'Dukes' Class Action May Be Hazardous

Employment practices exposure cited as courts assess genderdiscrimination

While class-action procedures are often misunderstood, riskmanagers and corporate counsel know all too well that this is thetype of problem that causes sleepless nights.

Class-action litigation is unlike a single plaintiff lawsuit inthat the stakes are enormous and the exposure to a corporationincreases geometrically if the plaintiffs are successful. The holygrail of class-action litigation for both sides is the classcertification decision.

One can count on the fingers of two hands the number ofemployment-related class actions that have been tried to conclusionin the past decade. Practically speaking, victory or defeat in theclass certification process casts the die for a corporation's exitstrategy from class action litigation. (See sidebar.)

The ongoing Dukes, et al. vs. Wal-Mart Stores Inc. litigation isa case study for the current "hot issues" being pursued inhigh-stakes class actions.

The theories pursued in the Dukes litigation involve what areknown as "glass ceiling/sticky floor" allegations of employmentdiscrimination–that female employees are relegated to low-payingpositions and are unable to be promoted into better-paying andhigher-level managerial jobs.

The theory in the Dukes case is that the employer used uniformpersonnel policies across stores and regions that allowed malemanagers to exercise significant subjectivity in making pay andpromotional decisions with little-to-no oversight by corporateheadquarters.

This subjective decision-making process–so the theorygoes–creates a common question capable of class certificationbecause that subjective process was part of a consistent,companywide policy. Plaintiffs relied on expert testimony tohypothesize that the employer's corporate culture made managers"vulnerable" to gender-biased personnel decision-making.

These arguments manifest an aggressive approach by theplaintiffs' bar to establish the class-worthiness of claimsstretching over multiple facilities with assertions that pay andpromotion claims are readily susceptible to class-action treatmentbased on expert testimony that such claims are truly common andtypical.

The current "hot issue" for damages is also typified by theDukes litigation. The plaintiffs' theory is that the court maycertify a class action for injunctive relief, back-pay and"class-wide punitive damages."

In essence, plaintiffs theorize that a court can impanel a juryand hold a single trial on the common issue of whether thedefendant acted with intentional and/or reckless disregard for therights of its employees to non-discriminatory treatment, anddetermine whether the alleged violation of those rights warrantsimposition of punitive damages to the entire class.

To date, most courts have rejected this theory, but threerulings (in Illinois, Kansas and Oklahoma) have adopted thatposition as did the court in Dukes. These liability and damagesissues are on appeal in the Dukes litigation at the U.S. Court ofAppeals for the 9th Circuit.

The theories have spawned copy-cat class actions, and privateplaintiffs' lawyers are pursuing these theories with vigor inhigh-stakes cases. Likewise, the U.S. Equal Employment OpportunityCommission is pushing the "punitive damages only" theory in severalof its high-profile pattern or practice lawsuits.

The exposure to an employer under this theory is obviouslydevastating, and can place enormous pressure on a company to settleif it is facing a single trial on class-wide punitive damages.

Loss Control Options

While class actions present significant challenges, riskmanagers and corporate counsel have the means and opportunities toboth assess and ameliorate class-action litigation exposures. Classactions ought never to come as a surprise, and proactive measurescan reduce both the incidence and severity of class-actionproblems.

The most basic notice of a class action is an EEOCadministrative charge containing systemic allegations where anemployee or ex-employee seeks to champion a claim on behalf of himor herself and other "similarly situated" employees.

Aggressive defense and/or resolution of such systemic chargescan eliminate the conditions from which class actions grow. Activeinvolvement of corporate counsel and outside employment law counselin the administrative phase of a charge is critical to keeping thelid on EEOC charges alleging systemic problems.

Rigorous analysis of available employment data is an additionaldevice to identify class-action vulnerabilities. The statisticsunderlying the flow of applications, pay and promotion rates, andtermination patterns can reveal the existence of statisticallysignificant patterns of discrimination.

Corporate resources can be marshaled to address and mitigatethose shortfalls through diversity initiatives and other corporateHR efforts. This is a double-edged sword, for employers thatdiscover and are aware of problems and then do nothing to solvethem are susceptible to claims for punitive damages whereplaintiffs can argue that such conduct is reckless given theobligations of federal employment law.

Placing women and minorities on a realistic path to success indesigning and implementing diversity initiatives is critical, as isvalidating the HR processes for pay, promotions and employmenttesting.

The stakes in class-action litigation are immense. Sophisticatedplaintiffs' lawyers are migrating to this area and more and morecorporations are finding themselves targets of class-actionlitigation. Proactive assessments of vulnerabilities–and efforts toaddress those vulnerabilities–are now more important than everbefore.

Gerald L. Maatman Jr. is a partner with Seyfarth Shaw LLP inChicago.

Sidebar:

Flag: Buyer Primer

Head: How Do Class Actions Work?

Class actions may be brought in state or federal court. Aplaintiff's lawyer typically files a lawsuit on behalf of one or ahandful of parties who request that the case be "certified" as aclass action.

Plaintiffs seeking to prosecute class actions must fulfillcertain requirements to secure class certification. Known as theRule 23 requirements, these elements are:

o Numerosity: The plaintiff must establish that the size of theproposed class is so numerous that individual lawsuits would beimpractical. There is no "magic number" for the thresholdrequired–classes as small as 14 have been certified, while classesas large as 92 have been held to be too small to warrantcertification.

o Commonality: The plaintiff must show that his or her claimsare "common" in that they present an issue which cuts uniformlyacross all class members.

o Typicality: The plaintiff bringing the class action must showthat his or her claims are typical of the claims of proposed classmembers.

o Adequacy of Representation: The plaintiff must show both thathe or she is an adequate representative of the class and that theplaintiffs' lawyer is fit to serve as counsel to the class.