Microsoft Pay-Equity Case Raises Contentious Issues

SHRM supports manager discretion in performance evaluations and pay practices

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A group of women who worked for Microsoft are challenging a district judge's decision not to let them proceed with a class action asserting nationwide gender-discrimination claims. 

The plaintiffs alleged that Microsoft had a "continuing policy, pattern and practice of sex discrimination against female employees in technical and engineering roles … with respect to performance evaluations, pay, promotions, and other terms and conditions of employment." They sought to bring a class action on behalf of about 8,000 female workers.

Judge James Robart of the U.S. District Court for the Western District of Washington denied class certification—meaning that the plaintiffs will have to bring individual claims if his ruling is upheld.

Relying on the Supreme Court's 2011 ruling in Wal-Mart Stores Inc. v. Dukes, Robart found that the employees could not establish that Microsoft had a common discriminatory pay policy, because the pay policy at issue was administered by hundreds of supervisors who had discretion over how they applied it. The Microsoft plaintiffs appealed the decision to the 9th U.S. Circuit Court of Appeal.

The Dukes Decision

Dukes will be key in the appellate court's evaluation, noted Brandon Takahashi, an attorney with Hinshaw & Culbertson in Los Angeles. In Dukes, female Walmart greeters alleged that the retail giant's nationwide policies led to lower pay for women than for men and longer waiting periods for women to be promoted. They sought to represent a class of more than a million women.

The Supreme Court found that class certification wasn't appropriate. The reason for a particular employment decision is the core dispute in a claim brought under Title VII of the Civil Rights Act of 1964, the high court said. Yet the Dukes plaintiffs wanted to sue for millions of employment decisions at once. "Without some glue holding together the alleged reasons for those decisions, it will be impossible to say that examination of all the class members' claims will produce a common answer to the crucial discrimination question," the court reasoned.

Plaintiffs may have a difficult time certifying a class unless they can show that a blanket discriminatory policy or practice—or the decisions of "one bad actor"—affected many employees, Takahashi said. The court has to look at individual variables for each manager's decisions on pay and promotions.

SHRM Supports Ruling

The Society for Human Resource Management (SHRM) filed a friend-of-the court brief with the 9th Circuit in support of Robart's order denying class certification in the Microsoft case. "Far from being suspect, individualized discretionary decision-making is a best human resources practice," according to the brief.

Large organizations in the U.S. rely heavily on many managers to exercise individual judgment when making personnel decisions because that input is "necessary, valuable and reliable," SHRM said, noting that "it is neither surprising nor troublesome that, as Judge Robart found … Microsoft relies on direct managers to make pay and promotion decisions, focusing on factors necessary to the success of their department."

[SHRM members-only toolkit: Managing Pay Equity]

Many employers use an employee performance appraisal system when making pay and promotion decisions. "The reasons to rely on direct supervisors to evaluate performance are obvious," SHRM said. Direct supervisors usually are in the best position to observe employees' performance and are responsible for their work, SHRM said.

Class Standard

Class actions are considered an exception to the general rule that litigation should be brought on behalf of the people who are actually parties to the lawsuit. For a court to certify a class action, the plaintiffs must show that:

  • The class is so large that making all the class members named parties to the lawsuit isn't practical.
  • There are legal or factual questions that are common to the class.
  • The claims or defenses of the representative parties are typical of the claims or defenses of the class.
  • The representative parties will fairly and adequately protect the interests of the class.

In determining commonality, the plaintiffs must pose a common question that "will connect many individual promotional decisions to their claim for class relief," according to Supreme Court precedent. The plaintiffs must be able to produce a common answer to a critical question: "Why was I disfavored?"

Scott Cruz, an attorney with Clark Hill in Chicago, noted that not every company has thousands of supervisors who make independent discretionary decisions regarding their subordinates. That's the crux of the district court's decision in the Microsoft case. 

"Most companies have a few supervisors, who are guided by strict pay criteria that does not offer much discretionary authority," he said. "This has the potential to give rise to a stronger argument of a common pay policy that has a discriminatory effect."

Conduct a Review

"In today's environment, employers should expect to see many more gender-wage-gap claims turn into high-stakes lawsuits," said Sonya Rosenberg, an attorney with Neal, Gerber & Eisenberg in Chicago. While Microsoft was able to defeat certification at the district court level, the issue is now in front of the employee-friendly 9th Circuit, which could reverse the lower court's decision, she said.

Employers should review their hiring and compensation practices to determine if they may unintentionally cause a disparity based on a protected characteristic, such as gender or race, Cruz said.

"Employers would be best advised to self-audit their pay practices now and take appropriate corrective steps to address any existing pay discrepancies before they turn into serious legal or reputational issues," Rosenberg said.

[Visit SHRM's resource page on pay equity.]

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