The world's largest retailer didn't carry out the 1998 recommendations of a diversity task force and disbanded the panel, according to company memos, reports and depositions filed in the case. Two years later, Wal-Mart had a reduced percentage of female managers.
The chain of events may lead Bentonville, Arkansas-based Wal- Mart to settle the lawsuit out of court to avoid paying damages as the result of a trial, say employment lawyers not involved in the case. Losing at a trial may cost the company as much as $10 billion for back pay, punitive damages and raises, says California employment lawyer Morris Baller, 60, who isn't connected to the Wal-Mart lawsuit.
``Wal-Mart's chances of losing this at trial are very, very high,'' says Washington employment attorney Richard Seymour, 63, who has represented workers in cases including a racial discrimination suit against textiles-maker J.P. Stevens & Co. that settled for $20 million in 1995. ``An employer that knows or should have known that its officials have abused their authority over personnel matters to discriminate against women has an immediate duty to end the discrimination.''
Six current and former female employees filed the lawsuit in 2001 on behalf of all female Wal-Mart workers. About 60 percent of the company's 1.3 million U.S. employees are women.
A verdict costing $10 billion would almost equal the $10.3 billion in profit Wal-Mart reported for the fiscal year ended on Jan. 31, 2005, and would be the biggest U.S. sex-discrimination verdict ever.
Raising Prices
Wal-Mart says it hasn't engaged in gender discrimination. The company has appealed a June 2004 decision by U.S. District Judge Martin Jenkins in San Francisco to let the case proceed as a class action, in which plaintiffs are allowed to represent a wider group of individuals who have similar circumstances. The 9th U.S. Circuit Court of Appeals in San Francisco has scheduled oral arguments on the appeal for Aug. 8.
A settlement or judgment may force the retailer to pay higher wages to 60 percent of its U.S. workforce, lifting prices and reducing Wal-Mart sales and its share price, says investor Patricia Edwards of Wentworth, Hauser & Violich in Seattle. Wal- Mart shares fell 3.9 percent to $50.51 in the 12 months ended yesterday, while the Standard & Poor's 500 Index rose 10.3 percent.
``They'd have to raise prices to offset higher labor costs,'' says Edwards, who helps manage about $5.7 billion, including shares of Wal-Mart. A Wal-Mart decision last year to raise pay for hourly workers crimped its profit, Edwards says.
Settlements
The possibility for a settlement is already priced into the shares, says Todd Jones, an analyst with PNC Advisors in Philadelphia, which has $50 billion in assets, including 4.7 million shares of Wal-Mart. A $1 billion settlement that called for reimbursement of wages and no other action on pay would help boost the stock by resolving the issue, Jones says.
``It would be less of an overhang,'' he says.
A $1 billion settlement would represent less than half of the company's first-quarter net income of $2.46 billion.
Most civil lawsuits settle, and companies can lower the monetary amount by agreeing to change company policies or practices, Seymour says.
Wal-Mart spokesman Ray Bracy declined to discuss the possibility of a settlement. ``There is no merit in some of the claims being made,'' he says. Attorneys for the women wouldn't comment on the likelihood of a settlement.
Spurred Changes
The company declined to discuss any matters in the documents or in depositions in the case. The lawsuit, Dukes v. Wal-Mart, has spurred changes aimed at increasing diversity at Wal-Mart, says Charlyn Jarrells Porter, 41, senior vice president and chief diversity officer at the company.
``Clearly the Dukes case has put additional focus on this and caused us to move more quickly than we already were moving,'' she says. She declined to comment on whether Wal-Mart might have avoided a lawsuit by making changes sooner.
Those changes wouldn't have been made without the lawsuit, says attorney Joseph Sellers, of Cohen, Milstein, Hausfeld & Toll in Washington, who is representing the women suing Wal-Mart. ``Wal-Mart was sued many, many times for sex discrimination,'' says Sellers, 51. ``A case of this magnitude was required to force these changes.''
The documents include about 47,000 pages of depositions, or sworn statements in response to lawyers' questions, from current and former Wal-Mart employees taken from March 2002 to March 2003. Those depositions were submitted to the court by lawyers for the women as they sought approval to pursue the case as a class action.
Mentors
Wal-Mart also provided more than 3,000 exhibits, according to Cohen, Milstein.
Wal-Mart formed a diversity committee by 1996, company documents show. The committee created a task force to identify ways to ensure the development of female and racial-minority candidates deemed to have management potential, according to a March 25, 1998, memo to division heads from Francesca Spinelli, then vice president of organizational development for Wal-Mart.
The task force recommended in March 1998 that Wal-Mart begin a mentoring program, and it proposed a pilot initiative for the fiscal year ending Jan. 31, 2000, to ``consider means to modify the professional work environment,'' including options such as job sharing or reduced work weeks, Spinelli said in the memo. Four months later, Spinelli left Wal-Mart.
The mentoring and pilot programs were never carried out, and the diversity committee that included the task force was disbanded by January 1999, depositions of Wal-Mart executives show.
Assessment
Richard Drogin, emeritus statistics professor at California State University in Hayward, California, was hired by the plaintiffs and used data provided by Wal-Mart to compare pay of male and female workers. He said in court filings that female hourly workers in 2001 averaged $1,100 less per year than men and that female managers were paid an average of $14,500 less than men for the same job.
That may lead to an assessment totaling as much as $700 million a year in damages over the years that the lawsuit covers, 1998 to 2005, for a total of about $5 billion should the case go to trial and Wal-Mart lose, says attorney Baller, who represents workers in employment cases at the Oakland, California, firm of Goldstein, Demchak, Baller, Borgen & Dardarian.
Wal-Mart may be ordered to pay as much as $5 billion in punitive damages, he says, leading to a $10 billion judgment. Equalizing current pay for female hourly workers and managers will add costs, Baller says.
Other Cases
The largest U.S. class-action settlement involving employment discrimination was in 2000 and totaled $565 million, including interest, according to data compiled by Bloomberg. It ended a suit by 1,100 employees of the U.S. Information Agency and the Voice of America who claimed bias against women.
The biggest U.S. employment-discrimination jury verdict was $132 million in 2000 against Interstate Brands Corp. The award in the racial-bias case was shared by 21 workers.
The Wal-Mart lawsuit involves as many as 1.6 million current and former employees, meaning any payout from an out-of-court settlement or judgment at trial may be far larger.
Attorney William White, who represents companies in class- action lawsuits, says the evidence in the Wal-Mart case doesn't support the women's claim of discrimination.
Wal-Mart was trying to increase the percentage of women in management before the lawsuit, says White, of Los Angeles-based Hill Farrar & Burrill LLP, who represented U.S. Trust Corp. in New York, now part of San Francisco-based Charles Schwab Corp., in a consumer class-action case.
Female Managers
``I see a company that wants to improve,'' White says. ``I'm not seeing any evidence that illegality was being promoted or tolerated.''
The company would avoid class-action liability by winning its appeal at the 9th Circuit, which may reduce Wal-Mart's incentive to seek a settlement, White says.
The lawsuit alleges that women were paid less in management and hourly positions than men doing comparable work, without regard to experience or performance. The suit also claims women were blocked from promotions.
In 1997, 63.4 percent of all Wal-Mart workers and 32.4 percent of salaried managers were women, according to a company report on diversity. In the total U.S. retail workforce at the time, 55.7 percent of all workers and 38.6 percent of salaried managers were women, Wal-Mart said, citing data from the U.S. Equal Employment Opportunity Commission.
Pay Disparities
Bracy, the Wal-Mart spokesman, points to improvement since then in the percentage of women in management. By the fiscal year ended Jan. 31, 2005, 59.95 percent of Wal-Mart's workforce was female, and the percentage of women in management climbed to 38.25 percent, Bracy says. This was below the goal of 39.23 percent for female managers the company intended to reach two years earlier, according to an Oct. 2, 2001, Wal-Mart diversity report.
In deciding last year to let the Wal-Mart lawsuit proceed as a class action, Judge Jenkins ruled that the evidence showed pay disparities at the company.
``Plaintiffs present largely uncontested descriptive statistics which show that women working in Wal-Mart stores are paid less than men in every region, that pay disparities exist in most job categories, that the salary gap widens over time even for men and women hired into the same jobs at the same time, that women take longer to enter into management positions, and that the higher one looks in the organization the lower the percentage of women,'' Jenkins wrote.
Jenkins added that conclusions could not be reached from the disparities alone. ``Evidence that certain disparities exist, however, does not, by itself, explain why they exist,'' he wrote.
`Strengthens the Case'
The creation of a diversity panel is acknowledgement by Wal- Mart that the company was concerned it was discriminating, says William Gould, a former chairman of the National Labor Relations Board who teaches employment law at Stanford Law School in Palo Alto, California.
``They recognized that there was a problem here, and that's why they created this committee,'' says Gould, 68. ``But they didn't have the wherewithal or the interest to follow through or do something about it. It strengthens the plaintiff's case that it's about intentional as well as unintentional discrimination. I'm sure this has made them more interested in settling.''
The diversity committee was disbanded because it had served its purpose, Celia Swanson, a committee member and Wal-Mart's highest-ranking woman in 1998, said in a November 2002 deposition. ``We had established diversity and retention goals in all areas of the business,'' said Swanson, who is a Wal-Mart executive vice president in Bentonville.
Goals for Managers
Two years after the task force made its recommendations in 1998, the percentage of women in management had declined at the company, including its Sam's Club unit.
In February 2000, Coleman Peterson, then executive vice president of the division that handles personnel issues at Wal- Mart, wrote to other executives: ``Female management representation at Wal-Mart super centers, Sam's and logistics and, therefore, total company are worse than prior year.''
Wal-Mart had already set diversity goals for managers, which weren't part of the task force recommendations. Managers were asked to promote women, Peterson said in a deposition taken on Dec. 18, 2002. Peterson left Wal-Mart in April 2004 and is president and chief executive officer of Hollis Enterprises LLC, a Bentonville human resources consulting firm.
`Viewed as Quotas'
The women claim in their suit that Wal-Mart didn't require managers to meet diversity goals. Wal-Mart executives didn't agree on steps to enforce the objectives, Jeffrey Reeves, a former vice president for personnel at the company's Sam's Club unit, said in a January 2003 deposition.
Reeves said he recommended in 2000 that a portion of bonuses be tied to executives' meeting diversity goals. The proposal went nowhere, he said.
``They struggled with it being viewed as quotas,'' Reeves said in the deposition. ``I would say a lot was lip service.'' Reeves left Wal-Mart in September 2002, and has his own human resources consulting firm in Columbus, Ohio. He declined to comment for this article.
No executives were disciplined for failing to meet diversity goals, Jim Haworth, a former Wal-Mart executive vice president of operations, said in a Jan. 22, 2003, deposition. A regional vice president whose region had an 8 percent drop in the proportion of women in management and was rated on diversity as ``meets expectations,'' said Haworth, who left Wal-Mart in December 2004.
Posting Openings
No system existed to inform hourly workers about management trainee openings as of June 2001, the lawsuit says.
In June 2002, a year after the lawsuit was filed, Porter, the human resources executive who is now Wal-Mart's diversity chief, sent a memo to Kevin Harper, a vice president who handled personnel issues, saying, ``I need to get someone working immediately on a project of how does an hourly associate know how to get promoted into the management training program.''
Six years earlier, Peterson, the executive vice president for personnel issues, had recommended to his superiors that Wal-Mart post management openings to avoid litigation, according to a memo on March 28, 1996, provided by Wal-Mart to the attorneys for the women.
The female employees also claim they were paid less than men, even when promoted, and point to Wal-Mart documents, including one titled ``Minority/Gender Pay Analysis.''
Pay Scales Changed
``Generally, average salaries for female and minority males are below the overall average pay for most jobs,'' the July 21, 2000, report states. ``Average pay increases for minority males and females are generally below overall average income ratio across most jobs.''
In his deposition, Peterson said reasons other than discrimination, including district location and profit margins, may have caused pay differences.
Since the lawsuit was filed, Wal-Mart has changed pay and promotion policies. The company is promoting women at the same rate they apply for positions, says Bracy, the Wal-Mart spokesman. Porter, the diversity chief, says the company began posting management-trainee openings in stores in January 2003.
Wal-Mart began a formal mentoring program in November 2003, Porter says. The company ties executive bonuses to meeting diversity goals and mentoring women or racial-minority employees, she says.
In June 2004, the company changed pay scales for hourly workers, limiting the discretion of managers, Bracy says. He wouldn't disclose the cost or number of employees who received raises under the new system.
The lawsuit is Dukes v. Wal-Mart Stores Inc., No. C-01-2252 in the U.S. District Court for the Northern District of California.
