Lecture 2 Equal Opportunity and Employment

1. Lecture 2Equal Opportunity and Employment Labor law undeniably affects living standards and the distribution of wealth, but within personnel departments, civil law on discrimination and disparate impact should be viewed mainly as a strategic issue. We briefly outline major federal legislation on employment, and then show how equal employment opportunity legislation affects decision making in the firm and in the economy. Then we turn to a more detailed analysis of personnel strategies for hiring and promotion, with a view to shrinking the target that trial lawyers and aggrieved employees can shoot at.

2. Labor law and personnel strategy • Labor law shapes personnel strategy in two important ways: • The law delineates what personnel strategies are legal versus illegal, and pursuing an illegal strategy puts the firm at risk for a law suit. • The conduct of personnel strategy can render law abiding firms more or less susceptible to attracting law suits. Defending a law suit is often expensive. • For this reason it is prudent for employers to be personally informed about what labor law requires of them, rather than relying only on in-house or outsourced lawyers (whose goals might not be fully aligned with those of the firm).

3. Protected classes: • Civil Rights Act of 1964race, color, religion, citizenship, or gender • Pregnancy Discrimination Actpregnancy, childbirth • Equal Pay Act of 1963 • different wages to men and women • Age Discrimination in Employment Act of 196740 or older • Americans with Disabilities Act of 1990 • qualified person with a disability • Genetic Information Nondiscrimination Act of 2008 • genetic information . Federal laws against employment discrimination • Individual states can and do create other protected classes, which are protected under that state's law.

4. Other Federal labor laws • Fair Labor Standards Act . . . minimum wage is currently $7.25) • Family and Medical Leave Act . . . 12 weeks unpaid for serious medical problems in the family • National Labor Relations Act . . . employers cannot discriminate against union members • Occupational Safety and Health Act • Worker Adjustment and Retraining Notification Act . . . 30 day notification of layoffs

5. Are rising living standards due to good labor law?

6. The law as protectorfor the weak and exploited • The argument usually offered to explain why the “equal pay of equal work” act was passed, is that women are paid less than men in the workplace for the same job. • Similarly the reason why racial discrimination was outlawed by the Civil Rights Act is said to come from evidence that African American males are on average paid less than Caucasian American males. • And indeed the data shows that blacks and females are on average paid less than white males.

9. Figure 3: Labor force participation rates, 25 54-year-olds. Source: Bureau of Labor Statistics (Altonji and Blank, 1999).

10. Are Caucasian males too expensive? • Schooling and job market experience are two of many factors that might influence success in the labor market. • Another indicator is performance on the Armed Forces Qualification Test (AFQT). • Including AFQT scores as a regressor eliminates the statistically significant difference between the wages of males of different races. • However the gap between male and female wage rates is not obliterated by including the AFQT scores. • More precise measures of recent experience further reduce, but do not remove, the male female wage differential.

23. Are there other rationales for lawsgoverning labor and employment contracts? • I have argued that equal opportunity employment is an ineffective and inefficient way of achieving social justice. • The evidence suggests that African Americans are paid at a comparable rate to similarly qualified Caucasians. • There is theoretical and empirical support for the view that employers use gender as discriminatory tool for selecting which employees to investing in. • But there are alternative more efficient tools in the finance market that could achieve this goal more efficiently and equitably.

24. Labor law as civil law • Most labor law is civil law, but there are exceptions (such as kidnapping and enslavement). Civil law violations are penalized by restitution and compensation, from the defendant to the plaintiff. • This contrasts with criminal law cases where: • there might be no plaintiff (for example in illegal drug trafficking). • victims are typically not compensated (for example for murder and unrecovered theft). • The prospect of restitution and compensation encourage lawyers and potential plaintiffs to extract rent from targeted defendants by filing suit (and then possibly settling before the court(s) rule).

25. Labor law and personnel strategy:the players • The players comprise for the most part the parties associated with a potential law suit: • People seeking employment and/or promotion and/or higher wages • Firm(s) selecting workers for employment and/or promotion and/or higher wages • Law firms and expert witnesses seeking to mobilize people who may have been wronged by firm. • Government agencies such as the Equal Employment Opportunity commission (EEOC) seeking a to enforce the law.

26. Labor law and personnel strategy:the actions • The actions follow a standard procedure for filing and possibly bringing to trial a law suit: • Potential plaintiffs can contact lawyers to represent them, or seek jobs elsewhere • Firm(s) can protect themselves by fully complying with the law or not, acquiescing to plaintiffs at various stages in the judicial process, and/or defending their employment practices in court. • Law firms agencies can ignore a case, sue, and later agree to settle outside court or see the case through to a verdict. • Government agencies can ignore a case, bring the firm into compliance out of court, or sue.

27. Labor law and personnel strategy:information • Each party knows more about itself than the other: • Firms have superior information about their employees, their own employment practices, and how they are matched to job assignments and production technology. • Lawyers and government agencies have better information about the legality of different practices. • All evidence used in a discrimination case is tabled before the trial begins (if the case gets that far).

28. Labor law and personnel strategy:the consequences • The consequences often become known before the case is brought to court: • Plaintiffs and defendant(s) settle (possible at different stages during the process). Government agency withdraws. In this case there are payoffs to the both sides plus the lawyers. • A verdict is reached. If judgment is for the plaintiffs, compensating damages are assessed. If judgment is for the defendants (some) costs are assessed to the plaintiffs.

29. Walmart versus Betty Dukes • In 2000 Betty Dukes, a 54-year-old Walmart worker in California, claimed sex discrimination. • Despite 6 years of work and positive performance reviews, she was denied the training she needed to advance to a higher salaried position. • In June 2001, the lawsuit began in a U.S. District court in San Francisco. • The plaintiffs sought to represent 1.6 million women, those who were currently working or had previously worked in a Walmart store.

30. Time line for Walmart • June 2004: Walmart loses in Federal District Court and appeals. • February 2007:  Walmart loses in Court of Appeals and files for a rehearing and a rehearing contending that the majority committed legal error. • March 2009:  Walmart's loses and appeals to the U.S. Supreme Court. December 2009, the Supreme Court agreed to hear Wal-Mart's appeal. • June 2011: the Supreme Court ruled in Walmart's favor, saying the plaintiffs did not have enough in common to constitute a class.

31. Two key rulings • The class did not satisfy the commonality requirement.  The plaintiffs did not identify a common question of law or fact central to the validity of each class member’s claim. • The lower courts’ approach was unacceptable to satisfy Rule 23(b)(3). The Supreme Court unanimously rejected the formulaic approach for compensation that the Appeals Court endorsed and held that defendants have the right to contest each class member’s presumption of back pay.

32. Response strategies recommended to trial lawyers • Identify a selection procedure for the class, and consider partial certification. • Link claims arising from local managers’ decisions to a common policy or practice made at the executive level. • Avoid relying only on bottom line statistics, but show how discrimination or disparate impact occurs at different stages of employment decisions. • Provide a detailed trial plan.

33. Decomposing hiring and promotionswithin the firm • We can break down the profile of an employee’s internal career path within a firm into three types of components: • At what level and at what pay is his/her initial position? • At each position held in the firm what is his/her probability of promotion, or more generally what is the hazard rate for the next promotion? • At each position what is the employee’s wage?

34. When is a firm vulnerable to being sued? • There are two main reasons why it is harder for trial lawyers to successfully engage in class actions suits a the initial hiring level: • The company can argue market forces help determine any accepted wage and position, and hired employees selected the firm over alternative job offers . • It is relatively hard to identify those applicants who were failed to secure a job with the firm? • At each subsequent position what is the probability of promotion, or more generally what is the hazard rate for the next promotion? • For that reason class action suits are more likely to focus on disgruntled current and former employees.

35. Three avenues to attack a firm • There are essentially three areas to focus on: • Is the company now paying, or did it once pay, lower wages to a protected group than an unprotected group for the same type of work? • Is an employment practice leading to a protected being promoted at a lower rate than an unprotected group? • Are work practices are less edifying and more onerous for a protected group than the unprotected groups? • Lawyers need not require a high probability of winning the case to file suit. They only ask that their share of the revenue from the expected settlement to the plaintiffs exceed their own litigation costs.

36. Response strategies for management • The law provides that an employment practice should not be analyzed as a integral unit in a disparate impact case, unless “the complaining party can demonstrate to the court that the elements of a respondent’s decision making process are not capable of separation for analysis”. • In other words employers can successfully defend themselves in disparate impact cases by: • Partitioning the recruiting process into small steps. • Recording what happens at each step. • Establishing no discrimination took place at any step.

37. Steps in the hiring process • Hiring consists of several steps which are capable of being analyzed separately if records are kept: • Define the duty statement for the position • Solicit applications for the advertised position • Reject applicants that do not satisfy minimal standards for capably performing in the position • Interview a select group from the set of minimally qualified applicants • Sequentially offer the job to the interviewed candidates until someone accepts the offer.

38. The probability of being hired • Suppose the hiring process works as described above for one or more advertised positions. • Assume an applicant submits applications for several jobs advertised with the firm. The probability of being hired by the firm is the multiplicative product of the probabilities that she: • meets minimally qualifications for at least one job • if at least one of her applications is referred, she receives at least one interview • if she is interviewed for at least one of her referrals she receives at least one job offer • accepts an offer if she receives at least one job offer.

39. Advertising the position • The position should be advertised in a way that is just as accessible to a protected class as the rest of the labor pool. • For example it is not acceptable to advertise positions in male restrooms only. • Minimal qualifications and the duty statement should be clearly stated. • There should be no reason for interested people to contact the employers before submitting an application. (This compromises the process.)

40. The duty statement and the referral process • Culling applications based on minimal necessary job qualification is not subject to disparate impact considerations. • However the duty statement and qualifications must match the activities and requirements of the position. (For example requiring a bench-pressing capability of 200lbs for a desk bound job might attract a suit.) • To help maintain the integrity of the hiring process at this stage, use only relevant information to eliminate unqualified candidates. Ideally the reviewers would only have access to relevant information. (For example names, age and gender might be irrelevant.)

41. Selection for interview and making offers • By definition only those who meet the standards of minimal qualification for the job are eligible for interview. • It is therefore more difficult to justify interview selection and final offers to the court. • Lawyers for plaintiffs strengthen their cases by finding instances where: • the firm is violating the 4/5 rule of thumb. That is the rate a protected class reaches the next step is less than 80 percent of the rate achieved by the unprotected group. • there is statistically significant evidence of disparate impact, such as in a compensation regression, or a hiring/promotion logit or probit.

42. Strategically defining jobsto affect the composition of the workforce • Firms have considerable latitude in how they are organized, and hence how their positions are defined. • For example suppose a firm consists of one 16 wheeler rig driven each day, plus six other operatives in administration. Consider the following alternative ways of organizing the firm: • specialize the workers into administration or driving • require every worker to drive the truck once a week. • The first (second) way of organizing the firm requires one worker (all seven workers) to have a truck driving licenses, and most truck drivers are male.

43. Strategically defining recruitment steps as a defense against a suit brought the EEOC • Firms also have considerable latitude in how to separate the steps in the hiring process. • Suppose: • only one tenth of minimally qualified older workers survive the second stage of getting an interview, but all of those get a job offer • one fifth of minimally younger workers survive the second stage of getting an interview, but only half of those get a job offer • If the firm does (not) keep records of who is interviewed, then plaintiffs might (would not) be able to make a case for disparate impact against older workers.

44. Lecture summary • Both technology and labor law affect working conditions and wages. • White males are paid more than females and African Americans. Most of the differences are not due to race or gender, but screening might play some role. • Ignoring the strategic issues inherent in civil law enforcement seems naïve . • Employers routinely screen job applicants, and its prohibition creates inefficiencies. • EEO laws prohibit explicit and tacit discrimination. They are prosecuted by the EEOC and trial lawyers. • Firms partially protect themselves against civil lawsuits on employment by developing protocols for hiring and promotion that pass legal muster.