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Virtually every business requires its supervisors to evaluate employees. The question that proponents of forced rankings systems frequently ask corporate management is this: How effective is the evaluation system if every employee receives a good evaluation? In other words, what is the purpose of evaluating employees if supervisors are reluctant to be candid, and marginal or poor performers get good marks? That problem is why many companies have adopted forced ranking systems. To make an evaluation process more effective, many notable corporations use or have used some form of forced ranking or forced distribution system. Each forced ranking system is unique, but in general it requires supervisors to evaluate employees and then to designate a certain number as superior, a larger number as average, and a smaller number as below average or in the needs improvement category. The finished product generally resembles a bell-shaped curve such as what the academic community uses to grade students. Jack Welch, former chief executive officer of General Electric, referred to it as the “vitality curve” in his first book, “Jack: Straight From the Gut.” Once the ranking process is complete, the rankings likely determine which employees are promoted, receive bonuses and pocket pay increases. Those ranked low, especially in consecutive evaluation periods, generally are terminated. The benefit of forced ranking systems is the elimination of unsatisfactory performers and an arguably constantly improving workforce, which may result in increased productivity and growth. The high achievers feel motivated and feel that they are in a company that will not tolerate dead weight. It can, however, also foster a competitive environment, one in which employees do not want to help those they will be ranked against. The biggest potential deterrent is suits, specifically, attempted large class-action suits alleging discriminatory disparate impact. Disparate impact is a legal claim challenging a practice that, although neutrally applied, may have a disproportionate impact on a statutorily protected group of employees. For instance, when groups of people are broken down into categories of superior, good and needs improvement, some people will fall in the bottom group and may feel that the process — and not their skill — was the cause. The largest number of suits filed involves claims against companies with forced ranking systems that allegedly were using them to weed out older workers. But employers who want to use forced ranking systems have a potent weapon against age discrimination plaintiffs: The majority of circuit courts of appeals have held, as the 5th U.S. Circuit Court of Appeals did in 2003′s Gruith v. City of Jackson, that a plaintiff cannot pursue a disparate impact claim under the Age Discrimination in Employment Act. But virtually all employment discrimination suits allege disparate treatment as well as disparate impact. Disparate treatment claims are the typical employment discrimination claims brought by individuals or as pattern and practice claims in a class action. Thus, what is or is not discussed by supervisors in a rating room becomes crucial. Specifically, rating room remarks could become direct evidence of discrimination if, for example, supervisors discuss training young managers to move the company to a new era or older, outmoded managers who are holding the company back in reference to an employee’s potential or lack thereof. In addition to discrimination claims, plaintiffs may allege that the ranking process can interfere with other protected rights, such as the Family and Medical Leave Act. For example, if an employee is on FMLA leave, but ranked the lowest among her peers, should she be terminated? Another issue is whether protected leave or a reasonable accommodation should be a factor in a ranking system. For instance, if an employee must work an alternative work schedule because he requested a reasonable accommodation under the Americans With Disabilities Act, how will supervisors rank him within the system? The issues that arise are not easy for in-house counsel to handle and, in some cases, must be addressed on an individual basis. The potential issues with forced rankings are similar to those associated with implementation of any evaluation process. Elements of subjectivity exist in rating and ranking all employees. Thus, although at least 20 percent of Fortune 500 companies find rankings useful and workable, in-house counsel must ensure the process is defined and implemented properly to avoid potential legal liability. To avoid problems, general counsel should pay particular attention to the following areas: 1. Use a system that requires a number of different supervisors to evaluate the employee. Use clearly defined criteria and consistent, clear forms that have been reviewed by management and approved by the general counsel. 2. Properly train evaluators to use performance evaluations and ranking systems effectively. 3. Publish criteria of what is being done and when it will be done so that employees are given fair notice of what the likely outcomes will be. If necessary, update personnel polices and employee handbooks. 4. Timely meet with employees to discuss the results of evaluations and ratings and their career impact. Issue performance improvement plans with clear areas of targeted improvement and the time for completion. 5. Set up an appeals process and consider incorporating it into any grievance process already in existence. 6. Consider the company’s overall diversity and/or affirmative-action plans or policies and how a forced ranking system may affect them. 7. Consider how a forced ranking system affects the overall company population including potentially protected groups of employees. Determine if any group will not be ranked (such as those on protected leave or working pursuant to a reasonable accommodation). Kim Moore is a partner in the labor and employment division of Strasburger & Price s new Collin County office. She is board certified in labor and employment law by the Texas Board of Legal Specialization. She handles all types of employment suits as well as prosecuting, defending and advising clients on employment-related issues including noncompetes, trade secret and executive compensation agreements. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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