Seyfarth Synopsis: In a major end-of-the-year ruling, employers scored a significant victory in terms of the denial of class certification in a major gender discrimination case that has been closely watched by the media and the bar alike. It underscores the power of U.S. Supreme Court rulings as a bulwark for defending class action litigation.

Introduction

On November 30, 2018, Judge Lorna Schofield of the U.S. District Court for the Southern District Of New York denied certification of a proposed nationwide Title VII class action alleging discrimination on the basis of sex by KPMG. In the decision, Kassman v. KMPG LLP, No. 11 Civ. 3743 (S.D.N.Y. Nov. 30, 2018), the Court rejected Plaintiffs’ argument that KPMG established a framework for managers to exercise their discretion in making compensation and promotion decisions that led to discrimination on the basis of sex. This case represents a significant win for employers as the Court rebuffed a novel attempt to create commonality out of discretionary decision-making after the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). It also provides further guidance to employers about how to make pay and promotion decisions in a manner that avoids potential class action lawsuits.

Case Background

On June 2, 2011, Plaintiffs filed suit against KMPG, alleging that it discriminates against women in making pay and promotion decisions. Id. at 1. Shortly thereafter, the U.S. Supreme Court issued its landmark decision in Wal-Mart, which the Court characterized as “provid[ing] a roadmap to avoid class certification of a nationwide class asserting gender discrimination.” Id.

After the Supreme Court decided Wal-Mart, KPMG utilized a decentralized system for determining pay and promotions. Id. at 2. However, that decentralized system still had a structure. Id. Among other things, compensation decisions were made under the direction of a National Director of Compensation Strategies within a framework designed to pay KPMG employees at the appropriate market rate. Id. at 2, 5-6. Additionally, KPMG also conducted performance reviews within a framework containing standards for, among other things, years of experience necessary for particular promotions. Id. at 7-9.

Plaintiffs argued that the framework within which KPMG made decentralized compensation and promotion decisions led to discrimination against women on both a disparate impact and disparate treatment basis. They moved for certification of a nationwide class, a New York State class, and a collective action.

The Court’s Decision

The Court first analyzed Plaintiffs’ disparate impact claim. Unsurprisingly, it began with an analysis of Wal-Mart. It observed that, under Wal-Mart, discretionary pay and promotion procedures can only satisfy the commonality requirement of Rule 23 if decision-makers operate under “a common mode of exercising discretion that pervades the entire company, such that individual discretionary decisions nonetheless produce a common answer to the question ‘why was I disfavored.’” Id. at 35 (quotation marks omitted). The Court found that the appropriate way to analyze if such a common mode of exercising discretion was present is to analyze four factors, including: “(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.” Id. at 36.

Applying the first factor, the Court opined that the large size of the putative class – at least 10,000 women – and the fact it was located across the country weighed against a finding of a common mode of exercising discretion. Id. at 36-37. The Court observed that it is much more difficult for a common mode of exercising discretion to exist when decisions are being made by large numbers of decision-makers across the country. Id. at 37.

Turning to the second factor, the Court considered whether the framework within which pay and promotion decisions were made weighed in favor of finding that a common mode of exercising discretion existed. The Court found that “KPMG’s pay and promotion procedures act more as a framework that dictates who will make discretionary decisions rather than how they will exercise their discretion.” Id. at 38. While finding that pay ranges were set at a company-wide level, the Court reasoned that the fact that compensation decisions were made within that range weighed against a finding that a common mode of exercising discretion existed. Id.

The Court next analyzed whether the criteria governing the discretion weighed in favor of finding that a common mode of exercising discretion existed. Id. at 41. It observed that “whether a set of criteria creates a common mode of exercising discretion depends on the rigidity of the criteria. Subjective criteria, prone to different interpretations, generally do not provide common direction.” Id. Finding that the criteria applied by KPMG, such as “‘professionalism,’ ‘integrity,’ ‘reputation’ and potential to be a ‘partner candidate’” were “amorphous” and thus weighed against a finding that a common mode of exercising discretion existed. Id. at 42.

Finally, the Court analyzed the fourth factor of “the involvement of top management in the discretionary decision-making.” Id. The Court determined that Plaintiffs’ argument that all pay and promotion decisions must ultimately be approved by two individuals unpersuasive because there was no evidence that these two individuals were doing anything other than approving aggregate promotion and pay numbers rather than at an individual level. Id. at 43. Accordingly, the Court noted that the fourth factor also weighed against a finding that a common mode of discretion existed. Id.

With all four factors weighing against such a finding, the Court concluded that Plaintiffs had not established commonality and denied class certification of Plaintiffs’ disparate impact claim. Id. at 43-44.

Turning to Plaintiffs’ disparate treatment claim, the Court held that Plaintiffs did not show that their statistical evidence demonstrated disparate treatment because Plaintiffs had not shown that promotion policies and practices were uniform across KPMG as required to make statistical evidence relevant under Wal-Mart. Id. at 46-47. The Court further found that Plaintiffs’ argument that KPMG ignored evidence of gender discrimination did not comport with the record, and that their anecdotal evidence was insufficient to show intentional discrimination. Id. at 48-50. Accordingly, the Court denied certification of Plaintiffs’ disparate treatment claim. Id.

Finally, the Court denied certification of a New York state class because Plaintiffs did not provide any evidence of New York state-specific practices, and it denied certification of an Equal Pay Act collective action because Plaintiffs failed to prove the members of the putative collective action worked in a single establishment and that they were similarly-situated. Id. at 51-60.

Conclusion

This case represents a significant win for employers. After Wal-Mart, plaintiffs’ lawyers have tried to develop new theories to secure certification of classes even where decisions are made in a decentralized manner. In Kassman, the Court not only rebuffed the latest such attempt, but also provided employers with additional ways to structure their pay and promotion policies to avoid potential class actions.