With the dismissal of a sex-discrimination lawsuit brought on behalf of 1.5 million women who have worked at Wal-Mart, the Supreme Court on Monday significantly tightened the rules for how a large group of individuals can join together to sue a company for alleged harm done to them.
The court’s decision will not just make it harder to bring big, ambitious employment class-action cases asserting discrimination based on sex, race or other factors, legal experts said. In the majority opinion, the court set higher barriers for bringing several types of nationwide class actions against a large company with many branches.
In its majority opinion, the court essentially said that if lawyers brought a nationwide class action against an employer, they would have to offer strong evidence of a nationwide practice or policy that hurt the class. In the Wal-Mart case, the court wrote that the plaintiffs had not demonstrated that Wal-Mart had any nationwide policies or practices that discriminated against women. The opinion, written by Justice Antonin Scalia, noted that Wal-Mart’s official corporate policy opposed discrimination, while the company gave the managers at its more than 3,400 stores considerable discretion over pay and promotions.“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.Heidi Li Feldman, a professor at Georgetown Law Center, said similar reasoning might make it tougher for plaintiffs to bring a class action against a mortgage lender accusing it of having a nationwide policy of defrauding borrowers. “A big mortgage broker might say, ‘At the national level, we have policies to abide by all of the rules and regulations that are applicable, and we delegate a lot of discretion to our branches,’ ” she said.The ruling was widely hailed by business groups, some of which filed amicus briefs urging the court to limit class actions.“We applaud the Supreme Court for affirming that mega-class actions such as this one are completely inconsistent with federal law,” said Robin S. Conrad, executive vice president of the United States Chamber of Commerce’s National Chamber Litigation Center. “Too often the class-action device is twisted and abused to force businesses to choose between settling meritless lawsuits or potentially facing financial ruin.”The ruling will push plaintiffs’ lawyers into filing fewer huge class actions and more cases on behalf of individuals or smaller groups, lawyers said. That will raise costs and give lawyers less incentive to take on class actions and other complex litigation. The Wal-Mart case, for example, has stretched for a decade, with lawyers and the legal foundation that brought the case expecting to receive some portion of the back pay for 1.5 million current and former Wal-Mart employees if they eventually won the case in court or reached a settlement.The Supreme Court decision “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,” said Marcia D. Greenberger, co-president of the National Women’s Law Center.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.Paul Grossman, a lawyer in Los Angeles for the Paul Hastings firm who represents many employers, including Wal-Mart, in employment lawsuits, said employers were seeing many unmeritorious class-action cases. “Now you need a real class action with similarly situated people where common issues predominate,” he said.Joseph Sellers, one of the top lawyers for the women in the Wal-Mart case, said that as a result of the ruling, there would be more class actions at the store or regional level, where it might not be hard to show that local managers had engaged in sex or age discrimination.He said the court’s ruling would hurt not just the plaintiffs, but also Wal-Mart, because “this case will be splintered into many cases that may take longer and be harder to resolve.”Moreover, he said, Wal-Mart and other companies facing these more localized class actions might face “checkered” legal standards “where in one jurisdiction the conduct may be ruled lawful, and in another jurisdiction it may be ruled unlawful.”Several experts said the ruling would have little effect on securities fraud cases because a misrepresentation by a corporate executive is commonly seen as injuring a company’s whole class of shareholders. Nonetheless, the ruling could make it somewhat harder to bring such securities cases and other class actions by tightening the definition of when there is a common question of law or fact.John C. Coffee Jr., a professor at the Columbia University School of Law, said one far-reaching aspect of the ruling was that it would greatly discourage lawyers from filing class actions because the court essentially prevented lawyers from adding a claim for back pay or other financial compensation onto a class claim seeking an injunction against conduct, like a company’s discriminating against women in promotions. Under federal law, the standards to gain class-action status when seeking injunctive relief are considerably lower than for back-pay claims.The Second and Ninth Circuit Courts of Appeal had long allowed plaintiffs to do such “bootstrapping” in injunction cases to achieve class-action status for their claims for back pay. Class actions for injunctive relief are less lucrative to plaintiffs and their lawyers than class actions that also seek back pay.