Publications
Third: Turn Your Subjective Employment Decisions
into Objective Employment Decisions
Now that it has happened to Wal-Mart and Morgan Stanley, it could happen to you.
As the media widely reported, in June, a federal district court in San Francisco allowed a class action involving 1.5 million Wal-Mart employees to proceed toward trial – by far the largest class action ever permitted in an employment discrimination case. But that is not the whole story. What is just as interesting about the case is the legal theory on which Wal-Mart was sued.
Boiled down to its essence, the Wal-Mart employees claim that Wal-Mart institutionalized a policy of subjective decision-making respecting basic employment decisions, like raises and promotions. The court found that this policy, especially when combined with evidence of a corporate culture that included gender stereotyping, could lead to widespread gender-based discrimination. Because this could adversely affect virtually all of Wal-Mart’s female employees, the court ruled that the case could proceed in a class action format.
What does that mean in practice? The Wal-Mart decision was not a ruling on the merits. Whether Wal-Mart did anything wrong has not yet been decided. But by allowing the case to proceed as a class action, the court dramatically multiplied Wal-Mart’s risk and, therefore, the plaintiffs’ settlement leverage. When an employer faces a claim by one employee, or even a few employees, it can defend and risk defeat since the worst case scenario is not life-threatening. But when that claim is, effectively converted into a claim by 50% or more of the company’s employees, can the company afford to risk a trial?
Case in point: a few weeks ago, even before the Wal-Mart case publicized and implicitly endorsed this strategy, the EEOC announced that Morgan Stanley had agreed to pay a $54 million settlement in a gender discrimination class action which, up to that point, Morgan Stanley had vowed to vigorously defend. Many analysts have observed that Morgan Stanley settled because the risk of proceeding to trial in a class action of this nature would have involved facing a potential judgment in the hundreds of millions of dollars. Perhaps the odds favored Morgan Stanley at trial, but could it afford to take the risk?
The most effective way to prevent these kinds of claims is the following:
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There is nothing new in this advice. For instance, take a look at the Avoiding Lawsuits issues from January 2004, and September 2002. But what has changed is the urgency with which companies need to implement this advice: it is no exaggeration to state that a company which has, through inaction, left itself open to a class action of this nature has acted irresponsibly towards its owners. The stakes are too high to cavalierly run these risks.
As always, let us know if we can help.
Counsel Consulting Group LLC helps companies throughout the United States avoid employment and HR-related claims and liabilities. CCG assesses existing policies, procedures and problem areas; it provides customized liability-avoidance training to managers and executives; and it designs and implements business techniques that reduce employment liability risks on a long term basis. CCG also offers specialized workshops for managers and HR executives, customized consulting in focused employment-related areas, and CD-ROM and web-based training alternatives. For more information, contact us at info@powelltrachtman.com and visit our website at www.counselconsulting.com.
Powell Trachtman Logan Carrle & Lombardo PC. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.
Various insurance carriers have approved Powell Trachtman as counsel for the defense of employment practices claims, directors and officers liability claims, and other claims litigated in Pennsylvania and New Jersey. If a claim is brought against you, please feel free to contact us for further information.
