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After nine months of deliberation, a California federal appellate court upheld a 2004 federal-court ruling granting class-action status to a lawsuit alleging Wal-Mart engaged in systemic gender discrimination in pay and promotions. Now the lawsuit, initially filed by six women in 2001, could involve up to 1.6 million former and current employees--and the potential damages are formidable.

It could cost Wal-Mart billions in litigation and related fees, not to mention damaged brand reputation. What are the legal implications of this ruling, and what's Wal-Mart's defense?

What's Going On?

In 2001, six former Wal-Mart employees filed a lawsuit against the company, alleging systemic gender-based discrimination in pay and promotions for hourly associates and salaried employees in violation of Title VII of the 1964 Civil Rights Act. Two years later, the plaintiffs moved to certify a national class of women reporting similar experiences, which the U.S. District Court for the Northern District of California approved in 2004.

To qualify for class-action status, plaintiffs must meet four requirements:

·            Numerosity--class is so numerous that joinder of all members is impracticable

·            Commonality--there are questions of law or fact common to the class

·            Typicality--the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

·            Adequacy--representative parties will fairly and adequately protect the interests of the class

Wal-Mart appealed, arguing its case before an appellate court in 2005. Yesterday, the San Francisco Ninth Circuit Court of Appeals delivered its 2-1 ruling upholding class-action status for the lawsuit, which encompasses all current and former employees from December 1998 to the present, excluding senior managers and pharmacy workers. Why did the appellate court reject Wal-Mart's appeal?

"Plaintiff's expert opinions, factual evidence, statistical evidence and anecdotal evidence present significant proof of a corporate policy of discrimination and support plaintiff's contention that female employees nationwide were subjected to a common pattern and practice of discrimination," the court wrote. Read the opinion.

Plaintiffs presented evidence documenting 1.6 million women's discriminatory experiences in 184 stores (excluding corporate headquarters and distribution centers) in 30 states--expert and insider testimony, more than 1.2 million pages of documents from Wal-Mart's corporate files, 200 sworn depositions, electronic payroll data and anecdotal, factual and statistical evidence to support their claims. Learn more about the case on the plaintiffs' class-action web site. See statistical charts.

The Berkeley, Calif.-based Impact Fund, a nonprofit legal-strategy organization specializing in class-action law, coordinated the class-action suit. Executive Director Brad Seligman submits these claims are neither isolated nor localized but denote Wal-Mart's "legacy of treating women as second class."

The class-action proceeding involves two phases. Plaintiffs first argue their case and then Wal-Mart will have an opportunity to rebut. Should the court find evidence that indicates a pattern of systemic gender-based discrimination in pay and promotions, the trial will proceed to the second phase, in which plaintiffs seek redress.

Wal-Mart's Defense

Although class-action certification isn't a merit determinant, the ruling provides leverage for high-cost settlements, which adversely impact market share and corporate reputation. Seeking to minimize the hard and soft costs, Wal-Mart is proactively affirming its commitment to equal opportunity and plans to appeal to a larger panel, which it is entitled to do, that would issue a new decision.   

What's Wal-Mart's defense? The 1.6-million-member class-action suit is too big to give the retailer a realistic shot at self-defense, according to Wal-Mart attorneys. Also, the women's claims are not indicative of systemic discrimination, according to the company's internal review, which found women have wage parity and equivalent advancement opportunities to men in 90 percent of its stores. Wal-Mart wanted to allow mini class-action suits filed against individual stores, citing the autonomous nature of its business units and the likelihood that discriminatory practices, if they indeed were employed, reflect the management styles of unique units, not corporate-wide employment practice.

Who supports Wal-Mart? The U.S. Chamber of Commerce, the Employer Group, the Equal Employment Advisory Council, the Retail Industry Leaders Association and Washington Legal Foundation all filed amicus briefs on Wal-Mart's behalf.

Should the world's largest private employer be held accountable for practices within its individual business units? Martin's ruling says "yes," which has profound implications for how large corporations approach employment law.

Days before the ruling, the Equal Employment Opportunity Commission released its most recent charge statistics, which indicated an upsurge in claims for the first time in three years. Overall, sex-discrimination charges have decreased by about 1,000 since 1997 (23,247 in 2006) but still comprise 31 percent of all charges--second only to race-based claims with respect to its share of total charges filed under Title VII. Monetary benefits, however, are up from $72.5 million in 1997 to $99.1 million in 2006, excluding costs associated with litigation.

Wal-Mart's Commitment to Diversity

Wal-Mart, one of DiversityInc's 25 Noteworthy Companies in 2006, defends its commitment to diversity, arguing that the lawsuit ignores women who do get paid more than their male counterparts, the reasons certain jobs pay more than others, and Wal-Mart's comprehensive efforts to leverage diversity for strategic advantage.

According to its web site, "Wal-Mart will not tolerate discrimination in employment on the basis of race, color, age, sex, sexual orientation, religion, disability, ethnicity, national origin, marital status, veteran status, or any other legally-protected status."

Wal-Mart proactively issued a press release to this point. The statement, issued yesterday, emphasizes three key points in light of Martin's decision: Today's ruling has nothing to do with the merits of the claims; this is one step in a long process; and Wal-Mart is an equal-opportunity employer.

The company's web-site diversity section underscores the latter point and emphasizes Wal-Mart's commitment to transparency by providing EEO data, which it is not required to publicize, as well as an annual report on organizational and executive progress implementing and executing diversity goals.

Wal-Mart's third-party Career Preference System ensures equitable hiring and promotion processes for qualified hourly associates by pre-registering eligible candidates so they're immediately aware of new opportunities. The software currently is being implemented for hourly associates and then will be rolled out to management. The goal is to create one consistent system. Read the details.

What is Wal-Mart doing for its women?

·            Its 14-member board of directors includes three women.

·            Women comprise 60 percent of Wal-Mart associates and nearly 39 percent of managers.

·            CEO Lee Scott ties executive compensation to diversity. If corporate officers don't meet hiring and placement goals, bonuses are reduced by up to 15 percent. In 2006, all 297 officers and managers achieved their goals.

·            Wal-Mart conducts leadership-development programs, diversity training, seminars designed specifically for women and aggressive recruiting strategies within women's colleges.

·            On the forefront of efforts to promote diversity in the legal profession, the company refuses to do business with external firms that do not mirror its commitment.

·            Wal-Mart established an Employment Practices Advisory Panel of renowned experts to assist senior managers in developing and implementing diversity objectives.

Read Wal-Mart's diversity fact sheets for more on what the retailer is doing to empower women in its workplace, supplier community and society at large.

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