A wave of high-profile, class-action lawsuits and settlements this summer has raised allegations of race and sex discrimination in pay and promotion at some of the nation's best-known corporations, a list that expanded yesterday to include retailer Costco Wholesale Corp.
Last month, investment bank Morgan Stanley agreed to pay $54 million to settle claims that it underpaid and did not promote women. A few days later, aircraft manufacturer Boeing Co. agreed to pay up to $72.5 million to settle similar allegations. That same month, a group of black employees sued Eastman Kodak Co. accusing the company of systemic race discrimination, and an Alabama judge held a hearing on an ongoing race discrimination case against BellSouth Corp.
In June, a federal judge ruled that a sex-discrimination case against Wal-Mart Stores Inc., the nation's largest retailer, could proceed as a class action involving as many as 1.6 million women, although Wal-Mart has persuaded an appeals court to review the ruling. Gaithersburg food-service giant Sodexho Inc. is scheduled to go to trial in November over accusations that it failed to promote black managers.
The prominent cases are rooted, in part, in 1991 civil rights legislation that allowed victims of employment discrimination to seek punitive and compensatory damages, according to academics and lawyers who represent both employers and employees. The change makes such lawsuits potentially more lucrative for law firms, which have begun building the expertise to pursue them.
The discrimination cases come from all over the country and make a variety of claims, but some common threads run through them. The claims tend to focus on pay and promotion rather than hiring, they rely heavily on statistical evidence of race or sex disparities, and so far, most of them haven't gone to trial. In most cases, either the employer wins when a judge or an appeals court refuses to allow the case to go forward as a group action or the employees win when the class is certified and the two sides settle.
In a case filed yesterday in San Francisco, a Costco assistant warehouse manager alleged that the Issaquah, Wash., retailer did not announce openings for higher-paying managerial jobs, relying instead on a "tap on the shoulder" by top-level male executives to pick other men for higher-level positions. Although Costco's U.S. workforce of 78,000 is nearly 50 percent female, fewer than 1 in 6 senior managers are women, according to the lawsuit, which seeks to represent about 650 women.
Lead plaintiff Shirley "Rae" Ellis, who has worked for Costco for six years, said she was surprised when she started to feel discriminated against, "but it's surprising when you find out how few women are involved in the more senior ranks of companies. I don't think there are very many women in charge in this United States. It's unfortunate," she said.
Class-action employment claims make up only a small part of the 40,000-plus federal civil rights cases filed every year, and they are hard to track because they are filed all over the country. But federal statistics suggest that the actions have been climbing slowly over the past decade or so. In fiscal 2003, employees filed 76 federal class-action claims, only slightly more than the 74 filed in 2002, but more than double the 32 filed in 1991, according to the Administrative Office of the U.S. Courts.
"Courts have finally gotten around to looking at these larger issues, looking at larger companies," said Bill Lann Lee, a partner with Lieff Cabraser Heimann & Bernstein LLP who is involved in the Costco case.
In 1991, changes in discrimination law increased the potential financial payout and allowed plaintiffs to seek jury trials, which in turn made these cases attractive to a more sophisticated and wealthier group of lawyers. "Folks who had been doing securities litigation and toxic torts [like breast implants and chemical disasters] are noticing that there are green pastures in a new area," said Neal D. Mollen, a Washington partner at Paul Hastings who represents employers.
The plaintiffs' lawyers then used their money and experience to hire experts, pay for statistical analyses and develop new legal theories, academics said. They also have the deep pockets necessary for battling the country's biggest corporations for the years these class-action cases can take. Among the newly prominent players: securities litigation giant Milberg Weiss and the D.C. office of Cohen, Milstein, Hausfeld & Toll PLLC, which recruited Joseph M. Sellers from the Washington Lawyers' Committee for Civil Rights.
"It's a mix of business judgment and moral conviction that led the firm in this area" said Sellers, who represents Wal-Mart employees. Class-action cases "are the product, at least in my firm, of years of investigation and cultivation. For every complaint we receive, we turn 90 percent of them down."
That selectivity, along with changes by employers, have led to a shift away from hiring-discrimination cases toward cases about on-the-job problems, such as pay, promotion, harassment and pregnancy leave. Part of the change represents progress -- most employers, with a few exceptions, are well aware they cannot exclude whole groups from hiring -- but it also reflects new issues erupting in a diverse workplace.
"The days of segregated workplaces and 'Irish need not apply' signs are gone . . . but as the blatant discrimination decreased, we've seen other areas, like harassment, increase," said Eric S. Dreiband, general counsel of the U.S. Equal Employment Opportunity Commission, which enforces the civil rights laws.
Between 75,000 and 85,000 employees complain of discrimination each year to the EEOC, and the numbers historically rise during economic hard times because employees who feel discriminated against cannot easily find new jobs, analysts said.
Hiring cases have been traditionally hard to win, because the courts are uncomfortable with imposing anything that suggests a race or sex quota. By comparison, pay and promotion cases allow the claimants to focus on people who already work at a company but are receiving less money or fewer opportunities than co-workers doing similar jobs.
In the Costco case, Ellis, an assistant manager at a Douglas County, Colo., warehouse, claims she was promised rapid promotions at Costco and received glowing reviews but was repeatedly denied promotion to warehouse manager positions. She learned about many openings only after they were filled.
After Ellis filed a discrimination charge with the EEOC in 2002, the complaint alleges, she was retaliated against by Costco and transferred to a new warehouse far from her home.
"There is absolutely no system for promotion at Costco whatsoever," said Brad Seligman, lead counsel on the Wal-Mart case. "The decisions about who gets promoted at Costco are made by senior executives, who are all male."
Costco said company officials "strongly disagree with any claim that Costco has discriminated against any individual or group of employees, and we will respond to this particular claim in the proper forum."
Employers facing discrimination suits are feeling increasing pressure to settle the stronger cases. "Defendants have become enormously risk averse," said Stanford University law professor Deborah R. Hensler, who writes about class-action lawsuits. "There's this very small percentage of huge verdicts, and those verdicts can affect the stock market."
Lawyers for those claiming discrimination say part of the pressure to settle comes from the 1982 U.S. Supreme Court ruling that set the standards for class certification.
"You essentially have to prove your case to get it certified. Judges feel they have to take a very close look, and the Supreme Court told them to," said Kerry A. Scanlon, a Kaye Scholer partner who represents both employers and workers.
There are exceptions. Boeing refused to settle a race-discrimination suit filed by a group of Asian engineers, and a jury found for the company this summer.
Attorneys and employment groups have predicted that widespread publicity about the Wal-Mart case will spark more claims of discrimination and prompt employers to change behavior. Indeed, once the Wal-Mart case was filed, with its claims that men were favored for the many unannounced job openings at Wal-Mart, Costco began to post jobs for positions below the manager level, Seligman said.
"I think women in the retail industry are very conscious of Wal-Mart. The related question is how conscious are other companies," Seligman said. "That may well inspire a lot of people to come forward."