W AL -M ART : P ROBLEMS IN P ARADISE ? Wal-Mart by the Numbers Wal-Mart, the largest corporation and retailer in the world, employs over 1.4 million people. As of January 31, 2005, the company had 3,702 stores in the United States—1,353 Wal-Mart stores, 1,713 Supercenters, 551 Sam‟s Clubs, and 85 Neighborhood Markets—and another 1,603 stores in other parts of the world. In fiscal year 2003, ending January 31, 2004, Wal-Mart racked up sales of over $256 billion. Through the first three quarters of fiscal 2004, ending October 31, 2004, Wal-Mart had sales of $213 billion, which was on pace to exceed fiscal 2003 sales by a significant amount. To put WalMart in perspective domestically, its stores account for over 30% of sales of all household staples (toothpaste, shampoo, paper towels) and 20% of all Hollywood distribution (CDs, videos, DVDs). WalMart is also the third largest pharmacy operator in United States behind Walgreens and CVS, and its 1,400 Supercenters make it the nation‟s largest grocer. Sam Walton launched his first Wal-Mart in 1962 in Rogers, Arkansas. The banner that hung across the first store summed up one of Walton‟s underlying philosophies—it read, “We Sell for Less.” As a discounter, Walton defined his business by volume, not by individual products. In articulating this philosophy, Walton said, “by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail than you would have by selling the item at the higher price.” With its low-price philosophy, Wal-Mart has become an influential force in the U.S. economy, employing more people than any other company. Enjoying a favorable reputation among the business community, Wal-Mart ranked at the top of Fortune magazine‟s list of “Most Admired Companies in America” in 2003 and 2004. The Employment Status of Women at Wal-Mart Wal-Mart‟s corporate Web site asserts that, “Wal-Mart will not tolerate discrimination in employment on the basis of race, color, age, sex, sexual orientation, religion, disability, ethnicity, national origin, martial status, veteran status, or any other legallyprotected status.” This statement is also part of the company‟s code of conduct. Also emphasized are the three basic beliefs upon which Sam Walton built the Company. One of these beliefs is Respect for the Individual, which, according to one retired senior Wal-Mart executive, signifies that the slogan “„[o]ur people make the difference‟ is not a meaningless slogan—it‟s a reality at Wal-Mart. We are a group of dedicated, hardworking, ordinary people who have teamed together to accomplish extraordinary things. We have very different backgrounds, different colors, and different beliefs, but we do believe that every individual deserves to be treated with respect and dignity.” Against this backdrop of professed commitment to equal opportunity, Wal-Mart has been facing discrimination lawsuits for many years. Most prominent among these suits is the class action suit Dukes v. Wal-Mart Stores, Inc., filed on June 19, 2001 in United States District Court for the Northern District of California. According to data supplied by statistical consultant Richard Drogin on behalf of the plaintiffs, Wal-Mart has an established pattern of discrimination against women. Drogin‟s data indicated that: • Wal-Mart employed fewer women in management in 2001 than its competitors did in 1975. • 65% of the company‟s hourly employees were women, but women only made up one-third of the company‟s management. • In individual stores, men hold 86% of store manager positions and close to two-thirds of all store management positions. • Woman on average scored higher on performance evaluations, but it took 4.38 years for a woman to be promoted to assistant manager while it took only 2.86 years for men. • Female employees working hourly jobs on average made $1,100 less than their male counterparts. • A female regional vice president‟s average salary of $279,772 was 46% less than that of an average male regional vice president. Allegations of Sex Discrimination at Wal-Mart In recent years Wal-Mart found itself subjected to a tremendous amount of scrutiny regarding its treatment of female employees. The public scrutiny began in 1998 when Stephanie Odle filed an Equal Employment Opportunity Commission (EEOC) complaint against Wal-Mart that led to the filing of the class action suit against Wal-Mart for sex discrimination. The lead plaintiff on this case is Betty Dukes, who alleges that she tried unsuccessfully for nine years to be promoted from her position of cashier at Wal-Mart. In the complaint, Dukes, five other plaintiffs, and the class they represent, charged that “Wal-Mart discriminates against its female employees by advancing male employees more quickly than female employees, by denying female employees equal job assignments, promotions, training, and compensation, and by retaliating against those who oppose its unlawful practices.” In addition, the plaintiffs sought to end Wal-Mart‟s discriminatory practices, to receive relief for the class, and to secure punitive damages. Dukes v. Wal-Mart Stores, Inc. also alleged that WalMart‟s underlying culture and policies contributed to the discrimination that the plaintiffs experienced. The named plaintiffs in the June 19, 2001 filing were all women, but they came from different geographic areas of the United States; all but one were former employees of Wal-Mart Stores, Inc. Former employees include Patricia Surgeson, a resident of Solano County, California; Sandra Stevenson, a resident of Lake County, Illinois; Stephanie Odle, a resident of Norman, Oklahoma; Kimberly Miller, a resident of Marion County, Florida; and Micki Earwood, a resident of Springfield, Ohio. The plaintiffs were employed by Wal-Mart Stores, Inc. from just under five years to almost twelve years. Betty Dukes, a resident of Contra Costa County, California, was the only named plaintiff who was employed by Wal-Mart at the time of the filing. The stories of Betty Dukes, Stephanie Odle, and Micki Earwood provide insight into the ways in which sex discrimination allegedly took place at Wal-Mart. Betty Dukes, a 52-year-old African-American woman working at Wal-Mart in Pittsburg, California, had been with the company for almost 10 years. When Dukes joined the Pittsburg Wal-Mart store she had high aspirations. She had a vision in mind and thought that Wal-Mart would allow her to realize her goals. During her time with Wal-Mart, Dukes applied for numerous promotions. Though qualified and having excellent performance reviews, she was passed over each time as men filled these positions. The men filling these positions had less seniority than Dukes and were often less qualified. On one occasion when she applied for a position in the “male” hardware department she was instead asked to sell baby clothes in the children‟s department. Reflecting on this period of time, Dukes observed, “I was denied the training I requested to obtain promotions within the company. When I complained about unfair treatment, I was unfairly disciplined, demoted, and forced to accept a pay cut. Moreover, I observed men receive promotions to positions over and over again.” On another occasion Dukes observed, “I was always told to wait, that my time would come, that there were no openings available, that I didn‟t have enough experience to move on. But on a number of occasions men with less experience than me were put in jobs that I desperately wanted and know I could have done well.” In 2000, frustrated by the lack of opportunities for women at Wal-Mart, Dukes contacted the Impact Fund, an anti-discrimination organization based in Berkeley, California. The Impact Fund was already in the midst of investigating similar claims from other female employees of Wal-Mart, and Dukes‟ account of her work experience at Wal-Mart was not unique. The Impact Fund had 110 similar voluntary declarations from Wal-Mart‟s female employees. Based on their investigation in 2001, the Impact Fund stated in the sex discrimination claim that “our research discovered that women doing the same jobs as men were being paid less. This was not in one store, or one region; it was a consistent pattern right across the country.” In 1996, while working as an assistant manager in a Sam‟s Club store, Stephanie Odle became outraged when she discovered that a male co-worker with the same job responsibilities made approximately $10,000 more than she did. Odle complained to her supervisors and claims she was told that her co-worker made more money because he had “a wife and kids to support.” Odle continued to complain, was told to present a personal budget, and was then given a raise equivalent to $2,000 for the year. With the raise she still made significantly less money than her male co-worker. In another instance, Odle says she made a suggestion that was disregarded, but when a male co-worker made the same suggestion a month later, it was executed. She confronted her co-worker, and he responded with “I guess it‟s a man thing.” Odle was eventually fired from Sam‟s Club and brought a complaint to the EEOC. She claimed that she was fired for speaking up. Micki Earwood worked at Wal-Mart in Ohio for 10 years. During this time she held positions ranging from associate to department manager, but she says she was never accepted into Wal-Mart‟s management training program. She claimed she was fired when she complained to her superiors about gender-based pay discrepancies. The sex discrimination case against Wal-Mart has grown to include the sworn testimony of more than 100 women. One unnamed female employee declares that when she asked to be transferred to the hardware department she was told, “You‟re a girl. Why do you want to be in hardware?” Kathleen MacDonald claims that when she asked why she did not get a promotion, her manager explained, “God created Adam first, and, therefore, women always came second.” MacDonald complained often about the unequal pay structure between men and women. She says she went as far as complaining to the regional personnel manager and did not know what to do after that. Eventually she did get a raise; however, she still was not making as much as her male co-workers. Mary Crawford was not promoted, and the position was given to a man with less experience. When she asked why she did not receive the promotion, she remembers hearing, “[t]he man would always get the job.” When she did end up getting promoted, she still did not earn as much as male co-workers in the same position. Gretchen Adams did get promoted to running the deli in her store. In fact, she was so good at her job that she traveled all over the country to train other employees. She discovered that a man she was training was getting paid $3,500 more than she was. When Claudia Renati was seeking a promotion to marketing manager, she was told that in order to get the position she would have to move to Alaska. The man eventually hired for the position was her manager‟s neighbor, who worked in construction and had no management experience. When the position re-opened, Renati was once again told she would have to travel to get the position. In this case, the man hired did not have to travel and was another neighbor of her manager. Mary Alice Cox worked for Wal-Mart for seven years as a cashier and never made even seven dollars an hour; a male co-worker told her he was making over eight dollars an hour. Sex Discrimination, Class Action, and the Law The Civil Rights Act of 1964 forbade genderbased discrimination in the employment arena. Section 703 of this act specified that: • It shall be an unlawful employment practice for an employer to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual‟s race, color, religion, sex, or national origin. • It shall be an unlawful employment practice for an employer to limit, segregate, or classify his employees in any way, which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual‟s race, color, religion, sex, or national origin. The class action filing of Dukes v. Wal-Mart Stores, Inc. is also affected by Rule 23 of the Federal Rules of Civil Procedure, which prescribes the conditions under which class action suits may be brought in the federal courts. Rule 23(a) outlines the prerequisites for a class action. They are: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” In addition to meeting these prerequisites, an action may only be maintained as a class action if one of the following three conditions outlined in Rule 23(b) are met: 1. The prosecution of separate actions by or against individual members of the class would create a risk of either inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or adjudications with respect to individual members of the class which would, as a practical matter, be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 2. The party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive or corresponding declaratory relief with respect to the class as a whole. 3. The court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. Class Action or Not? A very contentious issue in the Dukes v. Wal-Mart Stores, Inc. case has been whether a class action is warranted. Wal-Mart challenged the legal validity of the class action, arguing in a September 24, 2003 hearing before U.S. District Judge Martin Jenkins that the lawsuit should be broken into separate class actions against each of the 3,473 stores across the United States because decisions about pay and promotions are largely made at the store level. The company contended that the outlets “operate with so much autonomy that they are like independent businesses with different management styles that affect the way women are paid and promoted.” Wal-Mart attorneys argued “that a class of potentially 1.6 million women would be too unwieldy to manage,” and the experiences of a few women cannot be representative of a class as large as 1.6 million. Further, Wal-Mart contended that the suit ignored the thousands of women who earn more than their male counterparts, and that the allegations were flawed due to ignoring factors that cause one job to pay more than another. Nancy Abell, a Wal-Mart attorney, observed that “if Wal-Mart faces a single class-action spanning the entire country, the company will seek testimony from 4,000 store managers, resulting in a trial that would last 13 years.” Attorneys for the plaintiffs argue that even though the case focuses on the experiences of only a few named women, thousands of women with similar experiences have contacted them. The plaintiff‟s attorneys further argue that the gender disparities were caused by Wal-Mart‟s culture. Although the company promoted from within, those who received promotions were usually men. “[R]ather than posting job openings for management positions so that anyone could apply for them, the company often kept information about new openings quiet, simply tapping the shoulders of those it wanted to promote,” the plaintiffs said. Brad Seligman, a lawyer for the plaintiffs, vigorously countered Wal-Mart‟s contention that each unit was very autonomous. “Wal-Mart stores are virtually identical in structure and job duties,” according to Seligman. “There is a high emphasis on a common culture, which is the glue that holds the company together.” On June 22, 2004, U.S. District Court Judge Martin Jenkins ruled that six current and former Wal-Mart employees from California may represent all female employees of Wal-Mart who worked at its U.S. stores any time since December 26, 1998. “In certifying the case as the largest civil rights class action ever certified against a private employer, the judge described the case as „historic in nature, dwarfing other employment discrimination cases that came before it.‟” In his findings Judge Jenkins went on to say that the evidence presented by the plaintiffs “raises an inference that Wal-Mart engages in discriminatory practices in compensation and promotion that affect all plaintiffs in a common manner.” Judge Jenkin‟s ruling suggests that Wal-Mart committed sexual discrimination in violation of Title VII of the Civil Rights Act of 1964. Wal-Mart has denied the gender discrimination of women put forth in Dukes v. Wal-Mart Stores, Inc. and has appealed Judge Jenkins‟ class-action ruling. On December 8, 2004, the Washington Legal Foundation (WLF), in support of Wal-Mart‟s appeal, filed an amicus curiae brief in the U.S. Court of Appeals for the 9th Circuit in San Francisco, urging the court to overturn Jenkins‟ class action certification decision. In the amicus curiae brief, the WLF argued the plaintiffs failed to demonstrate (a) that “the case could manageably be tried as a class action,” and (b) that “common issues of fact and law predominate over individual issues—an absolute prerequisite for certification of a class action.” The WLF also was particularly critical of Judge Jenkin‟s decision to rely on the testimony of the plaintiffs‟ expert witness. The WLF argued that “[t]he plaintiffs do not allege that Wal-Mart has a company policy of discriminating against female employees. Rather, they allege that Wal-Mart maintains an amorphous „corporate culture‟ that can „perpetuate gender stereotypes‟ and lead to differences in pay and promotion between men and women. WLF argued that class treatment of such vague claims is never appropriate; rather, WLF argued that every case of alleged discrimination must stand or fall on its own merits.” Implications of Dukes v. Wal-Mart Stores, Inc. Dukes v. Wal-Mart Stores, Inc. is but one of a long string of sex discrimination suits brought against Wal-Mart over a number of years. What sets the Dukes‟ claim apart is its size. If Wal-Mart loses Dukes, the monetary implications could be staggering. Analysts have estimated the settlement costs at upwards of $8 billion. Although the potential monetary settlement is enormous, Wal-Mart is the largest company in the world, and with profits of $9 billion for the 2003 fiscal year, it is unlikely that even an $8 billion dollar settlement would significantly harm Wal-Mart. Interestingly, the plaintiffs in Dukes v. Wal-Mart are looking for more. They want to see Wal-Mart‟s culture change. As Brad Seligman, a lawyer at the Impact Fund and the plaintiffs‟ lead attorney, emphasized, “[t]he plaintiffs won‟t be satisfied with back pay and punitive damages. We want to change the way the company does business.” Wal-Mart‟s reaction to the discrimination complaints has been that they are a natural offshoot of success. Coleman Peterson, Wal-Mart‟s head of human resources, observes the any organization the size and status of Wal-Mart is going to have some people allege discrimination. Peterson characterizes this as a “bump in the night” and says that anyone who thinks such bumps won‟t occur is being unrealistic. Although Wal-Mart might view the sex discrimination allegations as a “bump in the night,” the company has recently initiated numerous changes to its labor practices. Among these are: • The creation of a 40-person compliance team to ensure labor laws and new corporate diversity goals are met. • Reduction in bonuses if the company fails to promote women and minorities in proportion to the number who apply for management positions. • A new job and wage structure that increases the number of job classifications from four to seven. • A change in future pay scales to reflect increases based on knowledge, problem solving skills, and accountability requirements, as well as by market rates. The decision whether the Dukes v. Wal-Mart Stores, Inc. case merits class action status is a pivotal one for WalMart, its employees (particularly women), other employers, and American society at large. “If the suit becomes a national class action, it would give lawyers for the women tremendous leverage against Wal-Mart as they pursue punitive damages, as well as back pay. Without the muscle provided by a class action . . . Wal-Mart‟s women workers who believe they have been discriminated against probably won‟t be able to find attorneys to pursue a case against the nation‟s largest company.” Questions for Discussion 1. Based on the stated human resources philosophy of Wal-Mart, would it be likely that the company would discriminate based on gender differences? Explain. 2. Put yourself in the role of the plaintiffs. What ethical arguments would you offer in support of their allegations? 3. Put yourself in the role of Wal-Mart. What ethical arguments would you offer to counter the plaintiffs‟ allegations? 4. What do you think the plaintiffs meant by their allegation that Wal-Mart‟s culture is a significant contributor to gender discrimination? 5. Is a class action against Wal-Mart justified? Explain your position. 6. Explain how the outcome of Dukes v. Wal-Mart Stores, Inc. (regardless of how it is resolved) is important for major stakeholders in the case, including the American society. 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