For years, employment lawyers on both sides have disagreed on what is required to obtain class treatment in a Title VII discrimination case. On November 30, 2018, the U.S. District Court for the Southern District of New York issued an opinion in Kassman v. KPMG LLP decidedly in favor of the employer, and laid out a structure for analyzing commonality in putative class actions involving manager discretion over pay and promotions.

The Dukes Rule

For class claims to proceed, Rule 23(a)(2) of the Federal Rules of Civil Procedure requires there be “questions of law or fact” that are “common to the class.” In Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), the Supreme Court articulated the standard by which a plaintiff’s attempts to demonstrate “commonality” must be measured. The Dukes plaintiffs contended that local managers at retail stores nationwide exercised discretion over pay and promotions in a manner that resulted in discrimination against female employees.

The Court denied class treatment, explaining that the Rule 23(a)(2) commonality requirement requires “a common contention – for example, the assertion of discriminatory bias on the part of the same supervisor.” Discretionary acts by various supervisors and managers, the Court explained, could not tie a class together with any commonality. “[T]he whole point of discretionary decisionmaking is to avoid evaluating employees under a common standard.” The Court observed that permitting local discretion is “a policy against having uniform employment practices” and, accordingly, could not bind a class through commonality under Rule 23(a)(2). Where discretionary decision-making is the company practice, plaintiffs must show a “common mode of exercising discretion that pervades the entire company” in order to sustain class treatment.

The Dukes decision left open the question many employment litigators have faced in the years since: what does a “common mode of exercising discretion that pervades the entire company” look like?

The Kassman Case

The recent opinion helps to answer that question. In Kassman, the plaintiffs raised disparate impact and disparate treatment claims of sex discrimination, and sought class treatment for both, and for a New York state class as well. They also raised claims under the Equal Pay Act, and sought collective treatment of those claims. The proposed nationwide classes amounted to over 10,000 female employees of KPMG – in positions as associates, senior associates, managers, senior managers/directors, and managing directors within the company’s tax and advisory functions. Both parties agreed that, for each of those employees, a manager exercised discretion to decide the employee’s pay and promotion.

However, plaintiffs focused on the fact that those discretionary decisions were made within company-wide structures for compensation and performance evaluations. For example, like many large companies, KPMG’s compensation system set pay ranges for each position, based on factors such as job content, geography, and market value. Additionally, all employees at KPMG followed the same company-wide performance review process, the results of which directly impacted promotion potential and salary increases for those employees.

Plaintiffs argued that this framework for pay and promotion decision-making established the necessary commonality for class treatment. The court disagreed.

The Court’s Decision: Title VII

Reviewing the plaintiffs’ disparate impact claim, the court described four factors to consider when “determining whether a common mode of exercising discretion pervades the entire company.” The factors are: (1) the nature of the purported class; (2) the process through which discretion is exercised; (3) the criteria governing the discretion; and (4) the involvement of upper management.

Each of these factors weighed against class certification in the Kassman case. First, the court noted that the putative class of over 10,000 plaintiffs was not confined to a specific job category, decision maker, or department. Second, the court observed that the company-wide pay and promotion procedures – though applicable to all employees – were no more than a framework that defined who would exercise such discretion, but did not provide direction as to how that discretion should be exercised. Third, the court observed that the individual managers at KPMG relied on a variety of highly generic criteria for pay and promotion changes and that such subjective criteria, prone to different interpretations, suggested that any discretion would not be exercised in a “common” manner. Finally, the court considered the involvement of upper-level management, noting that it was insufficient for plaintiffs to show that upper-level managers had “final review” of pay and promotions when such review, in practice, was limited to an aggregate review for budgetary approvals only.

Reviewing the plaintiffs’ disparate treatment claim, the court found insufficient evidence of a “systemwide pattern or practice of discrimination” sufficient to show class commonality.  Plaintiffs argued that their nationwide statistical evidence demonstrated gross disparities among men and women – a difference between 2% and 3% of wages – and that this evidence suggested discriminatory intent by the company. The court disagreed, and held that the statistical evidence did not demonstrate disparate treatment because the plaintiffs had not shown that promotion policies and practices were uniform across KPMG as required to make statistical evidence relevant under Dukes. The court then rejected the plaintiffs’ argument that KPMG ignored evidence of gender discrimination. Rejecting both the disparate treatment and disparate impact class theories, the court denied class treatment under Rule 23.

The Court’s Decision: Equal Pay Act

Relying on a similar analysis, the court also denied final certification of the plaintiffs’ Equal Pay Act collective action. The court opined that the plaintiffs could not demonstrate that the nearly 1,200 women who opted into the collective action were a part of a single “establishment” for the EPA because, as previously found, the centralized structure for pay and promotion decision-making did not influence the decisions of individual managers sufficiently to bind the class claims together.  The court further held that the collective members were not “similarly situated,” even those in the same job category. Specifically, the court observed that it would be “impractical if not impossible” to “match opt-ins with 1,100 unique proposed male comparators” and make individual factual assessments as to whether those comparators performed work equal to the plaintiffs.

Takeaways

By setting specific factors to assess the scope of discretionary decision-making in putative class actions, the Kassman case provides one court’s answers to the many questions about common business practices for pay and promotion decisions, post-Dukes. Employers are encouraged to assess their own unique circumstances under these complex rules.