Wal-Mart, Merrill Lynch, class actions, and disparate impact, oh my!

August 28, 2012 | By JOSHUA THOMPSON

Today, PLF filed this amicus brief  in the Supreme Court in support of certiorari in Merrill Lynch v. McReynolds.  This is a very interesting case that crosses over into two PLF projects: Free Enterprise and Equality Under the Law.

In Merrill Lynch, disgruntled employees are suing Merrill Lynch for disparate impact discrimination.  They allege that two Merrill Lynch corporate policies discriminate on the basis of race: (1) the “teaming” policy; and (2) the “account distribution” policy.  Both policies are Merrill Lynch corporate policies, meaning they apply to all individual Merrill Lynch branch offices.  The “teaming” policy allows individual brokers to form “teams” in order to pool their efforts with clients.  The “account distribution” policy allows local managers to reward those individual brokers who perform better.  The managers may reward successful brokers with accounts that become available when a different broker decides to leave Merrill Lynch.  If these policies sound pretty mundane, then I have explained them properly.  Here is how PLF described these policies in our brief:

Merrill Lynch made two commonplace and innocent corporate decisions—decisions identical to choices made every day in every school in the United States, from elementary to law school. The optional “teaming” policy allows individual brokers from the same office to form teams—just as students can form study groups if they choose—and the “account distribution policy” rewards brokers who perform their jobs well (even those who work independently), just as a school may have an honor roll for students who excel academically.

The plaintiffs sued Merrill Lynch, alleging that these commonplace policies are discriminatory.  The plaintiffs argue that some individual branch offices/employees/managers are discriminating.  (They don’t identify which ones.)  They argue that white people generally only want to work with white people and Asians only want to work with other Asians.  (Again, specifics are lacking.)  Because this “teaming” is discriminatory, and these discriminatory teams outperform some individual black brokers, when it comes time to “distribute accounts,” the merit-based “account distribution policy” favors those discriminating brokers.  The only evidence they have of this whole scheme is that on a corporate level, the “impact” of the two polices tends to favor white and Asian brokers.  They have failed to identify a single person (or office) that was, in fact, discriminating.

Nevertheless, the Seventh Circuit held that these allegations state a claim for disparate impact discrimination under Title VII.  There are two major problems with this decision: a Free Enterprise problem and an Equality Under the Law problem.  I explain both after the jump.

The Free Enterprise problem arises because this case completely vitiates the Supreme Court’s decision in Dukes v. Wal-Mart.  Dukes, you will remember, involved an attempt to bring a class action lawsuit against Wal-Mart.  There, the plaintiffs alleged that Wal-Mart’s lack of a policy consituted sex-based discrimination against women.  The Dukes Court rejected this argument. The plaintiffs were attempting to transform the class action lawsuit from a procedural device for efficiently disposing of a large group of essentially identical cases without duplicative court hearings, into a tool for vindicating broad “social justice” concerns that do not belong in the courtroom.  While it may be true that individual branch managers of Wal-Mart stores were discriminating, there was nothing inherent in Wal-Mart’s corporate “non-policy” that made class formation possible.  There was no “commonality.”  Any discrimination was the result of independent branch managers, and not a result of anything the coporate office had put in place.

The Seventh Circuit’s decision in Merrill Lynch would undercut the value of Dukes completely.  Similar to Dukes, any discriminatory action stemming from the “teaming” and “account distribution” policies at Merrill Lynch, is due to individual branch managers.  There is nothing inherently discriminatory in allowing brokers to form teams, or rewarding successful brokers.  And that is all that the Merrill Lynch corporate office allows.  If the Seventh Circuit decision in Merrill Lynch stands, than any corporate decision, however innocuous, can form the basis for a class action, so long as it produces effects that are not in “perfect proportion” to the workforce.   PLF’s brief argues that certiorari is needed to ensure Dukes is implemented properly.

The Equality Under the Law problem in this lawsuit results from abuse of the disparate impact cause of action pursued by the plaintiffs.  If disparate impact cases like this are allowed to continue to go forward, American business is in serious peril.  Allowing plaintiffs to thwart race-neutral business decisions, simply because they did not result in the “proper” racial outcomes, would put every business decision under the microscope.  Instead of stopping intentional discrimination on the basis of race — which is the purpose of Title VII — businesses would be required to make decisions because of race.  It forces businesses to first determine the racial outcome a particular policy would produce, and then determine the best course of action.  In other words, race-based decision making would be required.  As PLF points out in its brief, however, a law that requires private employers to make decisions because of race violates the Equal Protection Clause.  Civil rights laws should protect against racial discrimination, not encourage it.