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How to ward off some class-action pay-bias suits: Grant managers limited discretion to set pay

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in Compensation and Benefits,Discrimination and Harassment,Human Resources

Do your managers have limited discretion in setting pay? If so, you may have a built-in way to prevent large class-action lawsuits over equal pay.

It’s all because of last summer’s big Supreme Court decision in Wal-Mart, Inc. v. Dukes. In that case, the giant retailer was sued by women who claimed that by allowing local managers discretion in promoting and setting pay rates for store employees, women ended up being paid less.

The women argued that because managers were mostly men, they presumably favored other men in promotions and pay.

The Supreme Court said that by giving local managers some discretion to set pay, the retailer couldn’t have discriminated against a group of similarly situated women. By definition, the women were not similarly situated, since no one corporate policy determined their promotional chances or pay rates. Those decisions were up to store managers.

Of course, sometimes managerial discretion can be a dangerous thing. It opens the door to discrimination against members of protected classes, which can trigger lawsuits. But that damage would be limited to immediate subordinates; the company probably won’t face a class-action claim.

Plus, employers can protect their interests by maintaining robust anti-discrimination practices that let employees complain about perceived discrimination.

Recent case: Luanna Scott worked as a manager for a Family Dollar store and claimed she was paid less than similarly situated male man­agers. She sought to represent all other similarly situated female managers in all Family Dollar stores in the country. A win could have meant multi-million-dollar liability.

Scott’s lawyers claimed that Family Dollar’s national management had a policy that allowed local managers wide discretion in selecting and paying subordinate managers. This, they claimed, meant the largely male “old boys network” favored men more than women and paid women less when they were fortunate enough to get a promotion.

The court hearing the case, which was filed before the Walmart case was decided, concluded that after the Supreme Court decision, the women no longer had a tenable class-action claim based on being similarly situated.

After all, reasoned the court, each woman was promoted (or not promoted) based on individual discretion, not a common company policy.

The court dismissed Scott’s class-action claim and said the women would have to proceed individually if they wished to continue the litigation. Each will have to prove she was the victim of sex discrimination at the hands of her particular manager. (Scott, et al., v. Family Dollar Stores, No. 3:08-CV-540, WD NC, 2012)

Final note: You want to give your managers the right amount of discretion—not too much or too little. A good approach is to create pay ranges that offer some pay flexibility. Local managers can then determine where within a range a particular employee should fall, based on factors clearly set out from the top. Those might include experience, education, skill level and any other factor other than sex.

If an employee does complain, investigate thoroughly to try to ­identify any local discrimination. Fix the situation if you spot obvious disparities.

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