On March 30, the Seventh Circuit issued an important opinion blessing a district court’s decision to deny class certification in Randall, et al. v. Rolls-Royce Corporation, et al., No. 10-3446 (7th Cir. Mar. 30, 2011). Written by Judge Posner in his typical style, the decision is significant because it involves some of the same issues facing the U.S. Supreme Court in the gender discrimination class action against Wal-Mart heard last week. Some prognosticators believe Randall will be cited when the Supreme Court rules in Dukes, et al. v. Wal-Mart. It also speaks volumes about the important role statistical evidence plays in these types of cases, underscoring the need for employers to maintain robust compensation data systems.
In Randall, two named plaintiffs sought to represent a class of approximately 500 female employees of a manufacturing plant owned by Rolls-Royce in a Title VII and Equal Pay Act class action under Rule 23(b)(2), which permits certification of a class when “final injunctive relief or corresponding declaratory relief” is “appropriate” for the class as a whole. The interpretation of this Rule in cases seeking monetary relief is in play in Dukes, et al. v. Wal-Mart.
The pay system challenged by the plaintiffs in Randall was somewhat complicated. Rolls-Royce established a broad pay range for each class of employees it deemed of equal value to the company (“compensation categories”), which each include employees with different job titles and responsibility. The putative class was spread over five compensation categories. Recognizing that it must meet competition from other employers, Rolls-Royce created within each compensation category a “narrower range” based on prevailing market rates for each job in question. Further, although jobs within each compensation category were viewed of equal value to the company, they were not by the market; accordingly, Rolls-Royce then specified different levels of base pay for different jobs within a broad compensation category. The company also gave supervisors the power to make pay adjustments based on employee performance. According to the plaintiffs, the average base pay of male employees (prior to any additional pay for performance) in the pay grades at issue was about 5 percent greater than the average base pay for female employees in the same grades throughout the complaint period. They alleged that because performance adjustments were calculated as percentages of base pay, women were adversely affected.
The district court denied class certification, and subsequently granted Rolls-Royce’s motion for summary judgment. On plaintiffs’ appeal, the Seventh Circuit affirmed the denial of class certification because the named plaintiffs’ claims were not typical of the class, they were inadequate class representatives, monetary relief cannot be sought under Rule 23(b)(2), and deciding back pay would require individualized hearings.
On the first two issues, the Seventh Circuit recognized that in light of the complicated pay system, the class the plaintiffs sought to certify “sprawls over twenty different compensation grades,” including supervisory and non-supervisory positions and starting salaries ranging from $40,050 to $190,750. The claims of the named plaintiffs, who were both supervisors, were therefore not typical of class members and, in fact, were “significantly weaker [on the merits] than those of some (perhaps many) other class members. . . .” Given that the named plaintiffs have supervisory responsibilities – including making compensation decisions – the Seventh Circuit found that they were inadequate class representatives because they had a conflict of interest with other class members. Indeed, the Seventh Circuit recognized that there was evidence that the named plaintiffs themselves were involved in making decisions concerning the alleged discriminatory pay decisions that motivated the lawsuit in the first place!
On the Rule 23(b)(2) and monetary relief issues, the Seventh Circuit explained that it is easier for a named plaintiff to meet the adequacy requirement where injunctive relief is sought because usually, there is less variation in the relief sought for the members of the class than when damages are in play. Judge Posner then stated – and this is where Dukes, et al. v. Wal-Mart potentially looms: “But that’s not what they’re seeking, exclusively or even mainly; and indeed this isn’t a proper Rule 23(b)(2) suit. Class action lawyers like to sue under that provision because it is less demanding, in a variety of ways, than Rule 23(b)(3) suits, which usually are the only available alternative.” Judge Posner further explained: “How far Rule 23(b)(2) can be stretched is the issue in the gigantic class action against Wal-Mart . . . now before the Supreme Court. The present case is not as big a stretch, but it is big enough.” Ultimately the court concluded that “[c]alculating the amount of back pay . . . would require 500 separate hearings” and therefore, “[t]he monetary tail would be wagging the injunctive dog” if the suit proceeded as a class action.
The Seventh Circuit also discussed the relative strengths of the parties’ expert evidence, which is also important for future litigation of class action claims. Employers should review documentation of their compensation decisions to ensure that this documentation clearly captures the variables determining compensation and tracks hiring and promotion decisions. In Randall, the named plaintiffs’ expert’s data analysis was criticized because it erroneously included in the comparison employees who were hired after the beginning of the complaint period. Moreover, the defendants’ expert was able to demonstrate that by accounting for differences in the jobs performed by male and female employees in each compensation grade, the sex-correlated differences that the plaintiffs’ expert had identified disappeared. Therefore, in the event of litigation, an employer will need not only a clearly articulated compensation policy or procedure, but also data points for the variables determining compensation.
The result in this decision underscores the notion that employers should plan for what information and data will be needed to defend a claim, and to ensure that this information and data is collected and maintained.