BOSTON — Wal-Mart’s public relations headache reached migraine status late Monday as a San Francisco federal judge cleared the way for the largest gender discrimination lawsuit against a U.S. company to date, potentially encompassing 1.6 million current and former female Wal-Mart employees.

If Wal-Mart loses or settles the case, punitive and lost-wage damages could surpass the $1 billion mark, according to the plaintiffs’ lawyers and financial analysts.

This story first appeared in the June 23, 2004 issue of WWD. Subscribe Today.

The response of the world’s biggest company was sharp and concise.

“Let’s keep in mind that today’s ruling has absolutely nothing to do with the merits of the case,” said Wal-Mart spokeswoman Mona Williams in a statement on the company’s Web site. “Judge [Martin] Jenkins is simply saying he thinks it meets the legal requirements necessary to move forward as a class action. We strongly disagree with his decision and will seek an appeal.”

Betty Dukes et al. vs. Wal-Mart Stores Inc. alleges the retailer systematically discriminated against women in promotion and compensation, and fostered a culture that stereotyped females as unwilling to work long hours or relocate. Both are key requirements for hourly workers at the retailer trying to enter salaried management ranks.

To sustain growth, Wal-Mart depends on its rapport with women. They form both the majority of its customers as well as the majority — roughly 65 percent — of its hourly employees. These entry-level employees earn an average of $18,000 annually.

In an 84-page ruling submitted Monday evening, Judge Jenkins called the case “historic in nature” and noted his ruling coincides with the 50th anniversary of landmark civil rights case Brown v. Board of Education.

“This anniversary serves as a reminder of the importance of the courts in addressing the denial of equal treatment under the law wherever and by whomever it occurs,” he wrote.

Both sides are set to return to court July 28 to take up scheduling and case management issues.

The opinion of analysts Tuesday was that the suit would not keep frugal shoppers away from Wal-Mart, although it might depress the stock price prior to settlement or trial verdict. Either result is at least a year off, said legal experts.

Emme P. Kozloff, an analyst at Bernstein Research, reduced Wal-Mart’s one-year target price of its stock to $60 from $63, but said the cash-rich retailer should be able to weather the case.

“A settlement or judgment in the billions of dollars is not necessarily a death blow to Wal-Mart,” wrote Kozloff in a research note. “Every $1 billion of pretax settlement-damages translates into about 15 cents of earnings per share.”

She noted that Wal-Mart generated approximately $8 billion worth of free cash flow last year and “could likely fund [a settlement or damage award] on the order of $10 billion with cash on hand and cash flow.” The company spent $5 billion last year to repurchase shares. According to its most recent quarterly report, Wal-Mart had $3.83 billion in cash and cash equivalents on its balance sheet. Operating cash was $16 billion.

Richard Hastings, retail analyst at Bernard Sands, doesn’t expect to see a huge impact on the consumer mind-set.

“In semirural communities, I think the psychology could be ‘I love shopping there, but I don’t have to work there.’ The effect in cities and competitive suburbs could be only slightly negative, depending upon local availability of another supermarket with low prices or other discounter or value retailer,” Hastings said.

Monte Wolfson, a retail consultant of the firm that bears his name, said the decision would have negligible impact on sales.

“Consumers are concerned only about product and price,” he said.

Wal-Mart has delivered comparable-store sales between 4.3 percent and 6.2 percent over the past six months.

Wolfson did acknowledge the retailer may face difficulty in being able to hire top people. “There’s a greater risk that local managers may be dishonest because of pressures to reach certain goals, and chances are that they’re not even telling top management what they’re doing locally,” he noted. “The reality is people forget that when someone has a job, he or she has the option to stay or leave if the conditions are unsuitable.”

Despite their dominance in hourly positions, women comprise only 14 percent of store managers, according to an analysis of Wal-Mart’s employment data submitted during discovery for the trial. Women were also paid 4.5 to 5.6 percent less than men with comparable experience, the study found. Wal-Mart employs roughly 1.5 million people worldwide; the Dukes case would encompass current and former female employees since December 1998.

In pretrial testimony that included the testimony of roughly 100 Wal-Mart employees, plaintiffs’ lawyers successfully argued that the retailer’s decentralized management style, which gives wage and promotion authority to individual store managers, prevented the case from having sufficient commonality for class-action status.

Citing the “Wal-Mart Way,” Judge Jenkins wrote: “There is no genuine dispute that Wal-Mart has carefully constructed and actively fosters a strong and distinctive, centrally controlled corporate culture.”

It’s that “smiley face” corporate culture that’s become rather threadbare over the past 18 months amid the arrests of illegal immigrant cleaning crews, community battles and numerous lawsuits alleging wage and hour violations. For example, Wal-Mart took heat last year for its 15-year-old policy of locking overnight employees inside about 10 percent of its 3,500 stores, citing the need to keep out burglars. After several unfortunate incidents, which included an Indiana worker suffering a heart attack inside a locked store, the company agreed to arm at least one manager with a key while also taking steps to ensure that locked-in workers could escape in an emergency.

Wal-Mart has fired back, spending millions to portray itself as a fair and responsible employer in a “Good Works” television and radio campaign featuring employee testimonials.

Earlier this month, at the close of a five-hour shareholders’ meeting focused on defending the company’s reputation, president and chief executive officer Lee Scott announced the company had set up a 140-person corporate compliance department and was revising its wage structure for certain employees.

Scott also pledged to hire the same percentage of women and minority applicants who apply for positions, “provided an equal number of qualified applicants apply.” Starting this year, executive bonuses will be tied to diversity goals. Scott, for one, will be penalized 7.5 percent of his bonus this year if his goals are not met and up to 15 percent next year.

Last November, the company created an office of diversity and tapped a top-ranking AT&T veteran and African-American woman, Esther Silver-Parker, as vice president of diversity affairs.

Jocelyn Larkin, an attorney with Berkeley, Calif.-based nonprofit Impact Fund representing the plaintiffs, said it’s too soon to say what effect these changes might have.

She estimated potential damages at “more than millions,” but said the “real goal” was to change Wal-Mart practices.

Settled Discrimination Cases
Publix Supermarkets
$10.5 million
$192.5 million
$24 million
Home Depot
$104 million
Source: Selected Data thelen reid & priest, the eeoc and bernstein research
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