Working To Rules: Giants reel from class action law

Discrimination lawsuits against US employers have exploded in the past 12 years, but it is only one area of litigation businesses face. Part 3 of a six-part series on the US workplace by KEVIN TAYLOR


University of Chicago law professor and well-known free-market thinker Richard Epstein has a one-word description of the latest "only in America" court case: lunacy.

He is referring to a lawsuit against the world's biggest retailer and America's largest private employer, Wal-Mart.

It seeks to establish a class of nearly 1.6 million current and former female employees alleging discrimination against women in training, promotion and pay.

The US courts have been asked to certify the case a nationwide class action, meaning the plaintiffs must show the same discriminatory practices occurred at 3244 Wal-Mart and Sam's Club stores throughout America.

The case could cost Wal-Mart hundreds of billions of dollars if a class action is certified and the plaintiffs win, including appeals.

The class action is being brought under Title VII of the landmark 1964 Civil Rights Act, which prohibits discrimination on the basis of race, colour, religion, sex, or nationality.

Wal-Mart is one of the most sued companies in America, attracting nearly 5000 lawsuits a year. The company estimates that at any given time it is defending nearly 9400 open cases.

But the massive class action it faces under Title VII is a real problem, according to Epstein, other lawyers, and business representatives.

Anti-discrimination cases are a growing industry. Efforts are being made to pass the Class Action Fairness Act in Congress, a move frustrated recently by a group of 39 Senators.

The New York Times reported in October that business groups had aggressively lobbied for the law, which would allow most class actions with at least 100 plaintiffs and where at least US$5 million was at stake, to be removed from state to federal courts.

The reason is that legal experts believe it offers a more favourable climate for business.

However, the newspaper slammed the law in an editorial as a "legislative gift to wealthy special interests" that was being put up under the phoney banner of 'tort reform". But such cases are clogging the courts.

Philadelphia lawyer Steven Wall manages a 220-strong employment law practice at Morgan Lewis, one of America's largest law firms.

He says that since the Civil Rights Act was amended in 1991 to allow jury trials in employment cases and compensatory and punitive damages, litigation has exploded.

Now, about a third of federal court civil cases are related to employment law.

Wall estimates 75 per cent of the cases his practice handles are related to discrimination - his firm represents companies - and most of the rest are claims of breaches of labour standards such as overtime rules.

He says two other factors have contributed to increased employment litigation.

They are the decline in unionisation (which provided an alternative mechanism for resolving grievances without going to court) and obsolete laws of the "New Deal" era of Franklin D. Roosevelt, which followed the Great Depression.

Another growing area of litigation is over wage and hour claims - governed by the Fair Labor Standards Act of 1938.

"Nobody envisaged at that time national chain stores and the problem of whether an assistant manager of a company like Wal-Mart should be paid overtime or not," Wall says.

The problem with huge discrimination class-actions is they are virtually impossible to defend - because the cost in financial, time and reputation terms is just "too extreme".

Public relations firm Brunswick Group, which handles PR strategies for companies facing lawsuits, has commissioned research showing the slump in company stock prices litigation can trigger. The company says such PR work is a growth area.

Wall says companies often settle if the courts characterise a lawsuit a national class action.

Epstein refers to them as "blunderbuss" cases and American businesses greet them with "incredible fear". He defends some in court.

He thinks the Wal-Mart case is being brought despite the company's decentralised hiring policies - a claim the plaintiffs are rubbishing.

Companies win most individual suits, Epstein says.

But in class actions, lawyers attempt to put all those individuals together and insist none of their decisions about why they took the job or left matters, and that there's some fatal policy change at the top which is common to all the individuals at the bottom.

"If they can prove that this top-down policy is corrupt then in effect they have won the entire anti-discrimination suit - and it's absolute lunacy.

"It's a feature of American law that as you solve serious social problems outside the courtroom, the litigation doesn't disappear - it becomes more intense."

Randel Johnson, vice-president of labour, immigration and employee benefits at the powerful US Chamber of Commerce, is constantly on the lookout for new laws that may create new avenues for businesses to be sued.

He says the jury trial system is crazy and big class actions like the Wal-Mart case drive chamber members to ask for change - although there's little sympathy out there for corporates.

Firms settle because of the cost of court fights and the bad publicity, he says, and that's why businesses are so concerned about new causes of action being created by politicians.

Despite all the complaints of business, Washington DC economist John Schmitt believes business would still rather have litigation than regulation.

Schmitt, who works at the left-leaning Centre for Economic and Policy Research, says the US is the "wild west" when it comes to workplace regulation.

That explains why there are so many court cases: they have filled the vacuum left by inadequate or non-existent law.

Regulation works to take issues out of the court arena, a point Wall reinforces when he cites the decline in unionisation being partly responsible for the rise in litigation.

Schmitt says anti-discrimination law is stronger than many other laws meant to protect workers, but it has still has not eliminated discrimination.

He cites a study by two University of Chicago economists, who answered a couple of thousand newspaper ads for jobs in a local newspaper.

The CVs were identical except the first names in half were different from the other half - and one name was a common black name.

"There was a 50 per cent higher response rate to the apparently white name versus the apparently black name."

Epstein has a solution many would regard as radical: repeal all anti-discrimination laws. Such legislation, he and other free-market promoters believe, has the opposite effect to what is intended.

On the race question, the way to avoid suits alleging race discrimination is to move a company to the suburbs, he says.

"So you get people moving businesses away from natural pools of black labour - it just creates all sorts of terrible disincentives."

* Kevin Taylor visited the US to study employment law after jointly winning the 2002 Business Roundtable Douglas Myers media scholarship.

COURT BATTLES

US employers fear class-action lawsuits that allege discrimination or overtime breaches. Many find it less costly in time, money and reputation to settle.

US business lobbyists complain about a "crazy" jury system that allows lay people to set damages.