Forced Rankings: The Latest Target of Plaintiff's Employment Lawyers

Much has been made of the recent trend by companies to engage in ranking employees against each other as a means of evaluating their individual performance. Countless employers employ such mechanisms as an effective tool for eliminating poor performers and keeping employees on their toes; however, employees are seeking recourse. Indeed, a number of employees have brought their complaints to court, claiming that the forced ranking systems have had a discriminatory impact on their employment. Three companies that have received a great deal of national attention recently, resulting from such lawsuits, are Microsoft, Ford and Conoco. At each workplace, a different group of employees has brought the lawsuits alleging discriminatory practices: African Americans and women at Microsoft; older workers and white men at Ford; and United States citizens at Conoco.

Microsoft

At Microsoft, employees are ranked from 1 to 5, the majority receiving a grade between 2.5 and 4.5. Microsoft reports that its employees are largely responsible for developing the criteria upon which they are ranked that there are no fixed percentages for each ranking. Microsoft employees are also able to appeal their ranking through an internal procedure. Notwithstanding, a number of lawsuits have been filed against Microsoft alleging discrimination arising out of the forced ranking system. To date Microsoft has fared fairly well in the pretrial stages of these cases.

In one suit, Peter M. Browne, a high-ranking African-American employee, claimed that Microsoft’s evaluation, promotion and compensation practices have a disproportionately negative effect on African-American and older employees. He claimed that managers, including himself, were forced to rate very small groups of employees without objective criterion and ended up favoring those individuals with whom they socialized, typically, white males. The United States District Court for the Western District of Washington granted Microsoft’s motion for summary judgment in May, 2001, finding that “Mr. Browne fail[ed] to come forward with evidence sufficient to show that members of a protected class have been disproportionately selected for employment and promotion at Microsoft.” Mr.Browne has filed an appeal with the Ninth Circuit Court of Appeals.

Additional suits against Microsoft pending in the United States District Court for the Western District of Washington before Judge Pechman have been filed by Monique Donaldson and Rahn D. Jackson alleging race and sex discrimination and seeking class-action status. Judge Pechman has declined to consolidate the two cases.

The court has denied Donaldson’s motion to certify the case as a class action, finding that there existed no class of persons sharing any common claim of discrimination and no evidence of either disparate treatment or disparate impact arising out of the implementation of the rating system. The court also has dismissed the disparate impact claim because plaintiff failed to notify the EEOC that she was pursuing such a claim, either on an individual or class-wide basis. A trial date has been set for May 28, 2002. In Jackson, the court has required each of the seven plaintiffs to file individual complaints.

Ford

The ranking system adopted at Ford in January 2000 mandated that all management employees be placed in three categories and that 10 percent of the management employees in each business unit be ranked at the lowest level. The following year the company mandated that only 5 percent be ranked at the lowest level. After eight lawsuits, including two class-actions, Ford’s CEO Jacques Nasser announced on July 10, 2001, that Ford will no longer require that a certain percentage of its employees be ranked in the lowest tier.

The two class action lawsuits against Ford were filed last year in Wayne County Circuit Court in Detroit, Michigan. The first suit, Siegel et.al. v. Ford, was filed in February, 2001, and alleged that the company’s performance evaluation system constituted both disparate treatment and disparate impact age discrimination. The plaintiffs alleged that the grading system was being used to weed out older employees in that they unfairly received poor evaluations. The second suit, Streeter et.al. v. Ford, filed soon after, was brought by older white males and alleged that Ford intentionally discriminates based on age and gender and that Ford’s performance evaluation system has a disparate impact on Caucasians, males and older workers.

The two class actions were recently consolidated, for purposes of settlement. Without admitting liability, Ford has agreed to a total class award of $10,500,000.00. A fairness hearing will be held on March 14, 2002.

Conoco

At Conoco, employees were ranked from 1 to 4 and based upon these rankings, 12 geophysicists and other scientists were laid off in 1999. Following the layoff, two American geoscientists were replaced by Britons working under special inter-company managerial visas. Those two United States citizens, along with four other ex-Conoco scientists filed a lawsuit against Conoco alleging national origin discrimination, in the Southern District of Texas in April, 2000. Conoco’s motion for summary judgment was denied on October 26, 2001. The case was subsequently dismissed with prejudice, following a confidential settlement being reached by the parties.

Practical Advice

Critics of forced ranking systems generally point to the same problems that arise out of any performance evaluation procedure, namely, that the rankings are based on subjective factors, reflect the biases of individual managers and may not take into account the particular talents or weaknesses of an individual, especially if that individual is a member of a particularly strong or weak unit. Clearly, the lawsuits filed against Microsoft, Ford and Conoco demonstrate the downside of implementing ranking systems. However, these lawsuits and the criticisms leveled against ranking systems should not dissuade companies from engaging in effective performance evaluation procedures.

Companies should engage in an evaluative process that encourages managers to provide honest feedback to employees. Written performance evaluations used in tandem with a ranking system and diversity program can actually assist companies in defending against discrimination and harassment lawsuits. If done properly, the procedures should provide companies with written documentation justifying any legitimate and non-discriminatory employment decision subsequently made. Indeed, it is much more difficult to defend an employment decision when there is no evidence justifying it or where the employee did not receive negative feedback prior to the adverse employment action.

In developing performance measurement procedures that will best serve the company employers should consider the following:

1. 1. Audit current performance evaluation procedures to determine how managers are currently evaluating employees to assure consistency is maintained;
   2. Create a team consisting of outside counsel, a member of upper level management and a human resources representative to develop and monitor the evaluation process and ensure that it is being implemented in a non-discriminatory manner taking into account the company’s particular diversity goals;
   3. Develop clear criteria and consistent forms to be used by all managers to avoid subjectivity;
   4. Conduct mandatory training sessions for all managers on the use of evaluation forms so that they fairly evaluate employees and communicate their criticisms;
   5. Consider providing employees with the ability to challenge their performance ranking through an internal dispute mechanism;
   6. Communicate to all employees the purpose of the performance evaluation procedures, the process that will take place and how evaluations and rankings will be used. For example, employees should be informed of the consequence, if any, of a low ranking and reminded that receipt of a top grade does not change their at-will status; and
   7. Obtain regular feedback from employees regarding their perceptions of the effectiveness of the process.