Fourth Circuit Interprets Wal-Mart V. Dukes in Favor of Plaintiffs

Family Dollar Stores, Inc. is facing heat from some 51 female managers that claim that the Dollar Store’s corporate headquarters created a system of compensation that caused female store managers to be paid less than males.  The plaintiffs allege that they are aware of no other criteria that could have caused such disparate impact, other than gender bias, subjectivity, and stereotyping.  The Dollar Store asked the U.S. District Court in North Carolina to dismiss the managers’ claims.  Meanwhile, the female managers asked the District Court to certify their claims as a class action under Rule 23, arguing that all female managers have suffered a common wrong because of the Dollar Store’s unlawful corporate policy; or, alternatively, asked the court to grant them leave to amend their Complaint to add more detail before making its decision concerning certification and/or dismissal.   The District Court denied both of plaintiffs’ motions, and dismissed the lawsuit based on its erroneous interpretation of the landmark U.S. Supreme Court decision of Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011).   The female managers appealed to the U.S. Court of Appeals for the Fourth Circuit, and the Fourth Circuit decided that the District Court had misinterpreted the law.  The significant decision is Scott v. Family Dollar Stores, Inc., and should serve as a caution to businesses that believe only a written handbook can set its corporate policy.

As the Dollar Store learned, upper-level, top-management personnel may unknowingly be setting policies for the entire company just by virtue of exercising discretion concerning a particular matter, and this could lead to corporate vulnerability in the class action context.  In order to proceed as a class action, plaintiffs must satisfy the “commonality requirement” under Rule 23(a).  In the Wal-Mart decision, the Supreme Court held that “commonality” means that class members must have all suffered the “same injury” and there must be some “glue” holding the reasons behind each of their claims together.   This “glue” might exist if: (1) the employer used a biased testing procedure that produces a common result; or (2) there is significant proof that an employer operated under a general policy of discrimination.  In Wal-Mart, the Court determined that the plaintiffs failed to satisfy Rule 23(a)’s commonality requirement because there was no general policy of discrimination since, among other things, the corporate policy permitted lower-level employees to exercise discretion over employment matters.

Based on this, the District Court denied the Dollar Store plaintiffs’ request to amend their complaint, stating that the amended complaint would be futile since it pointed to subjective, individualized decisions which failed to satisfy the commonality requirements set forth in      Wal-Mart.   However, the Fourth Circuit disagreed, and determined that Wal-Mart did not set out a per se rule against class certification where subjective decision-making or discretion is alleged.   Rather, litigants should differentiate between cases where lower-level employees are exercising discretion, which does not satisfy the commonality requirement, and cases in which upper-level management are exercising discretion.  In Wal-Mart, local supervisors from individual stores were vested with almost absolute discretion over pay and promotion decisions, and this did not create a “corporate policy.”  However, in this case, the amended complaint contained substantial allegations that would satisfy the commonality requirements because the plaintiffs alleged that high-level corporate decision-makers in the Dollar Store’s corporate headquarters were determining salary ranges.  According to the Fourth Circuit, such discretion from high-level personnel may establish commonality by creating “corporate policy.”  Thus, the Fourth Circuit directed the trial court to grant plaintiffs with leave to amend, and to revisit the certification question once the allegations in the amended complaint have been more fully developed.  In light of this decision, business should likewise revisit their company policy and decision-making determinations.