Online exclusive: How to Protect Your Company From a Discrimination Class Action.

Within the space of four weeks this spring, decisions in three courts portended a more challenging class action landscape for employers to navigate in the years ahead.

The cases the courts addressed vary in substance, and the decisions are notable for completely different reasons. But all three potentially make employment class actions a more attractive target for the plaintiffs bar.

In the first decision, a divided en banc 9th Circuit substantially upheld class action certification for the largest class ever–1.5 million past and present female employees of Wal-Mart, who allege discrimination in pay and promotional opportunities. In doing so, it effectively opened the door for similar massive class actions against other large employers.

A federal court jury then startled the employment defense bar with an award of $3.36 million in compensatory damages to 12 named plaintiffs and $250 million in punitive damages to the entire class of 5,600 present and former female employees of Novartis Pharmaceutical Corp., who can also claim compensatory damages of their own. Plaintiffs attorneys said it was the largest ever class action discrimination award. The plaintiffs relied heavily on anecdotal information to make their case alleging unequal treatment in pay and promotions and adverse treatment after maternity leaves.

Finally, the Supreme Court ruled 9-0 for a class of 6,000 black Chicago firefighter candidates, who claimed disparate impact from a written hiring examination. The city had argued that the plaintiffs missed the deadline to qualify under Title VII’s 300-day statute of limitations. But the high court said an employment practice can be challenged as discriminatory not only when it is adopted, but also when it is applied, restarting the clock with each use of the test to fill openings.

Taken together, the three cases serve as a warning to employers to determine whether their policies and practices conform to the equal opportunity goals they espouse, and to examine how their employment data would hold up under a plaintiff’s expert witness analysis and anecdotal evidence.

“Do what you can to make yourself an uninviting target so people are less inclined to sue you,” says Ann Margaret Pointer, a partner at Fisher & Phillips. “Once in the target range, you need to use every resource to look at the facts and know what shape you are in.”

Dukes’ Hazards

The 9th Circuit’s April 26 decision in Dukes v. Wal-Mart was the first of the game-changing decisions. Essentially, the court made it easier for plaintiffs to certify a class and harder for the company to defend itself.

“The manner in which the court got to the decision to certify the class is disconcerting from an employer perspective,” says Angelique Lyons, a partner at Constangy, Brooks and Smith.

The court found that Wal-Mart had policies on equal opportunity, promotion and compensation that applied to every store and gave local store managers a great deal of discretion in determining who to hire and what to pay them. Because the corporate policies applied to all stores, the court said there was a common basis of fact to support a class action under Rule 23(a). While the local managers had discretion in applying the policies, the court said that granting such discretion lends itself to discrimination. “There is no way you could win that argument,” Lyons says.

Lyons finds that part of the decision “frightening” because most companies with more than one location operate that way. “As a company, you have to give discretion to local stores,” Lyons says. “Dukes says that doing so could lend itself to common facts and lead to class certification.”

Another part of the decision essentially robbed the defendant of its right to provide defenses to individual claims of discrimination, according to Paul DeCamp, a partner at Jackson Lewis. The court held that Wal-Mart’s rights would be protected by having the district court randomly select and try a small number of “sample cases” and then discount the award distributed to the class by the percentage of meritless cases in the sample.

“In essence it says this case is manageable [despite the huge size of the class] because we will deprive the company of its ability to defend itself,” DeCamp says.

The ruling ignores the Supreme Court’s 1977 decision in Teamsters v. United States, which established a process for the defendant “to demonstrate that the individual applicant was denied an employment opportunity for lawful reasons,” as well as creating a circuit split on other points. That makes it likely the high court will grant cert, should Wal-Mart appeal as expected, DeCamp says.

Bitter Pill

Should Dukes survive a Supreme Court review, or if the high court fails to take the case, the gates to massive class actions will open. Couple that with the staggering size of the May 19 jury award in the Federal District Court for the Southern District of New York in Velez v. Novartis Pharma Corp (which is likely to be reduced if the company appeals, as expected). At least in the short run, the two decisions likely will whet the plaintiffs bar’s appetite for discrimination class actions.

Velez highlights the dangers of putting a case with dramatic albeit anecdotal evidence before a jury. At the trial alleging discriminatory treatment in pay and promotions, one witness testified to being sexually assaulted at a company outing for doctors. She also said that when she reported the assault, her manager and a human relations representative criticized her and blamed her for the incident. Defense testimony about policies and procedures that put the pharmaceutical giant on Working Mother’s list of “best places to work” for the past decade paled in comparison.

“Anecdotal evidence will carry the day” in employment discrimination jury trials, according to Barbara Hoey, a shareholder at Littler Mendelson. “Yes, the jury will listen to statisticians; the jury will look hard at policies and procedures and the explanations experts give them about how evaluations are done. But you can’t underestimate the fact that jurors are people who have jobs, or people who once had jobs. They expect their employer will treat them with a certain degree of respect, and will be responsive to them when they have a problem.”

That last point–a plaintiff’s testimony that she complained about discrimination or abuse and got no response from the company–is particularly damning, Hoey adds. “The jury will punish the company, and that’s what you saw from the jury in the Novartis case.”

Fighting Fires

Lewis v. Chicago essentially opened up employers to more EEOC complaints and lawsuits by extending the time period for employees to file disparate impact charges. In the case, the six named plaintiffs filed EEOC charges more than 300 days after the alleged discriminatory act–the sorting of the test results of 26,000 applicants into “well-qualified,” “qualified” and “not qualified” categories, creating an eligibility list for future openings. But on May 24, the Supreme Court found that each time the city filled a new class of firefighters using the list it could be accused of engaging in an unlawful employment practice with disparate impact on a protected class.

While Lewis focused on an employment exam, other hiring criteria, such as requiring a bachelor’s degree, could be subject to a disparate impact claim under the new lenient time frame.

“In a Lewis-type situation, it’s a good idea to think about what the adverse consequences can be of what appears to be a good, new idea before leaping to embrace it,” says Pointer. “That means you have a thoughtful and informed approach to what your requirements are.”