ANALYSIS OF THE SUPREME COURT RULING IN WAL-MART v. DUKES

by Art Gutman Ph.D., Professor, Florida Institute of Technology

As noted in a prior alert on June 21, 2011, the Supreme Court ruled against the plaintiffs in Wal-Mart v. Dukes [2011 U.S. LEXIS 4567, 6/2011]. As noted in that alert, the ruling was unanimous on one issue and divided on another issue. The bottom line is that the plaintiffs have lost on the issue of class certification, and must now advance their cases individually. Bear with me as I recount the issues in this case.

As a starting point, class certification requires meeting all four requirements of Rule 23(a) and any one of Rule 23(b)(1), 23(b)(2) or Rule 23(b)(3). These rules are available at http://www.law.cornell.edu/rules/frcp/Rule23.htm. The four criteria under Rule 23(a) are:

1. numerosity (the class is large enough so that individual trials are impractical);


2. commonality (the harm claimed is common to the class);


3. typicality (a relationship between the named plaintiff(s) claims and claims alleged on behalf of the class); and


4. adequate protection of class interest (the named plaintiff(s) will fairly and adequately represent the interest of the class).

The key comparison on the other dimension is between Rule 23(b)(2) for injunctive or declaratory relief and Rule 23(b)(3) for monetary relief. Rule 23(b)(3) is more difficult to satisfy because it requires that plaintiffs establish both predominance (that common issues predominate over individual ones) and superiority (that class action is superior to other means of resolving the dispute). In comparison, Rule 23(b)(2) permits a purely statistical analysis for the merits of the claims, thus denying the defendant to answer individual claims.

The plaintiffs alleged that a “centralized structure fosters or facilitates gender stereotyping and discrimination, that the policies and practices underlying this discriminatory treatment are consistent throughout Wal-Mart stores, and that this discrimination is common to all women who work or have worked in Wal-Mart stores.” More specifically, the allegations were that “manager’s discretion over pay and promotions is exercised disproportionately in favor of men, leading to an unlawful disparate impact on female employees.”

The plaintiffs presented two major sources of evidence to support these claims. The first was a “social framework analysis” by Dr. William Bielby who purported to study the “culture” at Wal-Mart and concluded that Wal-Mart was “vulnerable” to gender discrimination. The second source was from statistical regression analyses performed by Dr. Richard Drogin, a statistician and Dr. Marc Bendick, a labor economist. Drogin concluded "there are statistically significant disparities between men and women at Wal-Mart . . . [and] these disparities . . . can be explained only by gender discrimination" and Bendick concluded that Wal-Mart "promotes a lower percentage of women than its competitors."

In Dukes v. Wal-Mart (2004), the district court approved certification based on Rule 23(b)(2) for the pay claims for all forms of requested relief, but issued a mixed ruling on promotion claims, approving claims for punitive damages, injunctive relief, and declarative relief, but denying certification for back pay, ruling that the challenged promotions were not available for all class members. Wal-Mart challenged the reliability and validity of Dr. Bielby’s study, but the court ruled this was an issue to be decided at trial, and not at the class certification stage.

On appeal to the 9th Circuit, Wal-Mart alleged the district court erred on three issues: (1) whether Rule 23(a) was met with respect to commonality and typicality; (2) that Rule 23(b)(2) effectively eliminated their ability to respond to individual claims; and (3) that the district court erred in favoring Rule 23(b)(2) because the claims for monetary relief predominated over the claims for injunctive and declaratory relief, a no-no for a Rule23(b)(2) claim.

The appeal was first denied by a divided three-judge panel of the 9th Circuit in Dukes v. Wal-Mart (2007). Wal-Mart then appealed for an en banc ruling, which was rendered in Dukes v. Wal-Mart (2010). The en banc ruling was 6 to 5, in which the majority upheld the plaintiff’s claim for injunctive relief, declarative relief, and back pay under Federal Rule 23(b)(2), but remanded for the district court to consider whether the class for punitive damages should be certified under Federal Rule 23(b)(2) or Federal Rule 23(b)(3). The majority also remanded for consideration of whether to certify members who no longer worked at Wal-Mart.

The ruling by the Supreme Court was unanimous that Rule 23(b)(2) was inappropriate, as all nine justices agreed that monetary issues were predominant over injunctive and declaratory relief. But there was disagreement on whether the commonality requirement in Rule 23(a) was satisfied, and whether to remand the case back to the district court to determine if class certification was still suitable under Rule 23(b)(3). In a nutshell, a majority of five (Scalia speaking for Alito, Kennedy, Roberts & Thomas) ruled that there was no commonality, and as a further consequence, no support for the predominance and superiority requirements relating to Rule 23(b)(3). A minority of four (Ginsburg speaking for Bryer, Kagan & Sotomayor) argued there was sufficient evidence for commonality, and that the case should be remanded to determine if there was sufficient evidence for class certification under Rule 23(b)(3).

In rendering his ruling, Scalia explained why Rule 23(b)(3) is connected directly to commonality in Rule 23(a). Accordingly:

In this case, proof of commonality necessarily overlaps with respondents' merits contention that Wal-Mart engages in a pattern or practice of discrimination. That is so because, in resolving an individual's Title VII claim, the crux of the inquiry is "the reason for a particular employment decision," … Here respondents wish to sue about literally millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members' claims for relief will produce a common answer to the crucial question why was I disfavored.

Scalia considered two ways in which commonality (and typicality) could be proven. The first, according to Scalia, is if an employer:

[u]sed a biased testing procedure to evaluate both applicants for employment and incumbent employees, a class action on behalf of every applicant or employee who might have been prejudiced by the test clearly would satisfy the commonality and typicality requirements of Rule 23(a).

As important, Scalia noted that proof of adverse impact requires identification of a “specific employment practice”, and the mere showing that a “policy of discretion has produced an overall sex-based disparity does not suffice” to establish discretionary decision making as a “specific employment practice.”

The second proof according to Scalia is that:

[a]n employer operated under a general policy of discrimination [that] conceivably could justify a class of both applicants and employees if the discrimination manifested itself in hiring and promotion practices in the same general fashion, such as through entirely subjective decisionmaking processes."

Scalia ruled that proof that Wal-Mart “operated under a general policy of discrimination” centered on Dr. Bielby’s study. Accordingly:

The only evidence of a "general policy of discrimination" respondents produced was the testimony of Dr. William Bielby, their sociological expert. Relying on "social framework" analysis, Bielby testified that Wal-Mart has a "strong corporate culture," that makes it "'vulnerable'" to "gender bias." … He could not, however, "determine with any specificity how regularly stereotypes play a meaningful role in employment decisions at Wal-Mart. At his deposition . . . Dr. Bielby conceded that he could not calculate whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking. … The parties dispute whether Bielby's testimony even met the standards for the admission of expert testimony under Federal Rule of Evidence 702 and our Daubert case, see Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so, but even if properly considered, Bielby's testimony does nothing to advance respondents' case. "[W]hether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking" is the essential question on which respondents' theory of commonality depends. If Bielby admittedly has no answer to that question, we can safely disregard what he has to say. It is worlds away from "significant proof " that Wal-Mart "operated under a general policy of discrimination."

In short, Scalia dispatched with the statistical evidence by invoking the “specific employment practice” requirement, and dispatched with the “social framework” analysis calling it, in effect, junk science.

OFCCP RELEASES NEW FAAP DIRECTIVE

by Keli Wilson, Senior Consultant, DCI Consulting

Effective June 14, 2011, OFCCP released a much anticipated new FAAP directive, outlining the application process to seek approval for and develop an affirmative action plan by a business function or unit rather than establishment. The OFCCP Director (Director Shiu) will determine final approval of the Functional Affirmative Action Plan (FAAP) agreement and written approval will be provided to the federal contractor. Expiration of the functional AAP agreement is now three years and, similar to establishment based AAP(s), FAAP(s) will be exempt from another compliance evaluation for 24 months from the date of closure of the previous compliance evaluation.

Requesting a Functional AAP agreement

The directive outlines specific protocol to follow when requesting a FAAP agreement. The federal contractor must submit a written request to the OFCCP Director explaining why it believes that use of a functional AAP would be most appropriate with timeframes in which it will take to move from establishment based to functional. The contractor must identify a corporate representative, name and contact information, responsible for overseeing the FAAP request. Also, the following criteria of a function or business unit must be met in order to be considered eligible for the FAAP program:

1. Currently exist and operate autonomously.


2. Include at least 50 employees.


3. Have its own managing official.


4. Have the ability to track and maintain its own personnel activity.

The request must be received no later than 120 calendar days prior to the expiration of the current corporate headquarters AAP or within 120 days from the award of the Federal contract if this is a first-time contractor or else the agreement will be denied by OFCCP. The OFCCP FAAP unit will provide a written acknowledgement of the request within 10 days, but this receipt will not constitute approval. OFCCP will send a letter requesting a conference within 30 days of receiving the request. The federal contractor must provide additional information on the people representing the contractor during the conference and must submit documents outlined in Attachment B of the directive. Additionally, Attachment C in the directive outlines discussion points the corporate representative must be prepared to discuss during the conference. Past compliance will be reviewed for determining if corrections have been made or if there are recurring violations. The OFCCP Director will review and approve the agreement once the federal contractor and FAAP Unit reach agreement. Until approval is granted, contractors are required to create establishment AAP(s) and if an establishment based AAP compliance evaluation is scheduled prior to final approval of FAAP agreement then the contractor must undergo the establishment based AAP compliance evaluation.

Additional key items to note that will be taken under consideration by the OFCCP when applying for FAAP approval:

1. Current reporting structure under the requirements of a conciliation agreement.


2. EEO violations of the requesting contractor for the past three years from the date of the application, including EEO violations from other local, state and federal government agencies.


3. Federal contractors may still choose to request a combination of establishment and functional based AAP(s) through the functional AAP program.


4. Demonstration by Federal contractor that recordkeeping and affirmative action responsibilities can be managed for all functional or business units regardless of size.


5. Agreement to submit personnel activity in acceptable electronic formats if requested during a compliance evaluation (e.g., Acess/Excel).

Modifying an Approved Functional AAP Agreement

The OFCCP Director and the FAAP Director must be notified in writing within 30 calendar days of any significant changes which alter the original agreement (to determine whether the agreement needs to be modified or amended) or else OFCCP may terminate the FAAP agreement. If the agreement is modified, the agreement will still not extend the three year term.

Updating a Functional AAP Agreement

Contractors are required to report at least once a year within 30 days following the anniversary of its agreement any minor changes and if the contractor fails to submit an annual update then OFCCP may schedule the contractor for a compliance evaluation [emphasis added by author].

Renewing a Functional AAP Agreement

To be eligible for renewal, a contractor must have had at least two functional units undergo a compliance evaluation during the three year term [emphasis added by author]. If the contractor only has one functional unit then that unit must undergo a compliance evaluation during the three year term. OFCCP will use administratively neutral selection criteria to select at least two functional or business units to be audited during the three year agreement term. Must submit a renewal request no later than 120 calendar days prior to the expiration of the current functional AAP agreement. The agreement will expire at the end of the three year term if the contractor fails to request a renewal.

Termination of Functional AAP Agreement

Either party may terminate the functional AAP agreement with a 90 calendar day written notice including a brief explanation of the reason(s) for the termination and the effective date of the termination. Examples of why OFCCP may terminate agreement include violation of the laws and regulations enforced by OFCCP (e.g., employment discrimination, failure to develop and maintain an AAP, failure to maintain accurate records, failure to permit OFCCP access, failure to make good faith efforts, failure to account for all employee’s in an AAP, or failure to notify OFCCP of any modifications). If terminated by OFCCP, the contractor may not reapply for another FAAP agreement for a period of three years and all employees would need to be covered by establishment based AAP(s) within 120 days from notification of termination.

SUPREME COURT RULES IN FAVOR OF WAL-MART

by Art Gutman Ph.D., Professor, Florida Institute of Technology

On June 20, 2011, the Supreme Court ruled against the Dukes Plaintiffs in Wal-Mart v. Dukes. The ruling was unanimous to the point that the plaintiffs wrongly used Rule 23(b)(2) for class certification. But there is more ........five justices favored ending the class certification argument and a minority of four would have returned the case to the lower court to determine if the class could be certified under Rule 23(b)(3). The arguments are complex, and I will have more to say about them later in the week.

ALJ RULES THAT PARENT COMPANY AND ITS SUBSIDIARY ARE A SINGLE ENTITY FOR PURPOSES OF OFCCP JURISDICTION

by Art Gutman Ph.D., Professor, Florida Institute of Technology

In the case of OFCCP v. Manheim Auctions Inc. [DOL OALJ, No. 2011-OFC-00005, 6/14/11], ALJ Alan L. Bergstrom addressed the issue of whether Manheim Auctions Government Services LLC (MAGS) and Manheim Auctions Inc. (MAI) constitute a single entity for purposes of OFCCP jurisdiction. The ALJ’s ruling may be viewed here. Bergstrom addressed the “employee-numerosity requirement” for establishing liability of employers to comply with EO 11246, the Rehabilitation Act, and the VEVRAA. More specifically, OFCCP regulations at 40 CFR-1.7(a)(1) states the following with respect to filing EEO-1 forms:

Each prime contractor and subcontractor shall file annually, on or before September 30, complete and accurate reports on Standard Form 100 (EEO-1) ... if such contractor or subcontractor (i) is not exempt from the provisions of these regulations in accordance with §60-1.5; (ii) has 50 or more employees; (iii) is a prime contractor or first tier subcontractor; and has a contract, subcontract or purchase order amounting to $50,000 or more.

The term “numerosity” refers to the requirement that contractors with 50 or more employees must file EEO-1 forms and should not be confused with the numerosity requirement for class action lawsuits.

The key issue in this case is that the parent company (MAI) has more than 50 employees, but no federal contracts, whereas the subsidiary (MAGS) has federal contracts, but has less than 50 employees. ALJ Bergstrom ruled that MAI, among other things, has a degree of “common ownership” over MAGS since they share common directors and officers. Therefore Bergstrom ruled that MAI and MAGS are a “single entity” for purposes of OFCCP jurisdiction, and that both companies must file EEO-1 reports.

EEOC WINS JURY VERDICT IN KEY ADA CASE

by Art Gutman Ph.D., Professor, Florida Institute of Technology

The case is EEOC v. AutoZone [C.D. Ill., No. 07 C 1154, jury verdict 6/3/11)], in which a jury returned a verdict that AutoZone failed to reasonably accommodate John Shepherd, an auto parts sales manager. The case features a prior 7th Circuit Court ruling based on the ADA Amendments Act of 2008 (ADAAA).

The facts of the case are that Shepherd had back and neck injuries, and due to his condition, he took several leaves from the company between January of 2001 and September of 2003. In April of 2003, after returning from a month long leave, he produced a doctor’s note indicating that he could not mop or buff the floor. When he was advised that he could not be returned to work with such a restriction, he produced a revised note indicating that he could perform these duties “occasionally.” In September of 2003, he was mopping the floor and was injured. He was placed on leave until December, when he underwent an independent medical examination. The examination cleared him to return with his previous restrictions, but his own personal doctor placed additional lifting, standing and twisting restrictions on his return. He thus remained on leave and was ultimately terminated under the company’s disability policy. The EEOC then sued AutoZone for discrimination, retaliation, and failure to reasonably accommodate. The district court granted summary judgment on the reasonable accommodation claim on grounds that Shepherd was not disabled within the meaning of the ADA, and therefore, had no legitimate claim for accommodation. A jury then ruled for AutoZone on the discrimination and retaliation claims, and the EEOC appealed only the reasonable accommodation ruling.

On appeal, the 7th Circuit overturned the summary judgment on reasonable accommodation based on the ADAAA [see 630 F.3d 635]. On appeal, the EEOC argued that Shepherd was substantially limited in the major life activity of caring for himself. AutoZone argued that Shepherd’s limitations were “temporary” and “sporadic” because he could mop and buff “occasionally.” However, the 7th Circuit cited Shepherd’s deposition in which he testified that prior to 2003, he needed assistance with dressing, brushing his hair, bathing, tying his shoes, and brushing his teeth, and ruled that Shepherd was disabled within the meaning of the ADA, as amended by the ADAAA, ruling:

The evidence the EEOC has presented is plainly susceptible to the determination that Shepherd had a disability within the meaning intended by the ADA as required to prove a failure to accommodate. Summary judgment should not have been granted on the basis that Shepherd was not disabled. We REVERSE and REMAND for further proceedings consistent with this opinion.

On June 3, 2011, a jury awarded Shepherd $100,000 in compensatory damages and $500,000 in punitive damages on grounds that mopping and buffing is not an essential job function for a sales manager. This part of the award is likely to be reduced to $300,000 in line with limitations on compensatory and punitive damages awards in the Civil Rights Act of 1991. Additionally, a ruling is pending on the EEOC’s request for an additional award of $115,000 in back pay.

It should be noted that the judge in this case has yet to issue a final published ruling, and we will follow this case for any updates. More importantly for present purposes, the major message from this case is that the 7th Circuit used the ADAAA to buttress its ruling on caring for oneself as a major life activity. Equally as important, employers need to ensure “essential job functions” are buttressed with evidence (e.g., job analysis data) that they truly are essential, and not marginal, as the jury concluded in this case.

WELLS FARGO SETTLES SEX DISCRIMINATION CLAIM

by Art Gutman Ph.D., Professor, Florida Institute of Technology

On June 8, 2011, Judge Colleen Kollar-Koteely of the District Court of the District of Columbia approved a 32 million dollar settlement between Wells Fargo and a class of more than 3,000 current and former female financial advisors. The settlement may be viewed at the following link: Wells Fargo Settlement. The class includes women financial advisors at Wells Fargo Advisors or Wachovia Securities LLC (previously acquired by Wells Fargo) between March 17, 2003 and January 25, 2011, and those who worked for Wells Fargo Investments LLC between December 31, 2008 and January 25, 2011. The class also includes female financial advisors at Prudential Securities and A.G. Edwards & Sons (previously acquired by Wachovia). The settlement culminates a Title VII lawsuit by three named plaintiffs in September 2009 accusing Wells Fargo of a pattern of discrimination against women with respect to work assignment, distribution of accounts, opportunities for advancement, assignment of partnership tams, and other terms and conditions of employment. The settlement requires a 32 million dollar payment into a settlement fund, 9.6 million of which is for attorneys’ fees and settlement administration expenses. The attorneys will also receive a $320,000 payment this year and $200,000 per year for three years (plus interest) for future fees and expenses for monitoring and enforcement of the settlement.

In addition to monetary considerations, Wells Fargo agreed to internal posts of field management jobs, training for management positions, and evaluation of field management based on diversity efforts. Wells Fargo also agreed to revise and publish policies for distributing accounts of departing/retiring advisors, and to consult with an industrial psychologist(s) to implement a cost-effective and reasonable method to adjust job performance appraisals for the prior 12-month period and to keep records of bonuses and compensation paid to lateral hires. Finally, Wells Fargo agreed to develop a system of internal data collection to monitor and ensure settlement compliance, including account distributions; new team agreements, commission splits among the team's financial advisers, future sexual harassment or sex discrimination complaints. The industrial psychologist(s) will produce a written report every six months for Wells Fargo, the settlement monitor, and class counsel covering those matters, the settlement provides.

VEVRAA NPRM COMMENT PERIOD EXTENDED

On April 26, 2011, the Office of Federal Contract Compliance Programs (OFCCP) published in the Federal Register a notice of proposed rulemaking (NPRM). This NPRM (76 FR 23358) proposes revising regulations implementing the affirmative action provisions of the Vietnam Era Veterans' Readjustment Assistance Act of 1974, as amended.

The original comment period is scheduled to end on Monday, June 27, 2011. After receiving several requests for extensions, OFCCP is extending the comment period for this NPRM for 14 days until Monday, July 11, 2011. This action will provide all interested persons additional time to analyze the issues and provide their comments on the NPRM. Parties interested in commenting can view the NPRM and submit comments by using the Federal eRulemaking Portal www.regulations.gov and referencing RIN 1250-AA00.

OFCCP is publishing a Federal Register notice announcing this two-week extension of the comment period

OFCCP RECALLS ALL MIDWEST SCHEDULING LETTERS DATED JUNE 3, 2011

DCI has learned that OFCCP is recalling all scheduling letters dated June 3 sent from the Midwest Region Office. Apparently these scheduling letters were unauthorized and should not have been sent out. Contractors are being notified by OFCCP that they do not need to respond to these scheduling letters. In addition, if you have received the letter and sent in your affirmative action plan OFCCP will promptly return all submitted materials. Contractors are being notified that going forward they will receive the scheduling letter directly from the national office of OFCCP. DCI will keep you posted as it learns more.

ASTRAZENECA SETTLES WITH OFCCP ON ALLEGATIONS OF SEX DISCRIMINATION IN PAY

by Art Gutman Ph.D., Professor, Florida Institute of Technology

In a consent decree announced on June 6, 2011, AstraZeneca agreed to a $250,000 (plus interest) settlement on behalf of 124 female pharmaceutical sales specialists that, allegedly, received on average $1,700 less than male comparators. The consent decree may be viewed at the following link: AstraZeneca Settlement.

That’s just the beginning. In addition to the monetary settlement, AstraZeneca agreed to conduct a multiple regression analysis of the base pay of 415 full time “primary care” and “specialty care” Level III pharmaceutical sales specialists as of Jan. 1, 2011, at various sales territories, including Pennsylvania, New Jersey, Delaware, Virginia, West Virginia, Maryland, District of Columbia, North Carolina, South Carolina, New York, Kentucky, Alabama, Indiana and Tennessee. According to the consent decree, the analysis will focus on “Gender, using an indicator variable”, controlling for the following variables:

• Age, as a proxy for experience prior to employment with AstraZeneca or a legacy company, and age squared


• The amount of time employed at AstraZeneca or a legacy company using date of hire or re-hire for each employee, and the amount of such time squared


• MRP (market reference point), using an indicator variable for either “specialty care” or “primary care.” AstraZeneca represents that “specialty care” Level III PSSs market products in more than one specialty area


• The most recent annual performance rating, which AstraZeneca will code for the purpose of this Consent Decree using indicator variables for each possible rating; and


• Initial hire at any of the following four legacy companies, using an indicator variable: Astra USA, Astra Merck, Zeneca or AstraZeneca

According to the consent decree, the company agrees to base pay adjustments for female sales specialists if there are significant differences based on gender after consideration of the control variables. The company also agreed to “prepare and update annually its Affirmative Action Plan and to keep all supporting documentation as required by the provisions of the Executive Order and its implementing regulations.” There are other interesting aspects of the ruling, so stay tuned for more from DCI staff on this settlement.