A sharply divided federal appeals court on Monday exposed Wal-Mart Stores Inc. to billions of dollars in legal damages when it ruled a massive class action lawsuit alleging gender discrimination over pay for female workers can go to trial.
In its 6-5 ruling, the 9th Circuit U.S. Court of Appeals said the world's largest private employer will have to face charges that it pays women less than men for the same jobs and that female employees receive fewer promotions and have to wait longer for those promotions than male counterparts.
The retailer has fiercely fought the lawsuit since it was first filed by six women in federal court in San Francisco in 2001 and said it would appeal the decision to the U.S. Supreme Court.
The ruling "opens up every company in America that has employees to class actions like this," said Theodore Boutrous, the company's lead lawyer on the largest gender bias class action in U.S. history.
The appeals court upheld a lower court ruling allowing the lawsuit to go forward as a class action, which attorneys for the Wal-Mart employees said encompasses more than 1 million women. Wal-Mart disputes that figure and asserts fewer than 500,000 women are covered by the decision Monday.
Either way, the company could lose billions of dollars if it is found liable and required to fork over back pay to the affected women.
The appeals court did order the trial court judge to reconsider two important issues that would alter any potential pay out.
U.S. District Court Judge Vaughn Walker in San Francisco was told to determine the appropiateness of punitive damages and whether former employees at the time of the 2001 filing of the lawsuit should be part of the class action. The case was transferred to Walker after the resignation of U.S. District Court Judge Martin Jenkins, who ruled against Wal-Mart on those two issues.
Wal-Mart employs 1.4 million employees in the United States and 2.1 million workers in 8,000 stores worldwide, and argued that the conventional rules of class action suits should not apply because each outlet operates as an independent business. Since it doesn't have a companywide policy of discrimination, Wal-Mart argued that women alleging gender bias should file individual lawsuits against individual stores.
Finally, the retailer argued that the lawsuit is simply too big to defend.
"Although the size of this class action is large, mere size does not render a case unmanageable," Judge Michael Daly Hawkins wrote for the majority court, which didn't address the merits of the lawsuit, leaving that for the trial court.
Judge Sandra Ikuta wrote a blistering dissent, joined by four of her colleagues.
"No court has ever certified a class like this one, until now. And with good reason," Ikuta wrote. "In this case, six women who have worked in thirteen of Wal-Mart's 3,400 stores seek to represent every woman who has worked in those stores over the course of the last decade — a class estimated in 2001 to include more than 1.5 million women."
Analysts said the ruling was a setback to Wal-Mart's campaign to improve its image with shoppers.
The ruling was a "big black eye for Wal-Mart, and it's not going to heal anytime in the near future," said retail consultant Burt P. Flickinger. Flickinger said the ruling could turn off women shoppers — the company's critical base — at a time it faces increased pressure from a host of competitors, ranging from Kroger to J.C. Penney.
Wal-Mart's fourth-quarter results, announced in February, showed that total sales at its U.S. Walmart stores fell for the first time since the company went public in 1969. The company also reported its third consecutive quarter of declines in sales at stores opened at least a year. Sales at stores opened at least a year are considered a key indicator of a retailer's health.
Wal-Mart officials sought to focus on the few portions of the 95-page ruling that went its way, including the possible trimming of the number of women who stand to collect damages if Wal-Mart is found liable. The appeals court ordered the trial judge to determine whether the lawsuit should date to all workers as of 1998, as alleged in the complaint, or to 2001 when it was filed.
The appeals court also told the trial judge to reconsider the appropriateness of awarding punitive damages, which are awarded above actual damages to punish the accused for bad behavior.
Wal-Mart's top lawyer Jeff Gearhart said the company disagreed with the ruling and was considering its next step, which could include an appeal to the U.S. Supreme Court.
"We do not believe the claims alleged by the six individuals who brought this suit are representative of the experiences of our female associates," said Gearhart, an executive vice president. "Walmart is an excellent place for women to work and fosters female leadership among our associates and in the larger business world."
The attorneys suing Wal-Mart said they expected an appeal of their near-complete legal victory.
"It upheld the heart of the case," said Brad Seligman, the lead lawyer suing Wal-Mart. Seligman said the lawsuit includes newly hired employees and accused Wal-Mart of continuing discriminatory practices.
Unions and other critics have long complained that Wal-Mart's workplace practices needed improvement, especially in the areas of diversity and career advancement.
The discounter responded to the pressure last year at its annual shareholders' meeting by announcing a plan to address the issue of promoting women, creating a "global council" comprised of 14 Wal-Mart female executives.
"We are proud of the strides we have made to advance and support our female associates and have been recognized for our efforts to advance women through a number of awards and accolades," Gearhart said.
Wal-Mart shares fell 49 cents to $54.04 at the close of trading.