Why it matters

In a novel lawsuit, a former employee of Yahoo claims that the company manipulated its performance-review rating system in order to dodge both the federal Worker Adjustment and Retraining Notification (WARN) Act and its California analogue. According to Gregory Anderson, the quarterly performance reviews where each Yahoo worker is rated on a scale of 0 to 5 were used to help the company fire more than 1,000 employees over the last few years. As a matter of routine, he alleged in his California federal court complaint, senior managers would give workers lower than deserved ratings, justifying mass terminations so as not to trigger the requirements of the WARN laws, which mandate that an employer provide advance notice and benefits when mass layoffs occur. Although Yahoo never provided notice, it laid off 1,100 workers between late 2014 and early 2015 ostensibly for performance reasons. The lawsuit could prove costly to the company, as both federal and state WARN Acts include civil penalties of $500 per day for violations, as well as a requirement to provide back pay and benefits for each day of advance notice that were not provided. Yahoo defended its ratings system in a statement, stating that the process "allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out."

Detailed discussion

When Marisa Meyer took the helm at Yahoo in July 2012, she instituted a new system of performance reviews at the company. Each quarter, direct supervisors assign each employee a number from 0.0 to 5.0 based on how that worker performed compared to his or her immediate peers. The Quarterly Performance Reviews (QPRs) result in employees being placed into one of five ranks, referred to as "buckets," as follows: Greatly Exceeds, Exceeds, Achieves, Occasionally Misses, and Misses.

In a new complaint filed in California federal court, former Yahoo Editorial Director Gregory Anderson challenged the system, alleging that the company manipulated QPRs to avoid meeting the requirements of both state and federal law.

Each quarter, according to Anderson, a specified percentage of each department's employee population would be assigned to each bucket, and managers were required to rank employees so that a sufficient percentage was assigned to each bucket—even if all the employees were performing well or at the same level. Senior management also had the power to change scores in the second step of the process, referred to as "calibration," even if they had no contact with the employee, he said.

The rules of the process changed frequently and were communicated on a "need-to-know" basis, the complaint added, with the percentage of employees to be assigned to each bucket changing each quarter, and different percentages for each bucket assigned to different departments within the company.

Employees were never told their actual numeric ranking or how it had been determined, Anderson said, but only notified of their bucket ranking or that they were being terminated because of that ranking. "The QPR process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed," Anderson claimed. "This manipulation of the QPR process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping."

In his own situation, Anderson alleged that he was targeted because he was male and that his QPR scores were lowered to effectuate his termination in November 2014.

Yahoo ran afoul of the federal Worker Adjustment and Retraining Notification (WARN) Act as well as the state analogue by relying on manipulations of the QPR system to terminate large numbers of workers, Anderson claimed. By lowering worker scores to state the reductions were based on poor performance, the company did not follow the requirements of either law.

Both the federal and state WARN Acts mandate that employees be given advance notice of a reduction in force of more than 50 employees within a 30-day period and provided with certain benefits. Yahoo has yet to comply with either statute despite reducing its workforce by 31 percent between January 2012 and July 2015, Anderson alleged, with more than 1,000 workers let go.

"Because of Yahoo management's manipulation of the QPR process without safeguards or accountability, employment terminations made pursuant to the QPR process are without legal or just cause, lack good faith, falsely rest on non-existent or pretextual causes, and are made in violation of the legal rights and contractual expectations of Yahoo's employees," according to Anderson's complaint. "Defendant Yahoo should have notified large numbers of its employees of their rights under the California and federal WARN Acts prior to their termination, and Yahoo should have compensated those employees for a period of up to sixty (60) days with wages and benefits."

In addition to claims for gender-based discrimination in violation of California's Fair Employment and Housing Act and Title VII, termination in violation of public policy, and violation of California's unfair competition law, Anderson seeks damages and penalties under both WARN Acts.

Specifically, he requested a judicial declaration that Yahoo's use of the QPR process constitutes a violation of the statutes and asked the court for back pay for each day of the violations, benefits under Yahoo's employee benefit plan, a civil penalty of $1,000 per day for each day the plaintiff was entitled to have received notice under the WARN Acts ($500 for each statute) and did not, as well as attorneys' fees.

In response to the lawsuit, Yahoo issued a statement defending its practices, stating that the performance review process "allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out."

To read the complaint in Anderson v. Yahoo, click here.