One can count on the fingers of two hands the number of employment-related class actions that have been tried to conclusion in the past decade. Practically speaking, victory or defeat in the class certification process casts the die for a corporation's exit strategy from class action litigation. (See sidebar.)

The ongoing Dukes, et al. vs. Wal-Mart Stores Inc. litigation is a case study for the current "hot issues" being pursued in high-stakes class actions.

The theories pursued in the Dukes litigation involve what are known as "glass ceiling/sticky floor" allegations of employment discrimination–that female employees are relegated to low-paying positions and are unable to be promoted into better-paying and higher-level managerial jobs.

The theory in the Dukes case is that the employer used uniform personnel policies across stores and regions that allowed male managers to exercise significant subjectivity in making pay and promotional decisions with little-to-no oversight by corporate headquarters.

This subjective decision-making process–so the theory goes–creates a common question capable of class certification because that subjective process was part of a consistent, companywide policy. Plaintiffs relied on expert testimony to hypothesize that the employer's corporate culture made managers "vulnerable" to gender-biased personnel decision-making.

These arguments manifest an aggressive approach by the plaintiffs' bar to establish the class-worthiness of claims stretching over multiple facilities with assertions that pay and promotion claims are readily susceptible to class-action treatment based on expert testimony that such claims are truly common and typical.

The current "hot issue" for damages is also typified by the Dukes litigation. The plaintiffs' theory is that the court may certify a class action for injunctive relief, back-pay and "class-wide punitive damages."

In essence, plaintiffs theorize that a court can impanel a jury and hold a single trial on the common issue of whether the defendant acted with intentional and/or reckless disregard for the rights of its employees to non-discriminatory treatment, and determine whether the alleged violation of those rights warrants imposition of punitive damages to the entire class.

To date, most courts have rejected this theory, but three rulings (in Illinois, Kansas and Oklahoma) have adopted that position as did the court in Dukes. These liability and damages issues are on appeal in the Dukes litigation at the U.S. Court of Appeals for the 9th Circuit.

The theories have spawned copy-cat class actions, and private plaintiffs' lawyers are pursuing these theories with vigor in high-stakes cases. Likewise, the U.S. Equal Employment Opportunity Commission is pushing the "punitive damages only" theory in several of its high-profile pattern or practice lawsuits.

The exposure to an employer under this theory is obviously devastating, and can place enormous pressure on a company to settle if it is facing a single trial on class-wide punitive damages.

Loss Control Options

While class actions present significant challenges, risk managers and corporate counsel have the means and opportunities to both assess and ameliorate class-action litigation exposures. Class actions ought never to come as a surprise, and proactive measures can reduce both the incidence and severity of class-action problems.

The most basic notice of a class action is an EEOC administrative charge containing systemic allegations where an employee or ex-employee seeks to champion a claim on behalf of him or herself and other "similarly situated" employees.

Aggressive defense and/or resolution of such systemic charges can eliminate the conditions from which class actions grow. Active involvement of corporate counsel and outside employment law counsel in the administrative phase of a charge is critical to keeping the lid on EEOC charges alleging systemic problems.

Rigorous analysis of available employment data is an additional device to identify class-action vulnerabilities. The statistics underlying the flow of applications, pay and promotion rates, and termination patterns can reveal the existence of statistically significant patterns of discrimination.

Corporate resources can be marshaled to address and mitigate those shortfalls through diversity initiatives and other corporate HR efforts. This is a double-edged sword, for employers that discover and are aware of problems and then do nothing to solve them are susceptible to claims for punitive damages where plaintiffs can argue that such conduct is reckless given the obligations of federal employment law.

Placing women and minorities on a realistic path to success in designing and implementing diversity initiatives is critical, as is validating the HR processes for pay, promotions and employment testing.

The stakes in class-action litigation are immense. Sophisticated plaintiffs' lawyers are migrating to this area and more and more corporations are finding themselves targets of class-action litigation. Proactive assessments of vulnerabilities–and efforts to address those vulnerabilities–are now more important than ever before.

Gerald L. Maatman Jr. is a partner with Seyfarth Shaw LLP in Chicago.

Sidebar:

Flag: Buyer Primer

Head: How Do Class Actions Work?

Class actions may be brought in state or federal court. A plaintiff's lawyer typically files a lawsuit on behalf of one or a handful of parties who request that the case be "certified" as a class action.

Plaintiffs seeking to prosecute class actions must fulfill certain requirements to secure class certification. Known as the Rule 23 requirements, these elements are:

o Numerosity: The plaintiff must establish that the size of the proposed class is so numerous that individual lawsuits would be impractical. There is no "magic number" for the threshold required–classes as small as 14 have been certified, while classes as large as 92 have been held to be too small to warrant certification.

o Commonality: The plaintiff must show that his or her claims are "common" in that they present an issue which cuts uniformly across all class members.

o Typicality: The plaintiff bringing the class action must show that his or her claims are typical of the claims of proposed class members.

o Adequacy of Representation: The plaintiff must show both that he or she is an adequate representative of the class and that the plaintiffs' lawyer is fit to serve as counsel to the class.