Sex discrimination on a grand scale - class action pay equity claims

15 October 2004

Synopsis
Well known Wall Street stock broking firm, Morgan Stanley, recently paid US$54 million to settle a sex discrimination claim. Wal-Mart, the American retail giant, is currently facing a similar claim which could involve up to 1.6 million female complainants. Class action discrimination claims are on the rise in America.

Are Australian employers at risk of facing similar mass discrimination claims? And what can employers do to mitigate the risks of such claims?

In recent months, two major American employers have faced class action sex discrimination claims, brought by former and current employees. These claims may  impact on thousands (in one case, potentially millions) of employees and have serious adverse consequences on employers' financial positions and corporate profile / image.

This article examines the recent American claims and considers whether Australian employers could find themselves facing similar mass discrimination claims.

The Morgan Stanley claim
On 12 July 2004, stockbroking firm Morgan Stanley paid US$54 million to settle a sex discrimination claim, brought on behalf of its female employees by the Equal Employment Opportunity Commission (a U.S. government tribunal, with powers to institute proceedings against employers who have engaged in discriminatory conduct).

The claim involved allegations that Morgan Stanley had systematically discriminated against its female employees by denying them promotions on the basis of their sex, providing them with lower salaries than men in equivalent positions and encouraging a work environment in which sexually discriminatory conduct was accepted and condoned.

Under the terms of the settlement, Morgan Stanley agreed to:

• pay US$12 million compensation to one of its former employees (who had been discriminated against when her employment was terminated after she complained that she had been denied a promotion because of her sex)
• allocate US$2 million towards implementing sex diversity programmes at the firm, and
• allocate US$40 million to a fund to compensate other employees who have been discriminated against by the firm.

The Wal-Mart claim
In 1998, six female employees filed a discrimination claim against Wal-Mart, alleging that they had been treated less favourably than male employees, receiving lower salaries for equivalent work and being denied promotions as a result of their sex.

As part of these proceedings, the court ordered Wal-Mart to provide its payroll records to the complainants' lawyers. The complainants alleged that these records show that Wal-Mart systematically underpays its female employees.

On 22 June 2004, a District Court judge found that the complainants had presented largely uncontested evidence that female Wal-Mart employees were paid less than male employees and were less likely to be appointed to managerial positions than male employees in similar roles.

The judge stated that, in the circumstances, it was appropriate for the claim to proceed as a class action suit, with all current or former employees employed since 1998 eligible to join the claim. Up to 1.6 million female employees fall within this category, making the Wal-Mart claim potentially the largest discrimination claim in American legal history.

The Australian perspective — are 'class action' discrimination claims a risk for Australian employers?
'Representative complaints'
Australian state and federal anti-discrimination legislation enable representative discrimination complaints to be brought against employers.¹

The legislation makes it clear that a representative complaint can only be brought by a group of people who are seeking a similar remedy in respect of similar conduct. These requirements limit the circumstances in which collective discrimination complaints can be brought in Australia. In effect, representative complaints can only be brought in situations where there is some type of 'systemic' discrimination, which impacts on a group of people in similar ways and for which they will be seeking similar remedies.

To date, there are relatively few representative complaints which have been pursued against Australian employers. Examples of past representative complaints include:

• a complaint brought against a bank by a group of more than 100 of its female and / or pregnant employees, who alleged that the bank's redundancy program had unfairly and unlawfully discriminated against them collectively, by failing to grant them equal access to both voluntary redundancy packages and redeployment,² and
• a complaint brought on behalf of a group of physically disabled and mobility impaired individuals, against a public transport company which discriminated against them by providing its transport services in such a way that this group was unable to access them (fully or at all).³

Could Australian employers face collective 'Wal-Mart' claims?
Under Australian anti-discrimination laws, it is clearly possible for a group of employees to bring a representative or joint discrimination claim, seeking compensation for systemic discrimination at the hands of their employer.

On this basis, if there is evidence that female employees are paid at lower rates or gain fewer promotions than their male colleagues, it is possible that collective sex discrimination or 'pay inequity' claims, like those made in the Wal-Mart and Morgan Stanley cases, could be brought against employers by groups of female Australian employees.

Consequences — financial and non-financial
Past cases show that claims of this nature can attract significant adverse media attention, particularly when the employer is a large corporation. For this reason, collective discrimination claims may have not only significant financial consequences for employers (in terms of any damages awards made by courts and tribunals), but may also cause untold damage to corporate image and public reputation.

Punitive damages — an important difference between Australian and American  laws
While Australian employers may be subject to collective discrimination complaints similar to those faced by American employers, they are unlikely to face awards of damages as high as those ordered by American courts. This is due to a fundamental difference in the way in which Australian and American courts and tribunals calculate damages.

In America, courts are empowered to (and frequently do) order employers who have engaged in discriminatory conduct to pay 'punitive damages', in addition to paying compensation to the individuals who have suffered economic and non-economic loss as a direct result of the discrimination.

Punitive damages can be likened to penalties. They do not reflect the actual loss or damage suffered by the complainant, but rather are intended to punish the respondent for their conduct and to act as a deterrent to others.

When determining the amount of punitive damages to award against an employer in collective discrimination claims of this type, American courts have made it clear that they will take into account the size and earnings of the employer. Accordingly, large profitable American corporate employers stand to face much larger punitive damages awards than other smaller and less profitable employers.

In Australia, courts and tribunals do not award punitive damages in discrimination complaints. This is because, in Australian law, the damages awarded to complainants in discrimination cases are compensatory in nature (that is, they are amounts paid to compensate the complainant for the actual loss or damage they suffered) and, unlike in jurisdictions such as the United States, punitive damages cannot be awarded.⁴

Where an Australian employer is found to have engaged in unlawful discrimination, courts and tribunals may order the employer to pay compensatory damages to the individuals, to put them in the position they would have been in had the respondent not discriminated against them.

Of course, in addition to awarding compensatory damages to complainants in discrimination cases, Australian courts and tribunals may also order an employer to cease their discriminatory conduct or take other active steps to prevent discrimination from reoccurring.

So, while Australian courts and tribunals may order an employer to pay a complainant general and / or exemplary damages, they will not order an employer to pay punitive damages in respect of their discriminatory conduct. In this regard, Australian employers who are found to have engaged in discriminatory conduct are at an advantage to their American counterparts. This should not, however, understate the significant risk still faced by employers in relation to such claims.

An alternative avenue for collective pay equity claims — 'Equal pay for work of equal value' claims under the Workplace Relations Act
In Australia, it is not only anti-discrimination laws which provide for groups of employees to make collective claims, aimed at securing pay equity in the workplace.

Under the Workplace Relations Act 1996 (Cth), on application of an employee, trade union or the Sex Discrimination Commissioner, the Australian Industrial Relations Commission, can make 'such orders as it considers appropriate to ensure that…there will be equal remuneration for work of equal value'.⁵

Effectively, this provides another avenue for employees to bring 'collective claims' against employers, in relation to pay inequities, including pay inequities which allegedly arise on the basis of an employee's sex. Interestingly, it was this mechanism which was the focus of the Australian Labor Party's pre-election commitment to fund equal pay cases in certain circumstances.

What are the key areas of risk for employers?
In the current environment and given recent trends in the types of discrimination complaints brought in Australian courts and tribunals, we consider there to be several areas in which employers may face a particular risk of collective discrimination claims, including:

• sex, race or age based discrimination claims—including claims:
  - of systemic pay or promotional inequity
  - of systemic failures to accommodate flexible work arrangements
  - regarding other employer policies or procedures, which have a systemically discriminatory effect on employees based on sex (for example a selection for redundancy scheme which selects employees based on the amount of extended leave they have taken—which may discriminate against women, who are more likely to have taken maternity leave).

Implications for employers

• Employers should be aware that there is scope under anti-discrimination legislation in all states, and at the federal level, for groups of employees to bring collective discrimination complaints in relation to 'systemic' discrimination which may arise in the workplace.
• In addition, collective claims made by employees seeking pay equity in the workplace may be brought under both sex discrimination legislation and federal workplace relations legislation.
• Over the past year, there has been an increased focus, in the media and as a matter of political and social debate, on sex-based pay equity. This interest may generate an increase in collective sex discrimination / pay equity claims, brought in anti-discrimination or industrial courts and tribunals by trade unions or special interest groups on behalf of groups of employees, or by employees themselves.

What can employers do to decrease the risk?

• Be aware that employees may bring either individual or collective discrimination claims and the grounds on which such claims may be brought.
• Conduct regular and thorough audits of internal practices and policies, to ensure that they do not directly or indirectly discriminate against groups of employees, in breach of state and federal anti-discrimination legislation.
• In particular, in order to properly assess the risk of pay equity claims being brought against them, employers should conduct a thorough review of their payroll records by sex at each level, to ascertain whether there is any evidence to support a sex-based pay inequity claim in their workplace.
• Ensure that regular and comprehensive training is provided to employees on equal opportunity issues and that equal opportunity and anti-discrimination policies are implemented and complied with in the workplace.

This article was written by Trish Low, solicitor.


¹ Human Rights & Equal Opportunity Commission Act 1986 (Cth) section 46PB; Equal Opportunity Act 1985 (Vic) section 104(3); Anti-Discrimination Act 1977 (NSW) section 88; Anti-Discrimination Act 1991 (Qld) sections 146 and 147; Equal Opportunity Act 1984 (WA) section 83; Anti-Discrimination Act 1998 (Tas) section 82; Discrimination Act 1991 (ACT) section 78; Equal Opportunity Act 1984 (SA) section 93(1) and Anti-Discrimination Act 1992 (NT) where sections 60 and 61 provide for the Anti-Discrimination Commissioner to deal with two or more complaints jointly, if they arise out of substantially the same conduct.

² Finance Sector Union v Commonwealth Bank of Australia (H 94 / 63; Human Rights & Equal Opportunity Commission, 21 March 1997, Sir R. Wilson, President, Ms H.Dean, Inquiry Commissioner).

³ The decision of the High Court of Australia in Waters v Public Transport Corporation (1992) 173 CLR 349.

⁴ See the Federal Court of Australia's decision in Hall & Ors v A & A Sheiban Pty Ltd & Ors (1989) 85 ALR 503 and Smith v Heir & Anor  (2001) EOC 93-165.

⁵Workplace Relations Act 1996, Part VIA Division 2 section 170BC.