Put Up Your Dukes: Seventh Circuit Limits Class-Action Discrimination

June 21, 2011

The well-publicized gender discrimination case Dukes v. Wal-Mart is currently before the U.S. Supreme Court, awaiting a decision on the future of large class-action discrimination lawsuits against employers. Recently, the Seventh U.S. Circuit Court of Appeals (which covers Wisconsin) addressed a case involving many of the same issues presented in the Dukes case and ruled that employees cannot combine hundreds of dissimilar gender discrimination claims into one class-action lawsuit. Some observers believe the Seventh Circuit’s decision foreshadows a similar result from the Supreme Court.

Hundreds sue Rolls-Royce for gender discrimination
Five hundred female employees filed a gender discrimination lawsuit against Rolls-Royce under Title VII of the Civil Rights Act of 1964 and the Equal Pay Act alleging that Rolls-Royce discriminated against them in pay and promotions.

Rolls-Royce has a two-tier compensation structure for its employees. First, each position is classified under certain “compensation categories.” Rolls-Royce tells its employees that all jobs under a given category are “of equal value” to the company. Second, each position within a category is classified into a narrow range to account for prevailing market wages for that type of position.

Rolls-Royce authorizes supervisors to adjust base pay rates based on employee performance. As a result of its compensation structure, employees who fall under the same “compensation category” and are told that they hold positions “of equal value” receive different base wage rates depending on the type of job they perform.

The women sued Rolls-Royce based on that discrepancy, naming two supervisory employees as class representatives. The class claims were grounded on the assertion that in certain years, male employees within certain “compensation categories” earned more on average than female employees in the same category.

The female employees primarily sought monetary damages for back pay; however, they requested class certification under a procedural rule that allows a diverse group of plaintiffs to join together in one lawsuit if they seek injunctive relief. That procedural rule requires far less similarity between claims than a more stringent rule specifically designed to be used when class members primarily seek monetary relief.

The district court denied class certification and dismissed the class representatives’ claims on the merits, reasoning that their claims weren’t typical of the proposed class and there wasn’t sufficient proof that they were paid less than their equally qualified male counterparts. The Seventh Circuit affirmed, ruling that the class representatives failed to prove they were discriminated against and class certification was improper.

Pay disparity based on differences in jobs
The court of appeals ruled that the class representatives failed to prove that Rolls-Royce discriminated against women. The court noted that the company’s expert explained that the alleged pay discrepancy (calculated based on the average wage earned in each compensatory category) was due to the differences in jobs performed by men and women within each job category. That is, men were paid more on average because they worked in positions that commanded higher base wages.

The court stated that Rolls-Royce’s expert had demonstrated that there was no discrimination in pay when comparing men and women who performed the same jobs. The female employees couldn’t point to any male worker with the same qualifications and experience who held the same position and was paid more than a female worker. The court ruled that even though Rolls-Royce considered all jobs within a pay category to be of “equal worth” to the company,“ ‘comparable worth’ is not recognized as a theory on which to base a federal discrimination suit. Also, the female employees’ expert erroneously included recent hires in his calculations without bothering to examine the reason for their different starting wages.

Case would require 500 hearings on damages
After finding that the class representatives’ claims lacked merit, the court then addressed the class certification issue. The court agreed with Rolls-Royce that the class representatives weren’t “typical” of the class because they were high-level, highly compensated supervisory employees with jobs that weren’t “fungible” with other workers. Additionally, the evidence showed that the class representatives actually were paid more than their male counterparts on several occasions and were in fact promoted more rapidly than men. The court also concluded that the class representatives had a conflict of interest because they made pay and promotion decisions for many of the class members they supervised — the very decisions that were challenged in the lawsuit.

Next, the Seventh Circuit addressed the issue before the U.S. Supreme Court in the Dukes case and ruled that it’s improper for employees with different claims to seek class certification under Federal Rule of Civil Procedure 23(b)(2) when they primarily seek monetary damages, regardless of whether the damages are classified as “legal” or “equitable.” The court held that while monetary damages can be awarded in a suit under Rule 23(b)(2), certification under that rule is proper only if the employees’ primary claim is for injunctive relief and only if damages can be determined using a “mechanical computation” so that individual hearings aren’t required.

Because the class members had jobs falling under 20 different classifications and because Rolls-Royce didn’t have a fixed compensation schedule, the court stated that damages couldn’t be calculated on a classwide basis and it would need to hold 500 different hearings to determine each class member’s back pay. Under those circumstances, “[t]he monetary tail would be wagging the injunctive dog.” Thus, the court ruled that the employees should have sought certification under Rule 23(b)(3), which specifically allows workers to file a class action seeking primarily monetary relief but requires more similarity between class members’ claims. Randall v. Rolls-Royce Corporation, et al., No. 10-3446 (7th Cir., Mar. 30, 2011).

Bottom line
Although both this case and the Dukes case involve complex issues of federal court civil procedure, the basic question presented by both cases is the same: How big does a class action have to be and how different do the claims have to be before the class-action procedure becomes unfair to the employer? Each case involves a large class of employees in different job categories with different qualifications, different work experience, and different pay grades — all seeking to have a court rule on their case and award damages in a single action. In this case, the Seventh Circuit concluded that certifying such a large and diverse class would be unmanageable and unfair to employers.

In the Dukes case, the Ninth Circuit certified an even larger and more diverse class and ruled that the employees could estimate their damages using mathematical modeling so individual hearings wouldn’t be necessary. If the Supreme Court decides to side with Wal-Mart in the Dukes case, the Seventh Circuit’s opinion in Randall may provide a road map for its decision. In the meantime, the Randall decision shows that you can protect your company from large class-action discrimination claims by establishing clear criteria for making hiring, pay, and promotion decisions and ensuring that you have detailed documentation of all the variables and data used when the decisions are made.

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