The Supreme Court took a big bite out of the pockets of class-action trial lawyers today, at least in the field of employment discrimination.  The court unanimously rejected a class-action lawsuit against Wal-Mart on behalf of 1.6 million female employees that attempted to argue that the retail giant purposefully and systematically discriminated on gender for compensation.  But a narrow 5-4 ruling on a companion issue promises to make filing any more such class-action lawsuits nearly impossible:

The justices divided 5-4 on another aspect of the ruling that could make it much harder to mount similar class-action discrimination lawsuits against large employers.

Justice Antonin Scalia’s opinion for the court’s conservative majority said there needs to be common elements tying together “literally millions of employment decisions at once.”

But Scalia said that in the lawsuit against the nation’s largest private employer, “That is entirely absent here.”

Justice Ruth Bader Ginsburg, writing for the court’s four liberal justices, said there was more than enough uniting the claims. “Wal-Mart’s delegation of discretion over pay and promotions is a policy uniform throughout all stores,” Ginsburg said.

The contrasting opinions gives a good indication of what is at stake.  In most corporations (especially national retail chains), compensation decisions are almost always delegated to individual locations or regional management.  For one thing, the labor market varies from region to region, and what amounts to competitive compensation in one region might be insufficient in another, depending on the cost of living, labor availability, and so on.

Ginsburg’s identification of this as a prima facie indication of discrimination would have exposed virtually all US retailers to such class-action lawsuits.  Not only would that have sapped retailers of billions in capital, but it doesn’t make any sense on its face anyway.  If compensation decisions are decentralized throughout an organization, how can that possibly demonstrate a coordinated, centralized, and explicit effort to discriminate on the basis of anything?

Scalia addresses this in his lead opinion, pp16-17:

First, if the employer “used 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).” Id., at 159, n. 15. Second, “[s]ignificant proof that an employer operated under a general policy of discrimination 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 decision making processes.” Ibid. We think that statement precisely describes respondents’ burden in this case. The first manner of bridging the gap obviously has no application here; Wal-Mart has no testing procedure or other company wide evaluation method that can be charged with bias. The whole point of permitting discretionary decisionmaking is to avoid evaluating employees under a common standard.

That leads logically to this, pp 21:

Even if it established (as it does not) a pay or promotion pattern that differs from the nationwide figures or the regional figures in all of Wal-Mart’s 3,400 stores, that would still not demonstrate that commonality of issue exists. Some managers will claim that the availability of women, or qualified women, or interested women, in their stores’ area does not mirror the national or regional statistics. And almost all of them will claim to have been applying some sex-neutral, performance-based criteria—whose nature and effectswill differ from store to store. In the landmark case of ours which held that giving discretion to lower-level supervisors can be the basis of Title VII liability under a disparate-impact theory, the plurality opinion conditioned that holding on the corollary that merely proving that the discretionary system has produced a racial or sexual disparity is not enough. “[T]he plaintiff must begin by identifying the specific employment practice that is chal-lenged.” Watson, 487 U. S., at 994; accord, Wards Cove Packing Co. v. Atonio, 490 U. S. 642, 656 (1989) (approving that statement), superseded by statute on other grounds, 42 U. S. C. §2000e–2(k). That is all the more necessary when a class of plaintiffs is sought to be certified. Other than the bare existence of delegated discretion, respondents have identified no “specific employment practice”—much less one that ties all their 1.5 million claims together. Merely showing that Wal-Mart’s policy of discretion has produced an overall sex-based disparity does not suffice.

Respondents’ anecdotal evidence suffers from the same defects, and in addition is too weak to raise any inference that all the individual, discretionary personnel decisions are discriminatory.

This is a blockbuster decision by the Supreme Court, quite possibly the most impactful of this session.  It practically dismantles employment discrimination class-action lawsuits while keeping very much in place legitimate individual claims, or classes where specific commonalities of discrimination took place.  That will allow the courts to focus on actual discrimination where it occurs, and to eliminate at least one process by which trial lawyers turn corporations into ATM machines — the kind that really do increase joblessness.