By Gerald L. Maatman, Jr. and David Ross

Our Annual Workplace Class Action Report analyzes the top ten settlements each year in various categories of complex workplace litigation, including employment discrimination, wage & hour, ERISA, and governmental enforcement litigation. As analyzed in Chapter 2 of our Annual Reports, employment discrimination settlements have waned since Rule 23 certification standards were heightened with the U.S. Supreme Court’s ruling in 2011 in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).

In 2010, the last year prior to Dukes, the top ten employment discrimination settlement totaled $346 million. Conversely, in 2012, the first year after Dukes, the top ten employment discrimination settlements totaled $45 million. Clearly, employers have been more successful in opposing employment discrimination class actions, and to the extent they settle such litigation, they are doing so for fewer dollars.

As we have blogged about previously here and here, the Seventh Circuit’s decision in McReynolds, et al. v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012), is a head-scratcher in the post-Dukes world. Many see McReynolds as an aberration, where certification of a narrow “issue” class on liability only under Rule 23 (c)(4) runs contrary to the teachings of Dukes.

In McReynolds, a decision authored by Judge Richard Posner, the Seventh Circuit reversed the district court’s decision to deny certification of a race discrimination class claim challenging the impact of two Merrill Lynch policies — one that allowed brokers to decide to work in “teams” and one that suggested success-based criteria for distribution of departing brokers’ accounts — even though managers had discretion regarding implementation of both policies. In permitting such a class certification theory, the Seventh Circuit drew a fine distinction between the situation that gave rise to the Supreme Court’s decision in Wal-Mart and the one before the Seventh Circuit. According to Judge Posner, the only “company-wide” policies at issue in Wal-Mart forbade discrimination and delegated employment decisions to local managers. In McReynolds, by contrast, Judge Posner reasoned that “company-wide” policies permitted individuals to exercise discretion in a certain way — a way that, according to plaintiffs, caused the alleged disparate impact on African-American employees.

Now, a year later, plaintiffs’ counsel announced yesterday that the litigation had been settled for $160 million. The settlement terms and pleadings are due for presentation and filing in September to the U.S. District Court for the Northern District of Illinois. Once the public record filing takes place, the size of the settlement class and the pay-outs per class member, the attorneys’ fees award, and the agreed upon programmatic relief will become known.

While McReynolds is an aberrational ruling in Rule 23 case law, the settlement shows how Judge Posner’s decision drove the metrics of the settlement. Given the prospect of a trial on the narrow disparate impact liability only issues per the Seventh Circuit’s order, Judge Posner’s ruling shows how certification of any aspect of the litigation – even a narrow issue unrelated to damages – drives litigation and settlement decision-making by litigants.

So where does the $160 million settlement rank? It is right up there and appears to be one of the six largest in recent history (the other “top ten” are set out below for context) and the third largest race discrimination class action settlement.

1. $250 million – Arnett v. California Public Employees’ Retirement System, Case No.: 95-3022 (N.D. Cal. Jan. 29, 2003) (approval given to consent decree in a lawsuit involving charges that the employer discriminated against public safety officers who took disability retirements on the basis of age).

2. $240 million – Kraszewksi v. State Farm, Case No.: 79-CV-1261 (N.D. Cal. Jan. 13, 1988) (approval given to consent decree in a long-running sex discrimination lawsuit involving female employees alleging that the company discriminated against them in recruitment, hiring, job assignment, training and termination).

3. $192.5 million – Abdallah v. The Coca-Cola Co., Case No.: 98-CV-3679 (N.D. Ga. June 7, 2001) (approval given to consent decree involving class action brought on behalf of salaried African-American employees alleging race discrimination consisting of systemic discrimination in promotions, compensation, and performance evaluations).

4. $175 million – Velez, et al. v. Novartis, Case No.: 04-CV-9194 (S.D.N.Y. July 14, 2010) (preliminary approval granted to settlement of a nationwide class action accusing the employer of discriminating against 5,600 current and former female sales representatives in pay and promotions).

5. $172 million – Roberts v. Texaco, Case No.: 94-2015 (S.D.N.Y. July 29, 1997) (approval given to settlement in a lawsuit involving systemic race discrimination lawsuit).

6. $132.5 million – Haynes v. Shoney’s, Inc., Case No.: 89-30093 (N.D. Fla. Jan. 25, 1993) (approval given to consent decree in a race discrimination lawsuit brought in 1989 by a class of African-American employees).

7. $89.5 million – Lane v. Hughes Aircraft Co., Case No. S059064 (Cal. S. Ct. Mar. 6, 2000) (approval granted to settlement of race discrimination class action lawsuit).

8. $81.5 million – Shores v. Publix Super Markets, Inc., Case No.: 95-CV-1162 (M.D. Fla. May 23, 1997) (final approval given to a consent decree in a class action involving sex discrimination claims that the employer had discriminated against female employees in job assignments, promotions, allocation of hours and full-time work, and otherwise limited advancement, pay, and employment opportunities for women at stores in Florida and the Southeast).

9. $80 million – McReynolds, et al. v. Sodexho Marriott Services, Inc., Case No.: 01-CV-510 (D.D.C. Aug. 10, 2005) (settlement of class action filed by African-American employees alleging discriminatory promotion and pay policies and practices).

10. $72.5 million – Beck, et al. v. Boeing Co., Case No.: 00-CV-0301 (W.D. Wash. July 16, 2004) (settlement of Title VII class action alleging gender discrimination in pay, promotions, and other conditions of employment of 29,000 female employees).

Implications For Employers

McReynolds is the largest post-Dukes employment discrimination class action settlement to date.

Plaintiffs are apt to point to it as a reason for employers to pay more to settle class actions, whereas employers will appropriately distinguish the settlement as driven by Judge Posner’s ruling, which is inconsistent with Dukes and the developing case law since the Supreme Court’s decision on Rule 23 standards in 2011.

Stay tuned.