Hiring employees isn't a science. No matter how many procedures and rules a company has in place for its managers, there always will be some degree of subjectivity in hiring and promotions.

That subjectivity turned into an unexpected liability in 2004 for Atlanta-based Southern Co., one of the nation's largest utility providers, when seven employees sought certification of a class action suit on behalf of the company's 2,400 African-American employees.

The plaintiffs alleged Southern violated Title VII and Section 1981 by discriminating against blacks in hiring, promotion and pay rates. As proof, they offered nothing more than a statistical snapshot of the company's employees. Their statistics demonstrated companywide disparities between blacks and whites, yet statistics compiled by the defendant painted a different picture.

Cooper v. Southern Co. called into question two issues at the core of the development of class action litigation–whether statistical evidence is sufficient to show a pattern of systemic discrimination, and whether plaintiffs seeking monetary damages can pursue class certification under Federal Rule of Civil Procedure 23(b)(2).

Fortunately for businesses throughout the 11th Circuit and, many argue, the nation, the court landed firmly on the pro-business side of both of these contentious issues when it refused Nov. 11, 2004, to certify the class.

“Certainly if I were a private plaintiffs lawyer, I would look at this decision and think it's going to be tough going in the 11th Circuit to get a large class certified,” says Dori Bernstein, an attorney with the EEOC who filed an amicus brief in Cooper.

The Color Of Money

Until the early 1990s, Rule 23(b)(2) was the primary vehicle for certifying discrimination class actions. That rule requires plaintiffs to show that injunctive or declaratory relief with respect to the whole class is the appropriate and primary remedy.

However, since the Civil Rights Act of 1991 amended Title VII to allow plaintiffs to seek compensatory and punitive damages in discrimination cases, courts have been unsure whether they should still certify under that rule. Because individual plaintiffs now have the right to litigate their own damages claims, individual damages often overshadow the classwide injunctive relief required under 23(b)(2).

Courts still are trying to sort out whether monetary damages preclude 23(b)(2) certification. The issue has proven deeply divisive among federal courts. The 11th is the fourth circuit court to revisit this issue in recent years. Some courts held that whenever monetary damages are sought, they automatically predominate over injunctive relief and thereby make 23(b)(2) certification inappropriate. Other courts held that if the claims for monetary damages are “incidental” to the injunctive relief, the suit may still go forward as a class (see “Doing The Splits,” p. 21).

The 11th Circuit came down on the pro-business side of the debate, adopting the conservative standard set forth by the 5th Circuit in Allison v. Citgo Petroleum Corp.

Quoting Allison, the court wrote, “Damage claims in a Rule 23(b)(2) class action must be incidental to the equitable and declaratory relief because the basic premise of such a class action–that class members suffer a common injury properly addressed by class-wide equitable relief–'begins to break down when the class seeks to recover … monetary relief to be allocated based on individual injuries.'”

That standard has civil rights advocates worried that it will be almost impossible for discrimination plaintiffs who face an unfavorable ruling in a district court to go forward with a legitimate claim.

“If you look to the committee notes to the rule, they indicate that that was basically the purpose of establishing rule 23(b)(2)–to enable civil rights class actions,” Bernstein says. “Some courts are arguing that you now have to use 23(b)(3), and under that rule there's much more discretion involved. So right off the bat, if a court refuses to certify a class, you're up against a real uphill battle in trying to get a reversal.”

Others argue that such a standard simply follows the letter of the law.

“Compensatory and punitive damages don't flow from a common violation,” says Richard Gerakitis, a partner at Troutman Sanders in Atlanta who represented the defendants. “So those damages cannot be incidental to injunctive relief as required by the rule.”

Lying With Statistics?

The other major issue in Cooper is whether statistical analysis is sufficient to establish a pattern-and-practice discrimination case.

The plaintiffs presented a statistical snapshot of Southern Co. that compared white and black employees at the same job grades, tenure with the company, level of education, and amount of work experience. They were able to point to significant disparities in how much the company paid black and white employees and the rate at which it promoted them.

Southern Co. didn't have firm policies governing hiring, promotion and pay–most of those decisions were up to managers. The plaintiffs argued that discretion led to a companywide practice of discrimination. Fortunately for Southern and other employers in the 11th Circuit, the court rejected that argument.

“An extreme reading of the ruling would be that if you can't point to an express policy that led to discrimination, you're going to have a hard time getting a (b)(2) class certified,” says Allan King, a shareholder in Littler Mendelson's Dallas office who closely followed the case. “At the very least, it sets the bar for a statistical case higher.”

That's good news for large employers. Defense attorneys argue that all employment decisions involve some degree of discretion, and if that could be used to show a practice of discrimination, almost every large employer would be vulnerable to class actions by a large sector of their workforce.

“Certifying a class is usually the end of the ballgame,” says Chris Arbery, a partner at Hunton & Williams in Atlanta who represented the defendants. “Not many companies can afford the risk of an adverse judgment in a case that involves 1 million plaintiffs, so they're forced to settle whenever a large class is certified.”

Although Cooper is good news for businesses in the 11th Circuit, some worry

the decision could shift the litigation to other courts.

“Because we're dealing with national employers, most of these cases could be legitimately filed in several different circuits,” King says. “So this decision will likely divert cases to other jurisdictions.”

As time goes on more circuits will weigh in on these essential issues and line up on the two sides of the argument. Eventually, the Supreme Court may have to step in to resolve the question.