide class of approximately 1.6 million current and former female employees who had worked at one or more of Wal-Mart's 3,400 stores throughout the United States. Dukes v. Wal-Mart Stores, Inc., 474 F.3d 1214 (9th Cir. 2007). On Dec.11, 2007, the U.S. Court of Appeals for the Ninth Circuit issued a modified opinion, clearing the way for a reduction of the number of class members, while also clarifying its holding approving class certification. Dukes, Case No. 04-16688.

Moreover, on May 16, 2007, the United States District Court for the Eastern District of Arkansas certified a class of black truck drivers who either were rejected for jobs from Wal-Mart or were deterred from applying because of the company's 'word-of-mouth' recruitment policy. Nelson v. Wal-Mart Stores, Inc., Nos. 2:04-CV00171, 2007 WL 1443114 (E.D. Ark. May 16, 2007).

The recent prevalence of class actions in employment discrimination cases is surprising to some. Indeed, the passage of the 1991 Civil Rights Act was viewed by many as a step toward stifling class action litigation of cases alleging intentional discrimination. In 1991, buttressed by a belief that additional remedies under Federal Law were needed to deter intentional discrimination in the workplace, Congress made punitive and compensatory damages available to plaintiffs claiming intentional discrimination. See 42 U.S.C. ' 1981a(a)(1). In addition, Congress provided that either party to a claim is entitled to request a jury trial. See 42 U.S.C. ' 1981a (c). Both the additional damages provisions and the entitlement to request a jury trial bring into question the continued viability of the class action as a vehicle for alleging intentional discrimination.

Specifically, those who view the 1991 Civil Rights Act as constraining the feasibility of employment discrimination class actions argue that the incorporation of compensatory and punitive damages has eroded the group foundation of these claims. Compensatory and punitive damages do not focus on the modification of employer behavior against a group; rather, these damages shift the focus towards compensating individual plaintiffs.

Accordingly, it can be argued that these changes makes it difficult, if not unattainable, for plaintiffs to fit their proposed class into any of the Rule 23(b) categories. However, as noted, the changes wrought by the 1991 Civil Rights Act have not created an impenetrable bulwark to the resolution of employment discrimination claims through class litigation. Employers such as Wal-Mart must defend themselves against the viable and threatening reality of class action lawsuits.

New Tactics

To sue retail giants such as Wal-Mart effectively, lawyers have employed new tactics, including sharing documents and other material over the Internet. The most effective method of litigation, however, has been class action lawsuits, in which huge numbers of plaintiffs team up against the retail monolith. For example, as mentioned, the Ninth Circuit Court of Appeals, in Dukes, approved the largest certified class in history, though it opened the door to reduce the class. Nevertheless, the conclusions reached in Dukes have been the catalyst for a class of concerns regarding the appropriate standards in analyzing the availability of class certification in large employment discrimination cases. Specifically, Dukes highlights the split in relevant case law. It remains unclear whether employment discrimination cases can be maintained as class actions due to subjective, decentralized decision-making. In Dukes, the court rejected Wal-Mart's argument that its practice of granting local managers substantial discretion in making employment decisions defeated commonality. Ultimately, the court reasoned that the plaintiffs had submitted sufficient evidence establishing that Wal-Mart's policy of subjective decision-making resulted in uniform discrimination.

Nelson v. Wal-Mart

Echoing the Ninth Circuit, the United States Eastern District Court for the Eastern District of Arkansas certified a nationwide class of all African-Americans who have applied for jobs as over-the-road truck drivers at Wal-Mart since Sept. 22, 2001, as well as all black drivers who were 'deterred or thwarted from applying' for positions as over-the-road truck drivers due to Wal-Mart's challenged policies and practices. Nelson v. Wal-Mart Stores, Inc., 2007 WL 1443114 (E.D. Ark. May 16, 2007). Both the black drivers who were rejected for jobs with a Wal-Mart subsidiary, and those who were deterred from applying, argued that Wal-Mart's 'word-of-mouth' recruitment with little or no advertising, combined with its subjective, discriminatory hiring, produce a disproportionate, adverse impact on black truck drivers. While denying these allegations, the defendants maintained that this class was inappropriate as it was not 'precisely defined' and therefore could not be certified. Wal-Mart argued that including individuals who were deterred from applying was too imprecise to constitute a class. The court rejected this argument, citing Supreme Court precedent that individuals who were deterred from applying for positions could in some cases seek relief.

As determined under a standardized policy established at Wal-Mart headquarters, new truck drivers are recruited almost exclusively through 'word of mouth' by current Wal-Mart drivers by the distribution of '1-800 cards' to potential applicants. The cards detail Wal-Mart's minimum qualifications for drivers and give the toll-free number drivers can call to request an application. All drivers who call the 1-800 number are initially screened and processed at Wal-Mart's Bentonville, AK, headquarters. Applicants who pass the preliminary screening are required to submit an application to their preferred transportation office. Once the application is forwarded from the Bentonville headquarters, a screening committee comprised of current drivers at the transportation office determines which applicants will be granted an interview. Nelson, 2007 WL 1443114, at *2. Although Wal-Mart's policy provided that the screening committees was to be '50% diverse,' an audit of such committees revealed that a substantial number of them had no African-American representation whatsoever.

Through this 'word-of-mouth' policy, Wal-Mart hired 4,135 over-the-road truck drivers from Jan. 1, 2000, to Sept. 19, 2005. According to the plaintiffs' expert, the proportion of newly hired black drivers was less than the expected proportion in 34 of the 39 transportation offices. Nelson, 2007 WL 1443114, at *3. In addition, plaintiffs were able to uncover two studies conducted by Wal-Mart that showed that its own recruitment practices for over-the-road truck drivers were greatly limiting publicity of job openings for such drivers. Despite these two studies, Wal-Mart took no action.

The corporate culture of Wal-Mart, known as the 'Wal-Mart Way,' emphasizes a uniform centrally controlled corporate governance. This standardized corporate culture ensures that the hiring process is identical at each of Wal-Mart's transportation offices. Despite Wal-Mart's contention that hiring decisions are made independently by local general managers, the court viewed Wal-Mart's centralized policy as the plaintiffs' ticket to establishing commonality. It rejected Wal-Mart's claim that its 'centralized policy of decentralization,' could defend the commonality requirement. It concluded that '[i]t is difficult to see why a large corporation should not be held to account for instituting a centralized policy that harms a class of individuals just because that policy allows managers to utilize subjective decsionmaking.' 2007 WL 1443114, at *8. Thus, it concluded there were common issues of law and fact with respect to the class and its representatives.

A finding of commonality merely paved the way to the court's determination that the class also satisfied the typicality requirement of Rule 23(a) of the Federal Rules of Civil Procedure. Indeed, the analysis used to find commonality applied with equal force to typicality. The court reasoned that Wal-Mart's uniform hiring policies across transportation offices affected all class members in a similar manner. Nelson, 2007 WL 1443114, at *9. The typicality of the named plaintiffs' claims was found in their unification to challenge Wal-Mart's standardized hiring policies. Similarly, the court determined that the remaining requirements of Rule 23(a), numerosity and adequacy of representation, were also met.

No Class Too Large?

Interestingly, as in the Ninth Circuit's decision in Dukes, the court's conclusions were not fettered by the fact that the rejected class may become too large or unwieldy with the inclusion of deterred applicants. Although not explicitly listed in Rule 23(a), some courts have required a precisely defined class to exist before considering the remaining criteria of Rule 23(a) for class certification. See, e.g., Dirks v. Clayton Brokerage Co. of St. Louis, Inc., 105 F.R.D. 125, 130 (D. Minn. 1985) (citing Roman v. ESB, Inc., 550 F.2d 1343, 1348 (4th Cir. 1976)).

Thus, Wal-Mart argued that including all African-Americans who were deterred or thwarted from applying to the proposed class rendered the class too imprecise and speculative to be certified. A seeming class without boundaries met a court willing to stretch its parameters and create an undoubtedly problematic class. Also, despite the faith of some that the 1991 Civil Rights Act would doom class litigation of claims alleging discrimination, the plaintiffs' claims for punitive damages did not prevent certification. Concern that the claims for monetary damages predominated over the plaintiffs' claims for declaratory and injunctive relief led the court to deny class treatment of that punitive damage issue. Nevertheless, the court still reasoned that the plaintiffs satisfied Rule 23(b)(2). The court found that unlike back pay, the request for punitive damages would require individualized trials 'to fully realize the extent of the harm caused by Wal-Mart's conduct and properly assess the need for punishment and deterrence.' 2007 WL 1443114 *14. This, according to the court, would predominate over the plaintiffs' claims for injunctive and declaratory relief.

Conclusion

In sum, the employment discrimination class action is alive and well. The price of avoiding class litigation of claims alleging discrimination is constant vigilance and an employer's commitment to treat the protection against discrimination in the workplace as among a company's highest priorities. Employers seeking to avoid these kinds of situations may wish to consider the lessons of Nelson. First, studies that show there are problems with recruitment processes should not be ignored. This information can often be a 'smoking gun.' It can also be used to try and show that the company had no real interest in dealing with the problems at hand. Also, companies may wish to perform such studies through legal counsel and perhaps avoid the disclosure through a claim of privilege.

Corporations must also decide whether in fact they truly want to have centralized policies. In many cases, these centralized policies will protect the company from the actions of individual offices that might otherwise adopt improper and even discriminatory policies. On the other hand, when decision-making is done on a centralized basis, these policies will affect large numbers of individuals and subject the company to a class action. Decentralizing these polices, while possibly limiting class actions, may cause the company to 'lose its corporate image' and otherwise result in the company's losing control over its nationwide or even worldwide operations. This can affect the company in myriad issues, such as union avoidance. In any case, in light of the court's decision in Nelson, Human Resource executives must now understand that these centralized policies can affect not only employees and applicants, but also individuals who never even applied for the positions at issue. The damages in these kinds of cases can be staggering, even for large companies such as Wal-Mart, and inevitably can affect their bottom lines.

Mark N. Reinharz, a member of this newsletter's Board of Editors, is a member of Bond, Schoeneck & King, PLLC. E-mail: [email protected]. Jennifer Papas was a summer associate at the firm.

Just when some thought it might be safe to presume that class action discrimination lawsuits under Title VII of the Civil Rights Act and the Age Discrimination in Employment Act were on the wane, several recent decisions involving the huge retailer, Wal-Mart, Inc., should give many employers pause for thought. In February 2007, the Ninth Circuit Court of Appeals upheld the lower court decision that had certified a nationwide class of approximately 1.6 million current and former female employees who had worked at one or more of Wal-Mart's 3,400 stores throughout the United States. Dukes v. Wal-Mart Stores, Inc. , 474 F.3d 1214 (9th Cir. 2007). On Dec.11, 2007, the U.S. Court of Appeals for the Ninth Circuit issued a modified opinion, clearing the way for a reduction of the number of class members, while also clarifying its holding approving class certification. Dukes, Case No. 04-16688.

Moreover, on May 16, 2007, the United States District Court for the Eastern District of Arkansas certified a class of black truck drivers who either were rejected for jobs from Wal-Mart or were deterred from applying because of the company's 'word-of-mouth' recruitment policy. Nelson v. Wal-Mart Stores, Inc., Nos. 2:04-CV00171, 2007 WL 1443114 (E.D. Ark. May 16, 2007).

The recent prevalence of class actions in employment discrimination cases is surprising to some. Indeed, the passage of the 1991 Civil Rights Act was viewed by many as a step toward stifling class action litigation of cases alleging intentional discrimination. In 1991, buttressed by a belief that additional remedies under Federal Law were needed to deter intentional discrimination in the workplace, Congress made punitive and compensatory damages available to plaintiffs claiming intentional discrimination. See 42 U.S.C. ' 1981a(a)(1). In addition, Congress provided that either party to a claim is entitled to request a jury trial. See 42 U.S.C. ' 1981a (c). Both the additional damages provisions and the entitlement to request a jury trial bring into question the continued viability of the class action as a vehicle for alleging intentional discrimination.

Specifically, those who view the 1991 Civil Rights Act as constraining the feasibility of employment discrimination class actions argue that the incorporation of compensatory and punitive damages has eroded the group foundation of these claims. Compensatory and punitive damages do not focus on the modification of employer behavior against a group; rather, these damages shift the focus towards compensating individual plaintiffs.

Accordingly, it can be argued that these changes makes it difficult, if not unattainable, for plaintiffs to fit their proposed class into any of the Rule 23(b) categories. However, as noted, the changes wrought by the 1991 Civil Rights Act have not created an impenetrable bulwark to the resolution of employment discrimination claims through class litigation. Employers such as Wal-Mart must defend themselves against the viable and threatening reality of class action lawsuits.

New Tactics

To sue retail giants such as Wal-Mart effectively, lawyers have employed new tactics, including sharing documents and other material over the Internet. The most effective method of litigation, however, has been class action lawsuits, in which huge numbers of plaintiffs team up against the retail monolith. For example, as mentioned, the Ninth Circuit Court of Appeals, in Dukes, approved the largest certified class in history, though it opened the door to reduce the class. Nevertheless, the conclusions reached in Dukes have been the catalyst for a class of concerns regarding the appropriate standards in analyzing the availability of class certification in large employment discrimination cases. Specifically, Dukes highlights the split in relevant case law. It remains unclear whether employment discrimination cases can be maintained as class actions due to subjective, decentralized decision-making. In Dukes, the court rejected Wal-Mart's argument that its practice of granting local managers substantial discretion in making employment decisions defeated commonality. Ultimately, the court reasoned that the plaintiffs had submitted sufficient evidence establishing that Wal-Mart's policy of subjective decision-making resulted in uniform discrimination.

Nelson v. Wal-Mart

Echoing the Ninth Circuit, the United States Eastern District Court for the Eastern District of Arkansas certified a nationwide class of all African-Americans who have applied for jobs as over-the-road truck drivers at Wal-Mart since Sept. 22, 2001, as well as all black drivers who were 'deterred or thwarted from applying' for positions as over-the-road truck drivers due to Wal-Mart's challenged policies and practices. Nelson v. Wal-Mart Stores, Inc., 2007 WL 1443114 (E.D. Ark. May 16, 2007). Both the black drivers who were rejected for jobs with a Wal-Mart subsidiary, and those who were deterred from applying, argued that Wal-Mart's 'word-of-mouth' recruitment with little or no advertising, combined with its subjective, discriminatory hiring, produce a disproportionate, adverse impact on black truck drivers. While denying these allegations, the defendants maintained that this class was inappropriate as it was not 'precisely defined' and therefore could not be certified. Wal-Mart argued that including individuals who were deterred from applying was too imprecise to constitute a class. The court rejected this argument, citing Supreme Court precedent that individuals who were deterred from applying for positions could in some cases seek relief.

As determined under a standardized policy established at Wal-Mart headquarters, new truck drivers are recruited almost exclusively through 'word of mouth' by current Wal-Mart drivers by the distribution of '1-800 cards' to potential applicants. The cards detail Wal-Mart's minimum qualifications for drivers and give the toll-free number drivers can call to request an application. All drivers who call the 1-800 number are initially screened and processed at Wal-Mart's Bentonville, AK, headquarters. Applicants who pass the preliminary screening are required to submit an application to their preferred transportation office. Once the application is forwarded from the Bentonville headquarters, a screening committee comprised of current drivers at the transportation office determines which applicants will be granted an interview. Nelson, 2007 WL 1443114, at *2. Although Wal-Mart's policy provided that the screening committees was to be '50% diverse,' an audit of such committees revealed that a substantial number of them had no African-American representation whatsoever.

Through this 'word-of-mouth' policy, Wal-Mart hired 4,135 over-the-road truck drivers from Jan. 1, 2000, to Sept. 19, 2005. According to the plaintiffs' expert, the proportion of newly hired black drivers was less than the expected proportion in 34 of the 39 transportation offices. Nelson, 2007 WL 1443114, at *3. In addition, plaintiffs were able to uncover two studies conducted by Wal-Mart that showed that its own recruitment practices for over-the-road truck drivers were greatly limiting publicity of job openings for such drivers. Despite these two studies, Wal-Mart took no action.

The corporate culture of Wal-Mart, known as the 'Wal-Mart Way,' emphasizes a uniform centrally controlled corporate governance. This standardized corporate culture ensures that the hiring process is identical at each of Wal-Mart's transportation offices. Despite Wal-Mart's contention that hiring decisions are made independently by local general managers, the court viewed Wal-Mart's centralized policy as the plaintiffs' ticket to establishing commonality. It rejected Wal-Mart's claim that its 'centralized policy of decentralization,' could defend the commonality requirement. It concluded that '[i]t is difficult to see why a large corporation should not be held to account for instituting a centralized policy that harms a class of individuals just because that policy allows managers to utilize subjective decsionmaking.' 2007 WL 1443114, at *8. Thus, it concluded there were common issues of law and fact with respect to the class and its representatives.

A finding of commonality merely paved the way to the court's determination that the class also satisfied the typicality requirement of Rule 23(a) of the Federal Rules of Civil Procedure. Indeed, the analysis used to find commonality applied with equal force to typicality. The court reasoned that Wal-Mart's uniform hiring policies across transportation offices affected all class members in a similar manner. Nelson, 2007 WL 1443114, at *9. The typicality of the named plaintiffs' claims was found in their unification to challenge Wal-Mart's standardized hiring policies. Similarly, the court determined that the remaining requirements of Rule 23(a), numerosity and adequacy of representation, were also met.

No Class Too Large?

Interestingly, as in the Ninth Circuit's decision in Dukes, the court's conclusions were not fettered by the fact that the rejected class may become too large or unwieldy with the inclusion of deterred applicants. Although not explicitly listed in Rule 23(a), some courts have required a precisely defined class to exist before considering the remaining criteria of Rule 23(a) for class certification. See, e.g., Dirks v. Clayton Brokerage Co. of St. Louis, Inc ., 105 F.R.D. 125, 130 (D. Minn. 1985) (citing Roman v. ESB, Inc. , 550 F.2d 1343, 1348 (4th Cir. 1976)).

Thus, Wal-Mart argued that including all African-Americans who were deterred or thwarted from applying to the proposed class rendered the class too imprecise and speculative to be certified. A seeming class without boundaries met a court willing to stretch its parameters and create an undoubtedly problematic class. Also, despite the faith of some that the 1991 Civil Rights Act would doom class litigation of claims alleging discrimination, the plaintiffs' claims for punitive damages did not prevent certification. Concern that the claims for monetary damages predominated over the plaintiffs' claims for declaratory and injunctive relief led the court to deny class treatment of that punitive damage issue. Nevertheless, the court still reasoned that the plaintiffs satisfied Rule 23(b)(2). The court found that unlike back pay, the request for punitive damages would require individualized trials 'to fully realize the extent of the harm caused by Wal-Mart's conduct and properly assess the need for punishment and deterrence.' 2007 WL 1443114 *14. This, according to the court, would predominate over the plaintiffs' claims for injunctive and declaratory relief.

Conclusion

In sum, the employment discrimination class action is alive and well. The price of avoiding class litigation of claims alleging discrimination is constant vigilance and an employer's commitment to treat the protection against discrimination in the workplace as among a company's highest priorities. Employers seeking to avoid these kinds of situations may wish to consider the lessons of Nelson. First, studies that show there are problems with recruitment processes should not be ignored. This information can often be a 'smoking gun.' It can also be used to try and show that the company had no real interest in dealing with the problems at hand. Also, companies may wish to perform such studies through legal counsel and perhaps avoid the disclosure through a claim of privilege.

Corporations must also decide whether in fact they truly want to have centralized policies. In many cases, these centralized policies will protect the company from the actions of individual offices that might otherwise adopt improper and even discriminatory policies. On the other hand, when decision-making is done on a centralized basis, these policies will affect large numbers of individuals and subject the company to a class action. Decentralizing these polices, while possibly limiting class actions, may cause the company to 'lose its corporate image' and otherwise result in the company's losing control over its nationwide or even worldwide operations. This can affect the company in myriad issues, such as union avoidance. In any case, in light of the court's decision in Nelson, Human Resource executives must now understand that these centralized policies can affect not only employees and applicants, but also individuals who never even applied for the positions at issue. The damages in these kinds of cases can be staggering, even for large companies such as Wal-Mart, and inevitably can affect their bottom lines.

Mark N. Reinharz, a member of this newsletter's Board of Editors, is a member of Bond, Schoeneck & King, PLLC. E-mail: [email protected]. Jennifer Papas was a summer associate at the firm.