In late June of 2004, the U.S. District Court for the Northern District of California certified a large class-action case involving workplace discrimination. For those of you who are not familiar with this lawsuit, Wal-Mart, which is the largest private employer in the world (operating about 3,400 stores in the U.S. with more than one million employees), is being sued by women seeking to represent both themselves and other similarly situated women for sex discrimination in pay and promotions. Relying heavily on the disparate impact theory of discrimination, which uses statistics to examine gender differences in pay and promotions, the plaintiffs built a formidable case against Wal-Mart. At issue was whether or not the proposed class, which has the potential to include over one million people, would be certified. In other words, the judge needed to rule on whether these plaintiffs could represent a potentially huge group of women or not. From the plaintiffs’ perspective, being certified as a class constitutes a major victory, often leading to a quick settlement offer from the company. Conversely, from the company’s perspective, refusal by the court to certify the class is a major victory for itself. Having said that, it is important to note that attaining class certification involves somewhat different requirements than proving discrimination has occurred. Acknowledging the significance of this lawsuit, the judge provided an 84-page document explaining his reasons for granting class certification. In light of the judge’s detailed explanation for his decision, there are many lessons to be learned by recruiters and other HR professionals who are responsible for talent management activities in their organizations. Following an analysis of some of the most interesting points addressed by the judge, I offer a few suggestions for companies to reduce the chances they find themselves in a similar situation. Selected Points in the Dukes vs. Wal-Mart Case Because of the length and complexity of the case, I will only comment on a few selected points that are particularly relevant for recruiters and HR professionals. Here they are:
- Simply having diversity goals or winning diversity awards is not enough. The judge was not persuaded by Wal-Mart’s diversity policies and programs. Although the judge noted that the company kept statistics on gender composition of the workforce, he observed that there was no attempt to identify barriers to women’s advancement within the company. Furthermore, he noted that the goals established by Wal-Mart for the number of women in the workforce appeared to be largely “ad hoc” and subjective. That is, many managers made their own goals for female representation or simply set them as incremental improvements over last year’s targets. Moreover, the judge noted that diversity goals were not linked to such things as incentive pay, which in turn meant these goals were not always effective. The fact that the company had won national diversity awards and that diversity issues were addressed in executive discussions, handbooks, and training programs was not seen as enough by the judge to defeat class certification. One of the tools used by the plaintiffs’ experts was benchmarking, in which women’s representation at higher levels was compared to other companies in the retail business. Unfortunately for Wal-Mart, they did not fare well in this comparison.
- Failure to document who the candidates are may backfire. A major issue in the case concerned the relevant “applicant flow” data for the analysis. Without going into the many details, the Wal-Mart case is based on a disparate impact approach to discrimination, which involves comparison of the plaintiffs’ group (i.e., women) to the majority group (i.e., men) in terms of pay and promotions. In comparing promotion patterns, however, a key question is who are the eligible, interested female and male candidates? What makes this particularly problematic in the Wal-Mart case (and in other cases) is that the company frequently did not document who the candidates were. The judge noted, for example, that for 80% of the actual support manager promotions, there were no data regarding applicants. Similarly, Wal-Mart did not have open postings for job promotions, and this may have further prevented women for moving up. The plaintiffs’ expert therefore argued that the number of incumbents in historical feeder positions was the appropriate number to use, a figure that did not work in the company’s favor.
- Highly subjective promotion and pay decisions are susceptible to discrimination. The judge noted that while subjectivity is “inherent in, and in fact a useful part of, personnel decisions,” he also observed that “deliberate and routine use of excessive subjectivity” may lead to discrimination. The role of an effective recruiter is to help managers eliminate excessive subjectivity, while at the same time creating systems and processes that make effective use of manager’s expert knowledge of the jobs at issue. All too often, companies that have valid hiring systems fail to use sound, systematic promotion practices, leaving far too much discretion in the hands of managers who are relatively untrained in making valid and fair decisions. Such subjective decision-making processes become particularly problematic when the organization fails to provide mechanisms for ensuring sufficient accountability.
What Can Recruiters Do to Reduce These Problems? Now that I have identified some of the issues addressed by the judge in making the class certification, I will offer some suggestions to avoid these problems.
- Develop, monitor, and achieve objective diversity goals. It’s important that diversity goals be developed based on appropriate standards. Relevant standards may include census data, promotion rates within the organization, and representation in different competitor’s companies. There must be strong incentives provided for managers who are achieving predetermined diversity goals and penalties for managers who do not achieve their goals. Reasons for failing to meet goals must be determined and solutions formed. Recruiters will play a key role in setting and championing these efforts.
- Develop appropriate documentation for candidates. Not only must employees be informed of opportunities, but it is also important to document who applies for promotional opportunities and what promotion decisions are made. Appropriate statistical analyses may then be conducted to monitor for disparate impact against women, minorities, and other protected groups. Having the appropriate metrics and conducting regular audits, followed by appropriate actions, will help reduce class-action lawsuits.
- Develop effective systems for making promotion and compensation decisions. Effective HRM practices, such as competency modeling and structured interviewing, provide tools for valid and fair decisions. Coupled with managerial training and appropriate accountability systems, organizations can reduce their legal liability while simultaneously improving their effectiveness. Recruiters will play an increasingly important role in choosing and implementing such systems.
Conclusion While nothing can completely prevent a discrimination lawsuit from being filed, the Wal-Mart case contains many suggestions as to how companies can reduce the chances of a discrimination class-action lawsuit being successful. Most of these suggestions apply to any company, regardless of size or industry. The key, however, is that organizations must take a proactive stance. Rather than waiting for discrimination charges to be filed, organizations are urged to regularly review their HRM policies and practices, generate and analyze the relevant data, and make changes where appropriate.