The Supreme Court’s one-two punch: Class actions in the wake of Wal-Mart v. Dukes and AT&T v. Concepcion

Sarah Crawford is the Director of the Workplace Fairness program at the National Partnership for Women & Families, where she handles issues surrounding fair pay, pregnancy discrimination, sexual harassment, equal opportunity, and other matters that impact working women and their families.

 

“[M]any women will give up because it’s too hard to sue Wal-Mart on their own. It’s not easy to take on your own employer. It’s even more difficult when that employer is the biggest employer in the world. In this country, there are many Betty Dukes who want their voices to be heard when they are denied equal pay and equal promotion. For many of these women, I am afraid that the Court’s ruling leaves them without having their day in court.”

–Betty Dukes, testifying before the Senate Judiciary Committee, June 29, 2011

With the recent decisions in Wal-Mart v. Dukes and AT&T Mobility v. Concepcion, the Supreme Court weakened the ability of individuals to band together in class action lawsuits to challenge corporate misconduct. While lower courts grapple with the ramifications of these decisions and Congress weighs legislative responses like the Paycheck Fairness Act and the Arbitration Fairness Act, critical workers’ rights hang in the balance.

Class actions serve a particularly vital role in the employment discrimination context. For many workers, class actions provide the only meaningful access to the courts. In most cases, workers – especially low-wage workers – cannot afford to file individual cases. Many may also fear retaliation for filing individual cases. Furthermore, individuals may be unaware of patterns of discrimination that can go undetected and unremedied in the absence of a class action. For example, many employers have instituted pay secrecy policies that make it difficult for workers to find out about unlawful pay discrimination. In the Wal-Mart case, it was only after Betty Dukes filed her lawsuit that she learned that women working at Wal-Mart stores across the country were paid less and denied promotions, despite higher performance evaluations and greater tenure.

Class actions have long provided an effective tool to address systemic discrimination and promote equal employment opportunity. Class action cases foster reform through injunctive relief that is not available in individual cases. Examples include requiring employers to post job opportunities, conducting pay equity studies, establishing equal employment opportunity complaint processes or establishing specific, job-related criteria to be used in making personnel decisions. Reforms like these have the power to transform corporate culture, policies and practices.

Class actions also often provide an efficient way for workers, business and the courts to resolve complex issues. Indeed, the business community highlighted the inefficiencies of piecemeal, serial litigation in support of the corporate-backed Class Action Fairness Act of 2005, which sought to move class actions out of state courts and into the federal courts. During the push for this legislation, the Chamber of Commerce acknowledged that “[c]lass action litigation is a necessary part of our legal system because it can bring efficiency and fairness to situations involving many people with similar claims.” And in a recent Supreme Court amicus brief, the Chamber acknowledged that there is an “enormous societal interest in preventing serial litigation.” Contrary to these societal interests in promoting efficiency and fairness, the Supreme Court’s decisions in Wal-Mart and AT&T created new hurdles for individuals seeking to band together in class actions to address widespread corporate misconduct.

In Wal-Mart v. Dukes, the Supreme Court overturned the lower courts’ decision to certify the class, leaving the women of Wal-Mart with little choice but to pursue their claims for fair pay and fair promotions in smaller classes or individual cases. Justice Scalia’s opinion for the five Justices in the majority offered a narrow interpretation of Rule 23 of the Federal Rules of Civil Procedure. To establish commonality under Rule 23, the majority concluded that class members’ “claims must depend upon a common contention of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.”

The majority also discounted the putative class members’ sociological evidence of a discriminatory corporate culture on the grounds that such evidence could not easily be quantified. The majority was not persuaded by the sociological expert evidence in the record and offered its own self-confident analysis that “left to their own devices, most managers in any corporation – and surely most managers in a corporation that forbids sex discrimination – would select sex-neutral performance-based criteria for hiring and promotion.” The majority gave weight to the fact that “Wal-Mart’s announced policy forbids sex discrimination,” suggesting that a written anti-discrimination policy is sufficient to establish that an employer could not have “operated under a general policy of discrimination.” At a time when charges of discrimination filed with the Equal Employment Opportunity Commission have reached record numbers – despite the fact that most employers have anti-discrimination policies on the books – the majority showed itself to be out of touch with the reality of how discrimination plays out in the workplace.

In the wake of Wal-Mart, lower courts have cited various aspects of the decision in denying class certification. The Northern District of California noted that Wal-Mart represents “a significant restatement of the commonality requirement.” The District Court for South Carolina cited Wal-Mart in denying collective treatment in an FMLA case, concluding that collective treatment is improper in cases involving multiple employment locations, decentralized policies or practices, or multiple supervisors with independent decision making authority.

Courts also cite Wal-Mart in denying class certification in cases involving “individualized” remedies, including back pay. The Northern District of California concluded that Wal-Mart “heightened the [c]ourt’s concerns” that individualized issues would predominate over class-wide issues and precludes the determination of individualized damages by formula. . The Eastern District of New York interpreted Wal-Mart to provide that noneconomic losses, damages, and the intangible benefits of employment require an individualized inquiry, which may not be susceptible to classwide proof. The Western District of Washington has ruled that under Wal-Mart, claims for individualized relief, such as back pay, defeat Rule 23(b)(2) certification. Similarly, the Southern District of California found that where the amount of restitution would vary from class member to class member and in some cases constitute a significant sum, Wal-Mart requires that these “individualized” claims for restitution be carved out of a Rule 23(b)(2) class and pursued instead by a Rule 23(b)(3) subclass. In the wake of Wal-Mart and its progeny, the need for legislative remedies has become even clearer. The Paycheck Fairness Act, which was reintroduced in the 112^th Congress, would expand workers’ rights to proceed as a class to challenge unfair pay. In part, the law would enable Equal Pay Act claims to proceed as opt-out class actions, rather than opt-in collective actions, as is the current rule. Additional legislation responding to the Wal-Mart decision is expected later this year.

The Court’s decision in AT&T Mobility v. Concepcion earlier this year also dealt a blow to the class action vehicle by opening the door for class action waiver provisions in mandatory arbitration agreements. AT&T followed closely on the heels of the 2010 decision in Stolt-Nielsen S.A. v. Animalfeeds International Corp., in which the Court ruled that an arbitration agreement that is silent on the issue of class arbitration does not permit plaintiffs to proceed as a class. With AT&T the Court further limited the ability of individuals to pursue class arbitration. By a slim five-to-four majority, the Court upheld a class action waiver that was included with a mandatory arbitration provision in AT&T’s consumer contracts. The Court concluded that the Federal Arbitration Act preempts California’s rule against class action waivers in arbitration agreements.

Under the facts of the AT&T, Vincent and Liza Concepcion signed up for AT&T’s wireless service, lured by the promise of “free” cell phones. They soon learned that the phones were not truly free of cost because AT&T charged each new subscriber sales tax on the retail value of his or her phone. The Concepcions filed a class action suit claiming that AT&T’s offer of a “free” phone was fraudulent. AT&T pointed to the written service agreement, which required arbitration and barred class actions, and demanded that the plaintiffs’ claims be submitted to individual arbitration.

However, according to California contract law, the arbitration clause and class action waiver were unconscionable and thus unenforceable. AT&T argued that the Federal Arbitration Act – which states that written arbitration agreements are generally valid and enforceable – trumped California law. Both the district court and the U.S. Court of Appeals for the Ninth Circuit rejected this argument, holding that the Federal Arbitration Act does not prevent California or other states from striking down class action waivers in arbitration clauses as unconscionable.

According to the five Justices in the majority, class arbitration is excessively formal, slow and costly to defendants, thus undermining the Federal Arbitration Act’s intent to promote arbitration. The Court’s decision changes the law in at least twenty states, where class action waivers have been held unenforceable.

In his dissenting opinion, Justice Breyer noted that the Federal Arbitration Act does not preempt state contract law principles regarding unconscionable contract provisions. He argued that arbitration and class treatment are not inconsistent, and that small-dollar claims will go unredressed if they cannot be challenged on a class basis.

Although the case arises in the context of a consumer dispute, the decision has been cited in subsequent employment decisions.  While some courts have cited AT&T and Stolt-Nielsen to compel arbitration in the employment context, other courts have distinguished these decisions. The Southern District of New York, for example, rejected the argument that AT&T required the enforcement of a class arbitration waiver in a gender discrimination pattern and practice case, holding that enforcement of the arbitration clause at issue would interfere with the enforcement of a federal substantive right, namely Title VII of the Civil Rights Act. In another employment discrimination case, the Northern District of California concluded that an arbitration provision was unconscionable under state law, but the court nevertheless compelled arbitration, finding that the plaintiff had waived her right to object to the enforceability of the arbitration clause.  Many employers are likely weighing the addition of class action waivers into their mandatory arbitration clauses, while the lower courts continue to grapple with the application of AT&T and Stolt-Nielsen in the employment context.

At least one thing is clear – the Supreme Court’s recent arbitration decisions further limit the ability of individuals to vindicate their rights in a court of law and to proceed as a class to challenge systemic violations of the law. These decisions threaten the critical procedural protections established by state law to ensure that unconscionable contracts are not enforced.

Here too a legislative remedy would address the Court’s recent rulings. The Arbitration Fairness Act, which was also reintroduced in the 112^th Congress, would prohibit forced arbitration clauses in employment, consumer and civil rights cases.

The Supreme Court’s decisions in Wal-Mart v. Dukes and AT&T delivered a one-two punch that diminished essential rights for workers in this country. They underscore the need to strengthen federal laws to deter companies from unlawful conduct and provide real remedies for those who experience discrimination. In the meantime, the rights of workers like Betty Dukes hang in the balance.