Gender Discrimination in Pay and Promotions: Emerging Litigation Threat Employer Strategies for Avoiding and Defending Lawsuits

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1 Presenting a live 90 minute webinar with interactive Q&A Gender Discrimination in Pay and Promotions: Emerging Litigation Threat Employer Strategies for Avoiding and Defending Lawsuits TUESDAY, MARCH 1, pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Margaret A. Keane, Partner, Dewey & LeBoeuf, Silicon Valley, Calif. Michael Westheimer, Of Counsel, Baker & McKenzie, Palo Alto, Calif. Jane M. McFetridge, Managing Partner, Jackson Lewis, Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

2 Employment United States Client Alert May 2010 Join Baker & McKenzie s Employment Counseling & Litigation attorneys for the 2010 Webinar Series - Navigating U.S. and International Employment Laws and Related Challenges. Click here to view the webinar topics and to register. In This Issue: Gender Pay Disparity Issues Take Center Stage The Meaning of Dukes The Recently Enacted Lilly Ledbetter Fair Pay Act The Pending Paycheck Fairness Act Practical Implications Authors: Jenni Field Lou Michels Michael Westheimer Discrimination, Harassment and Leave Management Practice Gender Pay Disparity Issues Take Center Stage In light of recent legislation and court decisions, gender pay disparity issues have taken center-stage for U.S. employers. The Department of Labor reported that in the second quarter of 2009, women earned between 72 to 76 percent of their male counterparts across industries, with the disparity growing to as much as 62 percent for female workers holding graduate level degrees. President Obama has made it a priority of his administration to address gender pay disparity issues, with legislation allowing for broader litigation remedies already signed into law and other similar bills currently winding their way through Congress. Joining this legislative push, the Ninth Circuit recently issued the widely-publicized decision in Dukes v. Wal-Mart Stores, Inc. (April 26, 2010). If upheld, the Dukes decision provides another potential launching pad for women to challenge a company s pay structure at a national level by pointing to statistical disparities. As a result, companies should start planning now for an increased focus on gender discrimination lawsuits to challenge alleged wage gaps. The Meaning of Dukes Although employment cases often make the headlines, the Ninth Circuit s decision in Dukes et. al. v. Wal-Mart Stores, Inc. garnered even more media interest than usual because it allowed the largest civil rights class action suit in United States history to move forward. The class action in Dukes involves a Title VII lawsuit alleging gender bias in pay and promotions, with the reported number of women in the class ranging from 500,000 to 1.5 million. Originally filed in 2001, the Dukes case has a lengthy appellate history. In 2004, a federal trial court in California certified the nationwide class covering all women at all store positions - from entry level though store managers -- based on claims of seven named plaintiffs. Pointing to expert statistical reports, plaintiffs assert that women were paid less than men in comparable positions and received fewer promotions to in-store management positions. Unlike most nationwide class actions, plaintiffs did not point to any corporate policy or promotional requirements as causing the discriminatory effect. The lack of a nationwide policy was due to Wal-Mart s decentralized salary and promotion policies, which put decisions in the hands of individual managers at the regional and store levels (a common corporate structure for many retail employers). Notwithstanding the lack of a common nationwide policy or management, the trial court certified the class based on plaintiffs statistical expert testimony of gender disparities and anecdotal experiences by approximately 100 female employees. 1 Client Alert May 2010

3 On appeal, the Ninth Circuit approved the class certification twice by two threejudge panels, and again this past April in a divided decision from the 12-judge en banc panel. In the most recent 6-5 split decision, the main issue of contention involved the trial court s standard of review over evidence when determining whether to certify a class in an employment discrimination case. If appealed to the U.S. Supreme Court, this particular show will not be over yet. Large class actions like Dukes that reach across job lines are unusual in employment discrimination cases because a class action requires the plaintiffs to show common bases of discrimination that are typical to the class. Courts have shied away from certifying nationwide discrimination class actions in the absence of an alleged discriminatory policy because such discrimination claims are, by their nature, individualized, with the alleged discrimination normally attributed only to a limited number of regional or store managers. In addition, the legal defenses available to an employer under Title VII for discrimination claims are individualized, e.g., the employer may show a legitimate, non-discriminatory reason for each individual pay or performance decision. Wal-Mart asserted that where there was no company-wide policy identified as having a discriminatory effect, class certification would deny it the practical ability to bring these defenses. The majority of the Ninth Circuit rejected this argument, holding that the trial judge can fashion procedural mechanisms to address these issues. A major procedural issue in the Dukes case was the treatment of expert evidence at the class certification stage. Rejecting the application of the Daubert evidentiary standard for evaluating expert testimony at the class certification stage, the court found that the sociological evidence put forward by plaintiffs was sufficient for class certification. The court noted that Wal-Mart could challenge the persuasiveness and reliability of plaintiffs statistical and commonality experts before the jury. Unless the U.S. Supreme Court chimes in, some have predicted that the Dukes decision will lighten plaintiffs evidentiary burden to show typicality and commonality in employment discrimination cases and broaden the number of employees and potential work locations that may be covered by nationwide discrimination class actions. The decision may expand the risk of class actions for large, multi-state employers, regardless of centralized HR functions. The Recently Enacted Lilly Ledbetter Fair Pay Act While case decisions may spur the law in this area, Congress is keeping pace. The first piece of legislation President Obama signed into law was the Lilly Ledbetter Fair Pay Act of 2009, which took effect on January 11, The Ledbetter Act another widely-publicized law that most U.S. employers already are aware of extends the time for employees to bring gender discrimination claims challenging their employer s pay or promotion decisions. This legislation was prompted by Ms. Ledbetter s lawsuit against her employer, challenging a pay decision made years earlier as discriminatory. In 2007, the U.S. Supreme Court held in Ledbetter v. Goodyear Tire & Rubber Co. that an employee alleging gender discrimination under Title VII based on a discriminatory pay decision must bring the claim within a 180-day or 300-day period after the challenged pay decision was made. Signaling a beginning of the legislative movement to ease burdens on gender discrimination litigation, Congress quickly passed the Lilly Ledbetter Pay Act. The Act extended the statutory limitations period to run from each discriminatory paycheck, effectively eliminating the time restrictions on when current employees can challenge allegedly discriminatory employment decisions. 2 Client Alert May 2010

4 The Pending Paycheck Fairness Act Around the same time the Lilly Ledbetter Fair Pay Act was signed into law, another widely-publicized bill was introduced in Congress, the Paycheck Fairness Act. As currently drafted, the Paycheck Fairness Act would amend the Equal Pay Act (a provision of the Fair Labor Standards Act) to address gender pay disparity. Although different versions of the bill are pending, key proposals include permitting employees to pursue gender pay disparity class actions on an opt-out rather than an opt-in basis, allowing employees to recover compensatory and punitive damages in addition to back pay, and imposing limits on an affirmative defense that currently allows employers to avoid liability if they can prove the pay differential is based on a factor other than sex. If this bill passes, it will permit employees to seek increased remedies under federal wage and hour laws and encourage larger class actions. While the House of Representatives quickly passed its version of the bill, it has been stalled in the Senate for the past year. However, the Senate recently conducted hearings on the bill and now that health care reform has passed, a version could pass in this legislative session. President Obama is predicted to sign the bill into law. Practical Implications With pay disparity issues taking center stage in the form of more class action challenges, employers should proactively consider the impact of broadened class actions and how their corporate structure allows for or discourages the patchwork of potential state and federal actions. It is clear that companies face exposure if their payroll data reflects a significant wage gap by gender (or other protected EEO category), even in the absence of a specific policy or pay decision that arguably creates the discriminatory effect. In light of the increased focus in this area, there are several possible actions employers should consider: The Dukes case is a good reminder to employers to keep on top of promotion, hiring, and compensation statistics. This is particularly true for companies using policies and practices directed from headquarters corporate human resources. Employers should consider retaining counsel to audit the company s employment practices, including statistical analyses of the company s payroll records and management data to determine if they reflect statistically significant disparities among various protected groups. Audits should be performed under the direction of an attorney for purposes of providing legal advice to the company to retain the attorney-client privilege. If the audit reveals a significant pay disparity, counsel advising the company should explore possible underlying causes, defensive measures and/or remedies with management. Some employers have considered altering their decision-making process for salary and promotions, believing that a different structure might minimize their exposure. Employers might find themselves in between a rock and a hard place and will need to carefully balance the appropriate fix based on their own corporate structure and the governing law where significant portions of their workforce reside. Employers commonly standardize employment practices and centralize employment decisionmaking to promote consistency and ensure similarly situated workers are not treated differently, all while keeping an eye on statistical disparities. 3 Client Alert May 2010

5 While allowing for control over discriminatory results, a centralized structure has a trade off by possibly (1) allowing for an easier platform to bring a nationwide class challenge because it may be easier for large groups of employees to demonstrate they were subject to a common scheme; or (2) allowing for application of the state law where the company s headquarters or management is located, expanding the protections available to employees working in distant states. But as demonstrated by Dukes, decentralizing HR decisions is not a full-proof answer to avoid class actions. Striking a balance between these two models is difficult and should be approached strategically based on the company s corporate culture. There is no single fool-proof system for avoiding gender pay discrimination challenges. Accordingly, while it is possible that structural changes may be warranted in some circumstances, companies also should be aware that there is no one-size-fits-all solution. If you have any questions, please contact your Baker & McKenzie attorney or any of those in our Discrimination, Harassment and Leave Management practice: Chicago Andrew Boling Andrew.Boling@ Doug Darch Douglas.Darch@ John Lou Michels John.Michels@ Bob Mignin Robert.Mignin@ Terese Connolly Terese.Connolly@ Ryan Vann Ryan.Vann@ Meagan C. LeGear Meagan.LeGear@ Miriam Geraghty Miriam.Geraghty@ Houston Rick Hammett JRichard.Hammett@ Scott Nelson Scott.Nelson@ Liquita Thompson Liquita.Thompson@ Celina Joachim Celina.Joachim@ Jordan Faykus Jordan.Faykus@ Emily Harbison Emily.Harbison@ New York Rob Lewis Robert.Lewis@ Palo Alto Jenni Field Jenni.Field@ Cynthia Jackson Cynthia.Jackson@ Michael Westheimer Michael.Westheimer@ Benjamin Ho Benjamin.Ho@ Shoshana Isaac Shoshana.Isaac@ San Diego Brian Arbetter Brian.Arbetter@ Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. 4 Client Alert May 2010