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In the wake of the recent high-profile cases filed against Wall Street brokerage firms and other financial institutions, employers in the financial industry are particularly vulnerable to lawsuits alleging sexual harassment and gender discrimination. This article briefly examines why financial institutions have been the target of such lawsuits, the implications that the recent cases have for financial employers and the preventative steps employers can take to reduce their liability. The Equal Employment Opportunity Commission (EEOC), the federal administrative agency that regulates discrimination in the workplace, currently reports that men hold four out of every five executive management positions in the securities industry. In addition, 70% of investment bankers, traders and brokers are reportedly men. Significantly, women held 43% of all jobs in the securities industry in 1999, but in 2003 they held only 37% of those jobs. In comparison, women represent 48% of the work force generally. These statistics partially indicate why plaintiffs are targeting financial institutions for sexual harassment and gender discrimination. The statistics are particularly damaging in gender-equity cases, which can be based almost entirely on statistical evidence. In the late 1990s, two high-profile class actions were brought against financial institutions. The first case was brought against Smith Barney and included a class of more than 20,000 current and former female employees of the company. The plaintiffs alleged that they were subject to a hostile work environment. A hostile work environment claim hinges on the fact that speech or conduct is “severe or pervasive” enough to create a hostile or abusive work environment. The Smith Barney class alleged that male employees at the company ran a “boom boom room” in one of the company’s offices. The class claimed that a toilet seat was hung from the ceiling, male employees drank Bloody Marys from a barrel and women were subjected to lewd pranks in the “boom boom room.” Smith Barney settled the case by agreeing to allow female employees of the company to bring claims before a selected arbitrator. The most recent arbitrations stemming from the Smith Barney settlement took place in July 2004. In one of these arbitrations, Deborah Paulhus, a former broker at Smith Barney, alleged that her branch manager was nicknamed “Shake’em and Bake’em” because he shimmied his body up against female employees. Susan Antilla, “In the Companies of Men: A Rash of Gender Discrimination Suits Suggest the Morgan Stanley Payout May Be Only the Beginning,” New York mag., Aug. 9, 2004, at 11. In contrast to her allegations, Paulhus’ former manager testified that he got his nickname for his favorite sports chant. In the other arbitration, Neill Sites, a former Smith Barney division broker based in Atlanta, alleged that she was excluded from dozens of important meetings with company analysts. Id. It is estimated that the company could pay a total of $245 million in claims. The second highly publicized class action was brought by a class of 2,500 female brokers against Merrill Lynch. The class alleged discrimination in wages, promotions, pregnancy leave and other conditions of employment. Following Smith Barney’s lead, Merrill Lynch settled the case by implementing a process for all members of the class to pursue their claims against the company through mediation, and if that failed, binding arbitration. In April 2004, Hydie Sumner, a member of the class, was awarded $2.2 million by an arbitrator. Notably, Sumner presented statistical evidence to show that Merrill Lynch engaged in a pattern and practice of discrimination. SEC’s arbitration ruling Before 1999, all brokers and other Wall Street employees were required to sign an arbitration agreement as a condition of receiving their license. In this agreement, the employees agreed to resolve any and all employment disputes in arbitration before the National Association of Securities Dealers. NASD arbitrations are closed-door negotiations that do not create a public record. As a result, with the exception of class actions, which were exempt from mandatory arbitration, few lawsuits were brought charging Wall Street financial institutions with sexual harassment and gender discrimination. By handling discrimination lawsuits in a private forum, Wall Street firms also avoided the media coverage afforded other large employers sued for discrimination. In 1999, however, the Securities and Exchange Commission (SEC) approved an NASD amendment that provides that Wall Street employees cannot be forced to arbitrate their civil rights claims, including sexual harassment and gender discrimination. See NASD Rule 10201, available at www.nasd.com/stellent/idcplg?IdcService=SS_GET_PAGE&nodeId=895&ssSourceNodeId=537. Following the SEC’s ruling, Allison Schieffelin, as an individual plaintiff, and the EEOC, representing a class of women, sued Morgan Stanley in federal court. Schieffelin, whose last salary at Morgan Stanley was more than $2 million per year, alleged she was terminated due to discrimination. The EEOC alleged that Morgan Stanley had a pattern and practice of discriminating against women in pay and promotions. The Morgan Stanley case differs significantly from its predecessors. Many of the plaintiffs in the case made millions per year at Morgan Stanley. Millionaires are not typical plaintiffs in these types of cases. In addition, the class was comprised of all the women working for Morgan Stanley in its Northeast Institutional Equity Division. The class was not limited by job classification, office location or whether someone held a supervisory position. The result was a very broad class of employees. The Morgan Stanley case is also different because of the sweeping evidence the court agreed to admit. For example, the social science evidence the court agreed to admit included general studies on how stereotypes affect personnel decisions and policies to create barriers for career advancement. These studies did not include any firsthand assessments of Morgan Stanley’s policies. Finally, evidence of Morgan Stanley’s equal employment opportunity (EEO) policies was not enough to minimize gender bias. This past July, the Morgan Stanley case was settled for an estimated $54 million on the morning that the trial was scheduled to begin. Schieffelin, the individual plaintiff, received $12 million of the settlement amount. The settlement earmarked $2 million to be spent on diversity training programs and initiatives at Morgan Stanley over the next three years. Following the settlement trend of the Smith Barney and Merrill Lynch cases, the class of more than 340 women will have an opportunity to present their claims to an arbitrator and receive benefits. In a break from the previous settlements, however, Morgan Stanley agreed to set aside a finite amount, $40 million, to be divided by the arbitrators among the claimants in the class. It is likely that this will substantially reduce the amount Morgan Stanley will pay in claims from the estimated amounts to be paid by Smith Barney and Merrill Lynch. The Morgan Stanley case and its predecessors have several implications for the financial industry going forward. First, it is likely that the EEOC will continue to bring sexual harassment and gender discrimination lawsuits against employers in the financial industry. Second, it is likely that private gender discrimination lawsuits involving individual plaintiffs will increase. Third, the use of statistical and social science studies in single-plaintiff cases, such as the evidence used by Schieffelin in the Morgan Stanley case, is likely to increase. Fourth, the evidence used in these cases might be applied to race claims and claims based on any of the other protected discrimination categories. Most importantly, implementing standard EEO policies may not be enough to defend sufficiently these claims in the future. Risks of trying such cases A survey of more than 16,000 civil jurors conducted by Daniel Gallipeau, president of Dispute Dynamics Inc. provides information about the average juror’s approach to lawsuits involving large corporations and sexual harassment. See Daniel R. Gallipeau, “Choosing the Jury: Do’s and Don’t's for Voir Dire and Jury Selection,” Advanced Employment Law and Litigation (Dec. 5, 1996), WL SB31 ALI-ABA 333. The following examples provide insight into the current state of civil juries: First, 72% of civil jurors surveyed believe that an important function of juries in the United States is to send messages to organizations to improve their behavior. Second, more than 60% of civil jurors surveyed believe that large companies will lie to win a lawsuit. Third, 88% of civil jurors surveyed would tend to believe an employee’s allegations, over an organization’s contentions, related to a dispute between the employee and the organization. Fourth, 60% of civil jurors surveyed are open to awarding punitive damages. Fifth, approximately 72% of civil jurors surveyed consider sexual harassment to be a common occurrence in the workplace and more than 65% of civil jurors surveyed believe that most organizations do not enforce their policies regarding harassment strictly. Finally, 75% of civil jurors surveyed would tend to believe a woman who alleges she has been sexually harassed at work. In light of these statistics, employers are at a disadvantage before opening statements are made in a sexual harassment or gender discrimination trial. In addition, juries may not hesitate to award punitive damages to plaintiffs in these cases. These statistics, coupled with the sexual harassment and gender discrimination lawsuits brought against employers in the financial industry recently, create a landscape where financial employers are particularly vulnerable to these types of lawsuits. Ways to reduce risk By taking certain preventative measures, financial employers can reduce their risk of being sued for sexual harassment and gender discrimination. Employers in the financial industry should review their policies designed to prevent sexual harassment and promote equal opportunities in conjunction with legal counsel. The following preventative steps should be implemented by employers, with the help of legal counsel, in order to reduce the risk of being sued for sexual harassment and gender discrimination: At a minimum, employers should create and distribute a policy prohibiting sexual harassment and gender discrimination. Employers should establish reporting procedures for complaints of harassment and communicate these procedures to management and their staff. All managers should be required to attend sexual harassment training. Additionally, companies should establish an open-door policy. In addition to the minimum steps employers should take to reduce the risk of a lawsuit, there are several additional actions that will further insulate employers from risk. Employers should consider establishing flexible work arrangements and mentoring programs. Employers may also want to evaluate the networking and business development activities offered by the company, and do an in-house analysis of pay and promotion history. These last two steps will help the company evaluate its own performance in the area of equal employment opportunities and, specifically, gender equity. In conclusion, the most surefire way for employers in the financial industry to minimize their risk of being the target of a high-profile case similar to the ones discussed in this article is for them to ensure that women and minorities can and do succeed in the upper-level management ranks of their companies. Regardless of having anti-discrimination policies and training managers, until the percentage of women and minorities substantially increases in the highest levels of management, financial employers will continue to be highly prized targets for the arrows of plaintiffs and their attorneys.

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