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					                                  Privileged and Confidential

                                 M E M O R A N D U M

   TO: TSM Industries

FROM: Stephen S. Dunham

DATE: January 17, 2000

   RE: Possible Claim by Michelle Worker

       You have informed us that Michelle Worker, Project Engineer for Training and Customer
Education in San Diego, is unhappy with her employment situation and may have consulted with
a lawyer about possible legal action against the Company. You have asked us to review the facts
and evaluate the possible claims and defenses. You have also asked for our advice concerning
steps TSM should take to improve the diversity of its workforce including, in particular, better
representation of women and individuals of color in engineering and management positions.

           I. Evaluation of Claims and Defenses

       If Ms. Worker files a claim against TSM, she will likely claim discrimination based on
gender for failure to reassign and promote her to a position involving design of enterprise

               A.     Summary of the Facts

       As we understand the facts, Ms. Worker asked TSM management to reassign and
promote her to a position in which she would work closely with specific large customers, such as
colleges and universities, to design and implement enterprise systems that would combine
technology and personnel to provide integrated security systems to the customer. Mr. Hyhatt,
Ms. Worker‟s immediate supervisor, told her the job she requested would be difficult for her as a
woman, and he made related comments that might be viewed as sexual stereotyping. We
understand that Vice President Turner rejected this request for reassignment and, instead, on the
recommendation of Mr. Hyhatt, gave Ms. Worker an elevated title and a salary increase to

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continue to perform her existing job. TSM told Ms. Worker that she is uniquely qualified in her
current position in which she provides training to TSM engineers and develops training materials
for TSM customers. Three months later, TSM assigned two male engineers to positions similar
to the one requested by Ms. Worker.

               B.      Categories of Discrimination

       As a general proposition, a potential plaintiff such as Ms. Worker will consider
proceeding under either or both a disparate treatment or disparate impact theory.

       Disparate treatment is garden variety discrimination based on discriminatory intent.
Leaving aside for the moment all of the artificial legal constructs created by the courts, and there
are many, the issue is whether in making job assignments TSM treated Ms. Worker differently
because she is a woman. As an Asian-American, Ms. Worker could theoretically also allege
discrimination under a disparate treatment theory based on race, but, based on what you have
told us, there appears to be no factual basis for such a claim.

       Under adverse or disparate impact analysis, a plaintiff must prove that policies or
practices have an adverse impact on a protected class, such as women. The focus of disparate
impact analysis is on the effect of an employment policy on a group, not on intentional
discrimination against an individual. See Griggs v. Duke Power Co., 401 U.S. 424 (1971).

       If the plaintiff can establish that a policy has a significantly different impact on women
than on men in the appropriate pool of candidates, then the employer has the burden of proving
that its practices are job related and “consistent with” business necessity. See 42 U.S.C.
§ 2000e - 2000(1)(A)(i). If the employer meets this burden, the employee can still succeed if she
proves that alternative policies are available that meet the employer‟s business needs but do not
have an adverse impact. See Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975). Here, it is
possible that Ms. Worker will argue that TSM‟s subjective criteria for making promotion and
assignment decisions have an adverse impact on women and are not required by business
necessity. Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 990-91 (1988); Wards Cove

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Packing Co., Inc. v. Atonio,490 U.S. 642 (1989); Bullington v. United Air Lines, Inc., 186 F.3d
1301 (10th Cir. August 12, 1999); Stender v. Lucky Stores, Inc., 803 F.Supp. 259, 318-21 (N.D.
Cal. 1992); Fisher v. Vassar College, 852 F.Supp. 1193, 1225 n. 15 (S.D.N.Y. 1994), rev’d 70
F.3d 1420, 1443 (2d Cir. 1993), amended, 1995 U.S. App. LEXIS 38412, and modified en banc,
114 F.3d 1332 (2d Cir. 1997), cert denied 522 U.S. 1075 (1998).

       However, there does not appear to be a specific employment practice at which Ms.
Worker can take aim. While the 1991 Civil Rights Act allows a plaintiff to try to attack general
selection or promotion practices where proof of a particular discriminatory policy is not possible,
see 42 U.S.C. § 2000e-2000(B)(i), nevertheless, absent a “particular employment practice” at
issue, it will be more difficult for Ms. Worker to establish a prima facie disparate impact case.
Also, in view of the causation and statistical problems Ms. Worker will face in a disparate impact
case, see Byrnie v. Town of Cromwell Pub. Sch., 1999 U.S. Dist. LEXIS 16625 (D. Conn.
October 25, 1999), her stronger, or at least easier, case is probably under a disparate treatment
analysis. Therefore, although I expect she would raise both claims in a lawsuit, we will focus on
the disparate treatment claim in this memo. Nevertheless, I would advise TSM to undertake an
analysis of its various employment practices and policies to see if you might be vulnerable to a
disparate impact claim in promotion and other areas and if you should take corrective or
preventive action. We would, of course, be happy to undertake such an employment audit for

               C.      Disparate Treatment

       The Supreme Court has announced two separate analytical frameworks for analyzing a
disparate treatment case. TSM needs to evaluate Ms. Worker‟s possible claims under both the
three-part pretext analysis of McDonnell Douglas-Burdine-Hicks and the direct evidence/mixed
motive approach set forth in Price Waterhouse v. Hopkins.

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                       1.      McDonnell Douglas-Burdine-Hicks

       Under this highly stylized, some would say artificial, analysis, to state a claim Ms.
Worker would need to work through a three part allocation of proof: (a) she must establish a
prima facie case of discrimination in TSM‟s failure to promote or reassign her, itself a multi-step
analysis (see infra); (b) if she can do so, TSM must articulate (not prove) a legitimate,
nondiscriminatory reason why it did not promote her; and (c) Ms. Worker must then prove that
the non-discriminatory reason is a pretext and that in fact TSM‟s actions were motivated by
discriminatory animus. See McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973); Texas
Dep’t of Community Affairs v. Burdine, 450 U.S. 248 (1981). Ms. Worker must carry the burden
of proof on this ultimate issue of intentional discrimination. St. Mary’s Honor Center v. Hicks,
509 U.S. 502 (1993).

       To establish a prima facie case in a promotion context, the plaintiff must meet a four part
test: (1) she belongs to a protected group (which, in fact, can be male or female, white or a
person or color, etc.); (2) she applied for and was qualified for the position; (3) despite being
qualified, she was rejected; and (4) after rejection, the employer considered other candidates or
actually promoted others to the same position. McDonnell Douglas, 411 U.S. at 802. See also
Bickerstaff v. Vassar College, 1999 U.S. App. LEXIS 29726 at *7 (2d. Cir. November 12,
1999); Taylor v. Virginia Union University, 193 F.3d 219, 1999 U.S. App. LEXIS 23480 at *20
(4th Cir. September 27, 1999); Tapp v. St. Louis University, 2000 U.S. Dist. LEXIS 12 at *30
(E.D. Mo. January 3, 2000).

       This tripartite methodology was developed for use in those situations, which
predominate, where there is no “direct” evidence of discrimination and the plaintiff must rely on
circumstantial evidence. The Supreme Court -- at least an earlier Supreme Court -- wanted to
make it relatively easy for a plaintiff in a circumstantial evidence case to meet its initial burden.
Thus, the “burden of establishing a prima facie case of disparate treatment is not onerous.”
Burdine, 450 U.S. at 253.

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                               a)      The Facts Here

       Ms. Worker would probably be able to meet her burden of establishing a prima facie
case. She is a woman, sought a promotion, is probably qualified, and was rejected, and men
were subsequently named to fill at least similar positions.

       We might be able to argue that there was never really a position open, and, therefore,
there was never an “adverse employment” decision that triggers a disparate treatment analysis.
This is a plausible argument, and we would seek to make it, but since men were subsequently
given jobs with responsibilities similar to the one sought by Ms. Worker, I would rate our
likelihood of success on this issue as poor. Depending on how the facts develop, we may also be
able to argue that Ms. Worker cannot meet the fourth element of her prima facie case because the
two male engineers promoted were not really comparable. See Cheek v. Peabody Coal Co., 97
F.3d 200, 204 (7th Cir. 1996); but see O’Connor v. Consolidated Coin Caterers Corp., 517 U.S.
308 (1996) (approving a flexible standard for the fourth element).

       Moving to the next step of the three part McDonnell Douglas analysis, I believe TSM
could easily articulate a legitimate discriminatory reason to turn down Ms. Worker‟s request for
a promotion. I assume that at the time of Ms. Worker‟s request, TSM‟s planning did not in fact
justify the creation of a new position. Further, TSM can certainly argue that it is in the best
interests of the company for Ms. Worker to continue to perform her training and customer
education function. Ms. Worker does not have a right to change jobs. Even if the new position
existed, and even if Ms. Worker is the best qualified person for the new position, if TSM decides
she is the best person for her old job and that it is not in the company‟s business interests for her
to change jobs, for reasons unrelated to her gender, you have the right, I believe, to turn down
her request for a change. In other words, TSM‟s decision as to Ms. Worker‟s highest and best
use for the company is a legitimate, non-discriminatory reason. That TSM‟s reasons are
subjective should not by itself be a problem. See, e.g., EEOC v. Ins. Co. of N. Amer., 49 F.3d
1418 (9th Cir. 1995).

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       Ms. Worker would then need to argue that these reasons -- (1) no need at the time of the
denial, and (2) an analysis that Ms. Worker is good at what she does and TSM would be worse
off with a change -- were pretexts. Under Hicks, Ms. Worker also has the burden of proving that
the real reason for the adverse employment decision was discriminatory animus. In other words,
at this point the McDonnell Douglas structured analysis falls away and Ms. Worker needs to
persuade the trier of fact of the ultimate fact -- did TSM deny her request for promotion because
she is a woman?

       To meet her burden of persuasion on the issue of intentional discrimination, Ms. Worker
will try to prove that the reasons given by TSM for its refusal to promote are false. Probably the
worst fact for TSM on this point is that TSM in fact created the position it said it didn‟t need just
three months after rejecting Ms. Worker‟s request. In addition, Ms. Worker will seek to rely on
(1) direct evidence of discrimination -- Mr. Hyhatt‟s unfortunate “sexual stereotyping” and
references to her gender and family (see Greenbaum v. Svenska Handelsbanken, NY, 1999 U.S.
District LEXIS 13773 (S.D.N.Y. 1999) regarding relevance of sexual stereotyping); (2) statistics
-- the absence of women in management and engineering positions; and (3) comparative
information -- she is more qualified than the two men who were subsequently promoted; and, in
a related vein, men such as Ms. Worker who are uniquely good at what they do are nevertheless
promoted into other positions. In addition, although the use of subjective criteria does not itself
prove discrimination, Ms. Worker can point to the subjective nature of promotion decisions as
some support for her position. See Eldred v. Consolidated Freightways Corp. of Delaware, 898
F. Supp. 928, 939 (D. Mass. 1995). TSM should seek to rebut these factual arguments by use of
a motion for summary judgment to prevent this case from ever going to trial.

                               b)      Summary Judgment

       A critical issue in analyzing Ms. Worker‟s possible claim is evaluating whether, if she
files, TSM could succeed in dismissing her claim on summary judgment prior to a trial. This is
important because it would reduce TSM‟s costs and eliminate the risk of a judge or jury
sympathetic to Ms. Worker‟s claim. Of course, the chances of this happening also affect Ms.

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Worker‟s analysis of whether to file a claim in the first place or to settle early and cheaply if she
does file.

        This issue raises an interesting legal question that is currently before the United States
Supreme Court: To survive a motion for summary judgment, must a plaintiff proceeding under
McDonnell Douglas create a triable issue of fact only as to whether the employer‟s non-
discriminatory reason is a pretext, or must the plaintiff also present additional evidence -- beyond
proof of pretext -- that the employer‟s motive is discriminatory? See Reeves v. Sanderson
Plumbing Products, Inc., 1999 U.S. App. LEXIS 29724 (5th Cir. April 22, 1999), cert. granted
120 S.Ct. 444; 1999 U.S. LEXIS 7400 (November 8, 1999).

        This has been a hotly contested issue in the courts. Several circuits have required the so-
called “pretext plus” burden of proof under which proof of pretext alone may not survive
summary judgment. See Woods v. Friction Materials, Inc., 30 F.3d 255 (1st Cir. 1994); Theard
v. Glaxo, Inc., 47 F.3d 676 (4th Cir. 1995); Fisher v. Vassar College, 114 F.3d 1332 (2d Cr.
1997), cert. denied 118 S. Ct. 851 (1998) (but see Greenbaum v. Svenska Handelsbanken, NY,
1999 U.S. Dist. LEXIS 13773 (S.D.N.Y. 1999). Other circuits have applied a “pretext-only”
standard -- i.e. the plaintiff need only present triable evidence that the employer‟s proferred
reason for the employment decision is false. See, e.g., Sheridan v. E. I. DuPont de Nemours &
Co., 100 F.3d 1061 (3d Cir. 1996) (en banc); Washington v. Garrett, 10 F.3d 1421 (9th Cir.
1994); Combs v. Meadowcraft, 106 F.3d 1519 (11th Cir. 1997). The theory of this lower level of
proof is that proof of pretext itself creates a factual inference of discrimination. Indeed, the
pretext-only advocates argue, the very purpose of the McDonnell Douglas approach was to
create a presumption to help a plaintiff prove discrimination without the need to find other more
direct evidence of discrimination, which is, of course, hard to do.

        As applied here, this issue might play out as follows: Ms. Worker will argue that the fact
that TSM “promoted” two men into the same position, which just three months earlier TSM had
said was not needed, is sufficient proof of pretext to survive a summary judgment motion under
the “pretext only” standard. TSM will argue that even if this is true, there must be more under a

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pretext-plus approach. Even under this more rigorous standard, Ms. Worker may be able to
defeat a summary judgment motion by arguing that Hyhatt‟s conversation, use of statistics, and
comparison with the two men subsequently promoted establish a triable issue of discriminatory

          Of course, to analyze this issue further, we would need to see how the facts develop -- for
example, Ms. Worker may not be able to develop an admissible statistical study and her
qualifications, properly reviewed, may not be as good as the two male hardware engineers. We
would have a reasonable shot, however, of arguing that Ms. Worker‟s facts do not create a triable
issue of discriminatory intent. The Vice President, Page Turner, made the decision not to
promote and there is no evidence at all that he acted with discriminatory intent. Further, there is
no evidence that Hyhatt‟s references to Ms. Worker‟s gender affected TSM‟s ultimate decision
not to create a new position. See Bickerstaff v. Vassar, 1999 U.S. App. LEXIS 29726 (the issue
is whether the bias of one decision maker played a “meaningful role in the company‟s decision.”)
Therefore, if the Supreme Court rules in Reeves that “pretext-plus” is the proper standard, as I
predict it will, we have some chance of dismissing any McDonnell Douglas claim Ms. Worker
may file without having to go through an expensive and potentially dangerous trial. This, in
turn, should discourage Ms. Worker from proceeding at all or, if she does proceed, it may give us
an opportunity to settle with her on a reasonable, low-cost basis.

                         2.     Price Waterhouse and Mixed (or Dual) Motives

          Given the difficulties Ms. Worker may have presenting a triable case under McDonnell
Douglas, I expect she will try to take advantage of the somewhat more flexible and easier
standard set forth in Price Waterhouse v. Hopkins, 490 U.S. 228, 241-42 (1989), and further
clarified in the Civil Rights Act of 1991. See, e.g., 42 U.S.C. §§ 2000e-2(m); 2000e-5(g)(2)(B).
Under this mixed-motive or dual motive analysis, if a plaintiff can establish with direct evidence
that an illegitimate factor, such as sex, was a “motivating factor” in the employment decision,
then the burden shifts to the employer to prove (this is a burden of proof, not simply of
presentation) that “even if it had not taken [sex] into account, it would have come to the same

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decision . . .” based on legitimate, non-discriminatory reasons.   Id. at 242, 244; see also 42
U.S.C. § 2000e-2 (modifying the Price Waterhouse standard). And even then, under the 1991
Act, the employee may be entitled to equitable relief if she can prove that sex played some role
in the decision. See generally Fernandes v. Costa Brothers Masonry, Inc., 1999 U.S. App.
LEXIS 34283 (1st Cir. December 29, 1999).

       To prevent the mixed motive/burden shifting analysis of Price Waterhouse from
swallowing up the whole McDonnell Douglas analysis, the Supreme Court (or at least Justice
O‟Connor in the concurring opinion) held that the rule announced in Price Waterhouse -- which,
unlike McDonnell Douglas, shifts the burden of proof to the defendant -- can be used by a
plaintiff only if there is “direct evidence” of discrimination. Id. at 177 (O‟Connor, J.,
concurring) (“What is required [for mixed-motive analysis] is . . . direct evidence that
decisionmakers placed substantial negative reliance on an illegitimate criterion in reaching their
decisions.” Id. at 275 (emphasis added).

       The issue, then, is what kind and quantity of “direct” evidence is required to transform a
case from a McDonnell Douglas pretext analysis to a Price Waterhouse mixed motive analysis.
Justice O‟Conner provided some insight into how to resolve this issue by stating that stray
comments such as “statements by nondecisionmakers, or statements by decisionmakers unrelated
to the decisional process itself” do not count. Id. at 277. Numerous lower courts have tried to
define the “direct” evidence required by Price Waterhouse. A recent Court of Appeals opinion
reviewed all of these cases and discerned three “schools of thought.” Fernandes v. Costa
Brothers Masonry, Inc., 199 U.S. App. LEXIS 34283:

       a. The “classic position” defines “direct” evidence as “evidence which, if believed,
suffices to prove the fact of discriminatory animus without reference, presumption or other
evidence.” Id. See Shorter v. ICG Holdings, Inc., 188 F.3d 1204, 1207 (10th Cir. 1999); Haas v.
Advo Sys., Inc., 168 F.3d 732, 734 n. 2 (5th Cir. 1999).

       b. The “animus plus” position defines “direct” evidence as “evidence, both direct and
circumstantial, of conduct or statements that (1) reflect directly the alleged discriminatory

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animus, and (2) bear squarely on the contested employment decision.” Fernandes. See Taylor,
193 F.3d at 232. See also Lambert v. Ackerley, 180 F.3d 997, 1008-09 (9th Cir. 1999) (en banc).
The Third Circuit has also followed this approach, but now may change. See Hankins v. City of
Philadelphia, 189 F.3d 353 (3d. Cir. 1999), rehearing en banc granted, opinion vacated, 188 F.3d
217 (3d Cir. 1999).

       c. The “animus” position requires only that the “direct” evidence be tied to the alleged
discriminatory intent and need not relate to the employment decision at issue. See Lightfoot v.
Union Carbide Corp., 110 F.3d 898, 913 (2d Cir. 1997); Kerns v. Capital Graphics, Inc., 178
F.3d 1011, 1017-18 (8th Cir. 1999). The First Circuit, according to Fernandes, has not decided
the issue. See Ayala-Gerena v. Bristol Myers-Squibb, 95 F.3d 86, 95-96 (1st Cir. 1996).

                               a)         The Facts Here.

       Ms. Worker will argue that her conversation with Hyhatt constitutes “direct” evidence of
discrimination and that she is thus entitled to a Price Waterhouse instruction that will shift the
burden of proof to TSM. It is possible that Hyhatt‟s references to Ms. Worker‟s gender would
constitute direct evidence of discriminatory intent under any of the definitions because they
reflect his apparent belief that the reason she should not take -- and arguably therefore should not
be offered -- another position is because she is a woman. This bears directly on discriminatory
intent and on the specific employment decision at issue.

       We will try to negate this argument with three lines of related factual defenses. First, this
evidence bears on Hyhatt‟s intent, but not Turner‟s or anyone else‟s at the Company, so it is
arguably a “stray” comment that does not meet the “classic” or “animus plus” tests since it does
not relate directly to the actual decision at issue. Second, we need to distinguish the decision not
to create a new position from the decision to promote Ms. Worker to Project Engineer. The
former is the alleged “adverse” decision, but there is no direct evidence that the decision, as
reported by Turner, that TSM “cannot justify at this time creating the position you request,” was
motivated by anything except sound business reasons. Third, even if there is sufficient direct
evidence to get to a jury with a Price Waterhouse instruction, still TSM should be able to argue

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as a matter of fact that it made the decision at issue not because it did not want to give Ms.
Worker a new position or a promotion but because it affirmatively wanted her doing what she
was doing. In other words, TSM may well be able to meet its burden of proving that it would
have turned Ms. Worker down for the new position even without Hyhatt‟s recommendation and
therefore his conversation with Ms. Worker is effectively irrelevant.

           II. Steps to Improve Diversity in Management

       TSM faces a problem in the diversity of its workforce. There are no women in
management and Ms. Worker herself is the most senior woman engineer in the company. Even
if TSM successfully defends against a claim by Ms. Worker, it should move quickly and
effectively to develop better diversity in its management and engineering ranks.

       There are several reasons why TSM needs to improve its diversity. First, some of the
facts that will cause problems if Ms. Worker brings a claim are systemic facts and will help
support claims by others in the future. These facts include the absence of women in key
positions and the apparent sexual stereotyping by at least one TSM manager. These are relevant
facts in Title VII litigation without regard to the circumstances of an individual plaintiff. See,
e.g., Feder v. Bristol-Myers Squibb Co., 33 F. Supp. 2d 319 (S.D.N.Y. 1999) (deciding against
plaintiff on most claims, but describing the case as a “so-called „glass ceiling‟ case,” at 321, and
discussing issues of sexual stereotyping and corporate organization). Further, steps taken by
TSM to improve its diversity should help it defend against individual claims in the future.

       Second, TSM may face a federal audit of its employment practices. Assuming that TSM
is a federal contractor subject to the jurisdiction of the OFCCP, it faces the possibility of a
“Corporate Review” or “glass ceiling” review. These reviews are based on the earlier work of
the Glass Ceiling Initiative. See U.S.D.O.L., A Report on the Glass Ceiling Initiative (1991).
They focus on management level jobs “where there is a marked decline in the participation of
minorities [and] women.” Fed. Cont. Compliance Manual Ch. 5. At present, TSM would be
vulnerable to federal penalties, including disbarment from federal contracts.

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       Third, TSM may find that certain of its customers, including the colleges and universities
to which it seeks to sell its large enterprise security systems, may object to doing business with
TSM because of its lack of diversity in management and engineering positions.

       So what should TSM do? This is a subject for another day, but, briefly, TSM should
consider the following:

       a. Develop and present “diversity training programs” that educate management
employees on issues of discrimination, sexual stereotyping and diversity.

       b. Review promotion practices and job descriptions to be sure there is as much
objectivity in decision making as is possible consistent with business needs.

       c. Review all mid-level managers and engineers, including but not limited to women
and minorities, to try to identify candidates for promotion and advancement. TSM needs to
develop senior women and minority role models in management and engineering positions.

       d. Develop and implement an understanding at the highest levels within the company
that good client service and customer relations requires TSM to promote the best people into key
positions. TSM should recognize and acknowledge that a management and engineering work
force that does not reflect reasonable diversity does not contain or attract the best people.


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