Piper Hoffman

Rock the Boat
SEPTEMBER 22, 2011 3:04PM

Court in Costco Discrimination Case to Employers: Don't Figh

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Plaintiffs suing Costco for sex discrimination face another round of litigation thanks to the Supreme Court's recent dismissal of the Wal-Mart sex discrimination case. Because of the Supreme Court's decision, the Ninth Circuit Court of Appeals ruled on Friday that the Costco trial court must reconsider whether the plaintiffs can prove that the company should be liable for sex discrimination in store-level promotions. On this question the Court of Appeals, like the Supreme Court before it, ruled the wrong way, discouraging companies from implementing measures that would prevent discrimination.

 

When companies leave employment decisions like promotions to individual decision-makers without giving them clear, relevant criteria to guide their decisions, those decisions are often discriminatory, albeit sometimes unintentionally.  Many corporations, including Costco, provide no uniform criteria – or any guidance at all – for making promotion decisions. This leaves each individual manager (the vast majority of whom are male at Costco) to make promotion decisions as he sees fit. When making decisions with unfettered discretion, people tend to rely on stereotypes and to promote those they are most comfortable with and who are most like them – in short, in the absence of clear criteria, men usually promote men. Witness Costco's demographics: female lower-level managers at Costco are less likely to be promoted than their male counterparts. It appears that only two of Costco's top 34 executives are women. The problem is not a shortage of interested or qualified women: Costco's competitors have a much higher proportion of women in management than Costco does.

 

Companies can prevent this kind of discrimination. Sociological research shows that holding top management responsible for establishing and enforcing uniform, unbiased promotion criteria goes a long way. When companies provide managers with performance-related criteria for promotion decisions, managers can evaluate whether a candidate satisfies those criteria instead of making a gut-level decision based on personal relationship or other irrelevant factors.

 

Companies can also prevent sex discrimination in promotions by increasing the pool of candidates. When employees don't know promotions are available, managers may not even consider qualified women for the positions – they may not know them well, or may rely on stereotypes to conclude that they don't want promotions. The Costco case illustrates these consequences: the three women who sued desperately wanted promotions, but none of them ever applied for one – they couldn't, because Costco did not accept applications, and they never knew when promotions were available anyway. An easy fix is to inform employees of promotion opportunities and invite applications. Interested women will throw their hats in the ring and managers will evaluate them based on the relevant criteria, resulting in more promotions of women.

 

The courts in Costco and Wal-Mart ruled the wrong way because they discouraged companies from adopting these measures. They held that corporations are not liable in class actions for the discretionary decisions of individual managers, creating an incentive for companies to wash their hands of preventing discrimination in their ranks. The more anarchic the system for decisions about promotions and other perks – raises, bonuses, etc. – the more insulation the company has from discrimination class actions. The Costco decision quoted the Supreme Court's Wal-Mart ruling on this point: "demonstrating the invalidity of one manager's use of discretion will do nothing to demonstrate the invalidity of another's. A party seeking to [bring] a nationwide class [action] will be unable to show that all the employees' Title VII claims will in fact depend on the answers to common questions." In other words, if the only thing promotion decisions have in common is that managers make those decisions however they want, the company as a whole is not liable for resulting discrimination. In contrast, if the company disseminates guidelines for making promotion decisions that result in discrimination, the company can be held liable.

 

Smart companies will adopt best practices like enforcing uniform criteria for promotion decisions, both to retain and get the benefit of employing talented people and to avoid discrimination suits by individuals, which are not affected by the Wal-Mart and Costco decisions.

 

The Court of Appeals sent the Costco class action case back to the trial court for reconsideration, giving the plaintiffs another chance. But the trial court will labor under the higher court's instruction (again, quoting the Wal-Mart decision) that it "must determine whether there was 'significant proof that [Costco] operated under a general policy of discrimination.'" Proving that Costco operated under a general policy of laissez faire will not suffice to save this sex discrimination case.

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