By: James B. Sherman, Esq. & Chad A. Staul, Esq.
Maybe the tide is finally turning? The Supreme Court (albeit by only a narrow majority of its justices) seems to have tired of the growing tidal wave of class action lawsuits sweeping the nation. In April, the Court dismantled a class action consumer fraud lawsuit by upholding AT&T's agreement that permitted only individual claims outside of court in arbitration. In June, the Court overturned a lower court ruling that had certified a class action against giant retailer, Wal-Mart. In doing so, the Supreme Court just said "no" to class action lawyers for the second time in as many months. These decisions represent a significant defeat for class action trial lawyers and a huge victory for America's businesses as they struggle in a sluggish economy.
The recent Wal-Mart case involved an attempt to certify a nation-wide class of plaintiffs exceeding one million current and former employees: the largest ever. The complaint alleged that Wal-Mart had a uniform corporate policy or practice of discriminating against women. Wal-Mart responded to the suit by denying the allegations of gender discrimination and asserting that it left employment decisions in the hands of local management, thus barring any "commonality" among the putative plaintiffs as is required for class status in court. The appellate court in California had sided with the plaintiffs but the Supreme Court in a 5-4 ruling, noted that although "commonality" could be shown by providing "significant proof that an employer operated under a general policy of discrimination," the plaintiffs' evidence overwhelmingly showed that the only discernable common policy was Wal-Mart's policy of providing local supervisors wide discretion over employment matters. The Court specifically stated that "[o]n its face . . . that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices."
The decision in the Wal-Mart case is certainly a boon to larger employers with multiple locations. For those employers where the company has set up a structure whereby individual managers have some autonomy in making employment related decisions, as opposed to strict adherence to common corporate dictates, this decision will make it difficult to form a legitimate class of employees where the employees have different supervisors. In the end, the level of autonomy granted individual managers at Wal-Mart doomed the large class of plaintiffs, but it did not necessarily doom the underlying claims of sex discrimination against the company. So while this is a victory for larger employers fighting class action lawsuits, in the end Wal-Mart could have thousands of smaller cases around the country instead of one big one. Employers may want to consider this double-edged sword when creating policies and procedures and making determinations on how to structure their decision-making hierarchy. In situations where the company is trying to make it clear that its managers have some individual authority, companies may want to consider implementing a policy akin to the Safe Harbor provision allowed under the amended Fair Labor Standards Act (FLSA), which allows a defense to a class action claim for companies that have a policy expressly stating that it prohibits improper wage deductions from its exempt employees. Moreover, for the sake of efficiency and cost effectiveness, employers may want to consider creating a strong network of local counsel experienced in practicing in and around its various locations who can provide swift and competent legal advice.
Questions? Please contact any Wessels Sherman attorney regarding this subject.
