Preparing For And Preventing Systemic Discrimination Claims By Elena R. Baca Samantha J. Black American Bar Association Section of Labor and Employment Law Copyright 2005 Paul, Hastings, Janofsky & Walker LLP 1 Atlanta Beijing Brussels Hong Kong London Los Angeles Milan New York Orange County Palo Alto Paris San Diego San Francisco Shanghai Stamford Tokyo Washington DC
PREPARING FOR AND PREVENTING SYSTEMIC DISCRIMINATION CLAIMS Systemic discrimination claims can have a significant impact both financial and otherwise on their targets. Obviously, significant damage awards are possible with such claims. In addition, a target employer must expend significant resources to defend a systemic discrimination claim, both in attorneys fees and in the time and efforts of employees whose attention is diverted from their business tasks to assist in the litigation. In order to minimize the impact of these claims on employers, in-house (and outside) counsel should become cognizant of the indicators for such claims, consider whether a prelitigation audit is a viable option to assist in preventing such claims or mitigating their effect, and consider possible remedial measures. I. Potential Indicators of an Impending Discrimination Class Action In order to provide the best defense to a potential systemic discrimination claim (and increase the potential to resolve such a claim at the outset), employers should be aware of indicators that a class action is looming. Below is a list of some potential early indicators that a systemic discrimination claim is impending. - Increased EEO charges. Numerous EEO charges with the same or similar allegations may indicate a plaintiff s attorney or firm is considering a class action. To determine whether numerous similar allegations are being made, it is important that one person at the employer be familiar with the types of charges being filed against the employer throughout the country. - EEO charges alleging class-wide claims or impacts. - For-Cause finding from the EEOC or local/state agency. Be aware of any charge involving outspoken and/or charismatic employees. - High profile attorney s or class action firm s involvement at the EEO stage. Sometimes these attorneys will develop a case to test the waters and collect information and admissions helpful in building a subsequent class action lawsuit. - Pattern of irrelevant questions during management depositions. Sometimes a firm planning to bring a class action will get other plaintiff s attorneys handling litigation against the target employer to ask questions of a deponent that are designed to assist in future class-action litigation (e.g., asking questions relating to pay classification in a Title VII case). - Increase in the number of employees asking to review their personnel files especially in the same protected class. Employers should have one person who maintains a list of all persons requesting their files and the files should be investigated for similarities. 2
- Higher than usual employee turnover. - Decreased employee morale. - Increase in the number of internal complaints. - Complaints about employer on websites. Employers should routinely review discussions on message boards and other sites to determine whether particular employment practices or policies are creating problems that should be addressed. - Media attention on employer s practices. - Contact from national advocacy groups (e.g., NAACP, CORE, NOW, ACLU), or federal agencies such as the DOL or EEOC. - The affirmative action plan on file with a governmental agency is requested by third parties at a higher rate than normal. - Specific actions by the employer affecting multiple employees. For instance, a large layoff, particularly when it includes significant numbers of workers in protected classifications, can spark a systemic discrimination claim. Any acrossthe-board action that tends to disparately impact any particular protected class of employees can have the same effect. - Flow statistics reflecting significant statistical disparities over a period of time in hiring, discharge, promotions, pay or lines of progression. II. Pre-Litigation Audits In a climate of increased systemic discrimination claims, employers often audit their own practices before litigation has been threatened or filed. To determine whether an audit is appropriate, issues regarding the discoverability and privilege protection of an audit must be explored. In addition, the appropriate focus and scope of the audit must be determined. Finally, once the decision to undertake an audit has been made, corrective action must be taken to rectify any disparities uncovered in the analysis. A. Privilege Issues: Unless an audit falls within one of the privileges discussed below, it will be discoverable in both litigation and agency investigations. The employer must therefore pay careful attention to detail in the planning and execution stages of the audit, as well as to the careful handling of supporting documents and the finished report. If an employer determines that the audit may involve highly-sensitive information, the audit team must act to ensure that the audit results will remain confidential at the outset (and consider the details that are committed to writing). This risk strongly suggests that the audit be conducted by counsel. If inside counsel conducts the audit, care must be taken to ensure that the attorney-client privilege applies (e.g., use of a human resources department 3
investigator who has a law degree is not likely to be sufficient where that person does not regularly serve as counsel to the employer). Even then, however, the underlying business records remain subject to discovery. 1. Attorney-Client Privilege: This privilege is universally recognized in the United States to promote freedom of consultation with counsel and effective legal representation. The privilege does not attach, however, unless the following conditions are satisfied. a. The lawyer to whom the communication was made must have been acting as counsel to the employer at the time of the communication. (i) (ii) (iii) (iv) For this reason, the audit should be coordinated through the legal department, not human resources. A formal letter (from the general counsel or a high-level manager) should authorize the audit, stating that the purpose of the audit is to obtain legal advice with regard to the employer s compliance with employment-related laws. The letter also should authorize attorneys to obtain the assistance of all necessary personnel in order to obtain required information. Any reports prepared by attorneys should discuss the relevant legal principles and discuss the employer s conduct in light thereof. b. The communication must be between the lawyer and the client. Note: There may be an issue here as to whether the attorney-client privilege applies when in-house lawyers are used. c. The communication must be kept confidential by both client and lawyer. (i) (ii) (iii) Disclosure should be limited to only those who have a need to know. All documents to and from counsel should be conspicuously labeled as: Privileged and Confidential: Attorney-Client Communication. Distribution of copies and access to documents should be limited. 4
(iv) Documents used to prepare audits should be destroyed (unless there is pending litigation or the employer is required to retain them by law). d. The privilege must not be waived. (i) (ii) It may be waived if a subset of the privileged document or information is disclosed. See Diversified Indus. v. Meredith, 572 F.2d 596, 609-11 (8th Cir. 1977) (privilege waived when results of internal investigation communicated beyond those with need to know ). It may be waived if the information is disclosed in other proceedings. 2. Self-Critical Analysis or Self-Evaluation Privilege: This is the least reliable of the privileges which may apply. Some courts have begun to recognize a self-evaluation privilege, but neither the Supreme Court nor any federal court of appeals has expressly recognized this privilege. See Burden-Meeks v. Welch, 319 F.3d 897, 899 (7th Cir. 2003); In re: Kaiser Aluminum v. Chem. Co., 214 F.3d 586, 593 (5th Cir. 2000); Holt v. KMI- Cont l, Inc., 95 F.3d 123, 134 (2d Cir. 1996); Dowling v. Am. Haw. Cruises, Inc., 971 F.2d 423 n.1 (9th Cir. 1992). There is no consensus regarding when or to what extent the privilege will apply. a. The purpose of this privilege is to promote employers undertaking a candid examination of their compliance with federal statutes and other governmental policies. See, e.g., Mitchell v. Fishbein, 227 F.R.D. 239, 251-252 (S.D.N.Y. 2005); Nash v. City of Oakwood, 90 F.R.D 633, 637 (S.D. Ohio 1981) (discovery of statistical information of affirmative action plan allowed; self-evaluative material privileged). b. This privilege is within the discretion of the court. See Trammel v. United States, 445 U.S. 40, 47 (1980) (the purpose of Rule 501 is to provide the courts with the flexibility to develop rules of privilege on a case-by-case basis, and to leave the door open to change ) (citation omitted). Courts balance the policy served by the protection (i.e., encouraging candid self-evaluation) against the need of a party seeking the material in question. But see Univ. of Pa. v. E.E.O.C., 493 U.S. 182 (1990) (refusing to recognize a federal common law privilege for academic peer review documents). 5
c. Privilege extends only to subjective portions of an audit required by law (such as equal employment audits). Privilege probably will not extend to objective or statistical data, or voluntary internal investigations. d. Employers should not rely solely on the self-evaluative privilege to prevent disclosure; depending on the jurisdiction and the nature of the audit, the audit report or background materials may be subject to disclosure. 3. Work Product Privilege: To the extent that the audit is being conducted in a context where there is reason to believe that there is a likelihood of litigation, then the work product privilege may apply. This privilege is also broadly recognized for documents and other materials prepared by an attorney. The privilege only applies where the following conditions are met. a. The work product must be prepared by an attorney for, or in anticipation of, litigation. (i) (ii) So long as specific claims have arisen that may result in litigation, the privilege may apply. See Rodgers v. United States Steel Corp., 22 Fed. R. Serv. 2d 324 (W.D. Pa. 1975) (privilege applied). Cf. Diversified Indus., 572 F.2d 596 (doctrine did not apply to an internal investigation). If pending or threatened litigation exists, the authorization for the audit should specify that it is being performed in response to such litigation. b. Privilege protects not only confidential communications, but also materials gathered in preparation for trial. (i) (ii) Employee interviews might be conducted by attorneys or by using questionnaires prepared by attorneys. Attorneys should supervise the audit as closely as possible. c. All documents generated by counsel in connection with an audit should be conspicuously labeled: Privileged and Confidential - Attorney Work Product, and should be treated as such for filing and distribution. B. Scope of Audits: The audit should be tailored to the employer s needs and resources with defined objectives. Only by determining what the audit is 6
designed to do will it be possible to accomplish the desired task effectively. The letter authorizing the audit should carefully define its scope and the expected output. 1. Specific Issue or General Review Audit: a. Audits are sometimes initiated to diagnose and remedy specific problems that have already resulted in litigation. For example, a pattern of sexual harassment claims may present an occasion for an audit designed to disclose and remedy potential problems in this discrete area. b. On the other hand, an audit may also be undertaken for more general reasons. A spate of discrimination lawsuits with no central theme may convince the employer that an assessment of all potential discrimination problems is desirable. Even then, the employer must decide whether to broaden the audit to include such specialized topics as FMLA, ADA and FLSA compliance. c. An employment law compliance audit is best seen as part of a broader human resources planning and assessment program; an audit can certainly be undertaken without the specific impetus generated by one or more legal battles. d. An issue-specific audit may serve as a prototype for further audits, and thus may be used to establish procedures that may be used again in studies of different issues. An issue-specific audit may also reveal information which suggests the need for further inquiry on other issues. 2. Potential Types of Analysis: a. Pay Equity Analysis: Examine compensation structures to ensure equitable treatment between similarly situated male/female employees and non-minority/minority employees. Are there employees who started on the same date with the same job title that are earning vastly different amounts not otherwise explained by performance or contribution, prior experience, education, level of responsibility and/or other factors? b. Promotion Analysis: Examine the percentage, frequency and time of promotions among female and minority populations and compare resulting data to promotions among similarly situated male and non-minority employees. If statistically significant variations are found, examine promotion processes to determine if 7
a particular set of practices (i.e., promoting from a pool of predominantly male candidates) may contribute to the adverse data or if there are legitimate factors which explain the difference. c. Evaluation Analysis: If the results of the promotion analysis are affected by disparities in performance evaluation scores, review the performance evaluation system to ensure the presence of nondiscriminatory reasons for any disparities. Analyze the data obtained in performance evaluations to determine whether there is a correlation between evaluation results/scores and a protected characteristic. d. Training Opportunities Analysis: Compare training opportunities offered to female and minority employees to similarly situated non-minority and male employees to determine whether there is a negative correlation between provision of training opportunities and a protected characteristic. e. Glass Wall: Analyze placement of employees throughout the company to determine whether a disproportionate share of a protected class is found in a particular function or department. f. Termination Analysis: Study the termination rates among female, minority, and over-40 employee populations, and compare them to the rates of similarly situated male, non-minority, and under-40 populations. C. Corrective Action: It is important to note that the audit report will usually be only the starting point for follow-up actions: it will identify problem areas whose solution will require further review by the employer, often in consultation with counsel. Once an audit has identified areas for improvement, solutions aimed at addressing those areas must be implemented. In addition, re-auditing may be necessary to ascertain whether solutions proposed for previously identified problems have succeeded. If solutions are not working, alternative methods for dealing with existing problems must be devised. III. Negotiated Remedial Measures Once litigation is initiated against an employer, remedial measures may still be undertaken. 8
A. Through Class Settlement: 1. Class settlement, negotiated with plaintiffs counsel, provides a unique opportunity to institute remedial measures. When a settlement must be approved by a court, the inclusion of remedial measures increases the attractiveness of the settlement to the judge, who will have additional reason to believe that the settlement protects the interests of all class members. In addition, including remedial measures in a negotiated settlement agreement provides cover for an employer, who may otherwise face internal opposition to sweeping changes in its personnel policies, to institute changes. 2. Martens v. Smith Barney, 181 F.R.D. 243 (S.D.N.Y. 1998) (nationwide female class action claim under Title VII for sex discrimination, harassment and retaliation). As part of the settlement agreement, Smith Barney undertook to increase its recruitment, hiring, promotion and retention of women in various areas of the firm s activities. B. Consent Decrees: Consent decrees likewise provide an opportunity to undertake remedial measures. Below is a sampling of consent decrees that demonstrate the breadth of remedial measures that can be undertaken in the context of a consent decree. 1. Thomas v. Albright, 139 F.3d 227, 229 (D.C. Cir. 1998) (Title VII class action in which plaintiffs alleged that the government discriminated against African American Foreign Service Officers). The consent decree included the following remedial measures: - Create a council for equality in the workplace to monitor the EEO activities of the department; - Modify its employee evaluation reports and engage a consultant to help determine whether further revisions are necessary; - Revise and expand its diversity and EEO training; - Establish a working group to monitor the grant of awards to employees; - Best efforts to include an African American on any board considering an African American for termination; - Continue to develop an electronic personnel database to monitor employment actions; 9
- Adopt an affirmative action program approved by the EEOC. 2. Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) (African American employees of Boeing filed a class action alleging that Boeing maintained a pattern or practice of race discrimination and retaliation). The proposed consent decree included the following remedial measures: - $3.65 million committed to modify promotion systems and to engage consultants to assist in developing and assessing the success of programs to meet objectives; - Facilitate advancement of African Americans into management positions. 10