The Great Debate of Employment Class Actions

Employment law specialist Jeffrey S. Klein. (Photo provided by Weil Gotshal)

The recent verdict against Novartis Pharmaceuticals Corp. in the sex discrimination class action brought by current and former Novartis employees has attracted a lot of attention; and justifiably so given the $250 million punitive damage award and how infrequently discrimination class actions go to trial.

But what is curious to us is the commentary from the pundits. The take away you see most often is that discrimination class actions cannot be tried, so companies better settle if the court certifies the class. While whether to try any case is a complicated calculus, and particularly difficult in class actions, such cases can be won. Without dissecting the Novartis trial record, it is impossible to conclude whether the trial strategy was ineffective or the facts were just so bad that victory was impossible under any circumstances.

To pause on the obvious for a moment, these cases require great skill and creativity on the defense side given the almost inevitable statistical disparities and the certainty of a dozen bad anecdotes in any company the size of Novartis.

The more interesting take away is the serious questions Novartis raises about how courts are prepared to deal with the trial of employment discrimination class actions. The Novartis court's handling of the trial sets up the great debate about trying these cases. These trials put at issue significant due process and fairness questions that implicate the rights both of defendants as well as absent class members. While such trials are infrequent at best, whether and how to try these cases impact whether a class can be certified at all.

To set the stage, here is a brief recap of the court's trial plan.

The class consisted of approximately 5,600 current and former female Novartis employees. At the trial, plaintiffs presented statistical evidence of gender disparities in earnings and promotions, as well as the testimony of 12 named plaintiffs, who related their experience at Novartis. Novartis took issue with the statistics and argued that much of the testimony of the 12 named plaintiffs was not credible, and in any event, amounted only to isolated incidents that did not prove a pattern or practice of discrimination.

After this testimony, the jury was asked to decide whether Novartis engaged in a "pattern or practice of intentional gender discrimination by" paying class members less than men, by failing to promote them while promoting "similarly situated male employees," and/or by treating pregnant class members "unfavorably with respect to the terms and conditions of their employment."

If the jury answered "yes" to all or any of these questions (and they answered "yes" as to all), then they were to determine: (1) the amount of compensatory damages for pain and suffering to be awarded to each of the 12 testifying named plaintiffs, and (2) whether punitive damages were appropriate. After finding a pattern or practice of intentional discrimination, the jury awarded compensatory damages for pain and suffering to the 12 testifying named plaintiffs in amounts ranging from $80,000 to $598,000.

They also determined that punitive damages should be "awarded to the Class as a whole." The jury was then told Novartis' net worth, heard summations on the punitive damage award, and rendered a punitive damages verdict of $250 million.

While the jury was deliberating on the pattern-or-practice issues, the judge heard evidence "relating to class-wide front and back pay awards," which are designed in the case of back-pay to compensate plaintiffs for any earnings disparities prior to the verdict, and in the case of front-pay to compensate former employees who were fired for compensation they would have received had they not been terminated and to compensate current employees who should have been promoted but were not.

After making these class-wide awards, the court plans to have a magistrate judge decide which class members can obtain awards from the "funds" that the trial judge intends to establish through these awards. But this would seem to ignore Novartis' right to establish a 'mixed motive" defense available with respect to any class member seeking to collect against these funds. Under 42 U.S.C. - 2000e-5(g)(2)(B), if the defendant establishes that it "would have taken the same action in the absence of the impermissible [discriminatory] motivating factor," then the plaintiff is not entitled to any monetary relief.

It is no answer that these claimants will be excluded from participating in the fund, because the very size of the fund is impacted (or should be impacted) by the number of claimants precluded from any monetary recovery on this ground.

Indeed, the very notion of a top-down construct of back- and front-pay funds is troubling. It assumes a uniformity of experience that typically has no basis in fact, even if there is a pattern or practice of discrimination. For example, this approach assumes that every woman was in fact subject to discrimination, even though the discrimination at issue was not a uniform policy that clearly applied to all women equally, but instead was allegedly excessive subjective decisionmaking by allegedly biased male managers.

By definition the 5,600 class members will experience this to different degrees, and it also is certain that some of the 5,600 class members were not discriminated against at all. Yet, class-wide funds are being established in a way that would appear to ignore this reality.

The Ninth Circuit adopted a similar approach in its recent en banc decision in Dukes v. Wal-Mart. The Second Circuit, where Novartis is pending, has not yet addressed this issue, so we expect this to be a significant issue on Novartis' appeal and in Wal-Mart's petition for a writ of certiorari.

The Novartis court would appear to take a similar class-wide award approach to punitive damages, because the jury established a common pool of $250 million, against which individual class members may file claims without any further jury awards. This raises serious questions under the Supreme Court's decision in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 422 (2003), which requires that punitive damages "have a nexus to the specific harm suffered by the plaintiff," as well as the dictates of Title VII itself, which allows punitive damages only if the employer discriminated "with malice or with reckless indifference to the federally protected rights of an aggrieved individual," 42 U.S.C. " 1981a(b)(1) (emphasis added).

For this reason, the Fifth and Seventh Circuits have held that punitive damages may not be awarded on a class-wide basis. Allison v. Citgo Petrol. Corp., 151 F.3d 402, 417-18 (5th Cir. 1998); Lemon v. Int'l Union, 216 F.3d 577, 580-81 (7th Cir. 2000). The Ninth Circuit's en banc decision in Dukes remanded this issue to the district court.