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Lessons Learned From the Wal-Mart Class Action Decision

The recent decision to certify an immense class action against Wal-Mart gives one news-grabbing example of what can happen when employers grow lax in performing their human resources duties to train their managers and to adhere to their own policies.

On June 21, 2004, a Judge in the federal court in California certified an enormous sex discrimination class action against Wal-Mart. A class action is a legal vehicle that allows a small number of representative plaintiffs to maintain a law suit on behalf of a significantly larger number of identified and unidentified plaintiffs. In addition to other requirements, in order for a class action to be certified, the class members' claims must be related by common issues of fact and law and the claims of the representative plaintiffs must be typical of those of the proposed class in general. Should Wal-Mart's appeal fail and the class be finally certified, it could comprise as many as one and a half million employees in all of Wal-Mart's 3400 stores nationwide. Although the class certification decision specifically does NOT address the merits of the plaintiffs' sex discrimination cases, it nevertheless contains valuable information for employers looking to protect themselves from similar class actions.

Plaintiffs claim that Wal-Mart discriminates against women in pay and promotions regardless of the store and regardless of whether the employee is paid hourly or on salary. Wal-Mart claims that the operations of each of its 3400 stores, and indeed, certain departments within the stores, are largely autonomous. Wal-Mart believes that this autonomy means that each class member's experience would have been so markedly different that their claims cannot be factually similar. Wal-Mart also claims that this autonomy makes it impossible for the representative plaintiffs' claims to be typical of the claims of the rest of the purported class.

The confluence of two elements of Wal-Mart's employee practices was significant to the Court in deciding to certify the class. First, Wal-Mart store managers are granted substantial discretion in making salary and promotion decisions. Second, although Wal-Mart store policy explicitly requires managers to post job openings, roughly 80% of the openings were not, in fact, posted. These were not the only factors of importance to the judge. Indeed, Plaintiffs also presented statistical evidence that allowed the Court to infer the existence of widespread discrimination. But the statistical evidence had to be derived and was not taken directly from Wal-Mart's records, in part because of Wal-Mart's failure to adhere to its posting policy.

Managers' discretion can be useful in making personnel decisions, but training managers in it's appropriate use is a necessary prerequisite. Giving managers some say in decisions concerning pay and promotions is a common policy. Indeed, it is the managers who work most closely with the employees who are being considered for promotion and it is they who know those employees' relevant strengths and weaknesses. It is also true, however, that the more discretion managers are allowed, the less control the company can exercise in making personnel decisions. This can mean that managers may be more likely to make personnel decisions based on discriminatory animus, leaving the company open to discrimination suits. Companies should train their managers to make personnel decisions consistently and fairly. The training should stress that the company does not discrimination and any manager presumed to be making personnel decisions influenced by discrimination will be disciplined accordingly, up to and including termination.

By now, all employers know that they should have personnel policies but having them is not enough, employers must also be stringent in their adherence to those policies. Personnel polices are useful in laying out the confines of the employment relations and in setting each parties' expectations. The policies can serve as protection for employees, but they are also extremely useful to employers defending against employment law suits. Of course, such defenses are only successful if the employers actually follow their own policies. In the Wal-Mart decision, the Court sought to examine the Company's historical hiring practices to assess whether the Company had engaged in wide-spread discrimination. Wal-Mart had a policy requiring it to post internal job openings. Because it did not post internal openings and did not keep a record of the resultant applications, Wal-Mart had very little of such data and experts were forced to derive comparative statistics. The comparative statistics were sufficient to allow the court to infer discrimination for the purposes of class certification. Had Wal-Mart followed its own policy - posted the openings and kept a record of the applications-- Wal-Mart would have had its own statistics to bolster its defense and not have had to combat the court's perception that the records would have shown discrimination had they been kept.

Not every bad human resources choice results in one of the largest lawsuits in history, but good human resources decisions rarely do.


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