Sterling Jewelers Case Highlights Perils of Arbitration

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By Kevin McGowan

Arbitration has a reputation for being faster and less expensive than traditional litigation in court. And it often is. But as the owner of Kay, Jared and Zales jewelry stores and a class of female workers can attest, the process can also have significant drawbacks.

Sterling Jewelers Inc. faces classwide claims alleging women lagged behind men in pay and were less likely to be promoted. The case may be particularly large and complicated, but it shows the disadvantages of arbitrating class discrimination claims, Adam Klein, a plaintiffs’ attorney with Outten & Golden in New York, told Bloomberg BNA March 3.

It can be slow, expensive and conducted largely out of the public eye, he said.

The arbitration trial isn’t expected to begin until the spring of 2018, about 10 years after 15 female employees first filed a lawsuit alleging classwide discrimination. The women involved won’t seek company liability for sexual harassment, but their allegations of male managers’ sexual advances toward female employees put Sterling in an unfavorable media spotlight.

The focus remains on holding the large jewelry retailer liable for discriminating against female sales employees in pay and promotions, said Kalpana Kotagal, one of the lawyers representing a class of about 69,000 female current and former Sterling employees.

Why So Long to Decide?

The Sterling arbitration case is an outlier in some ways. Most employment class arbitration actions involve wage and hour claims, not bias claims, and “very few” proceed to a hearing on the merits, said Alfred Feliu, of Feliu Neutral Services LLC in New York.

The wage and hour arbitration cases tend to “settle out” if an arbitrator certifies a class or collective action, Feliu told Bloomberg BNA March 6. Feliu also is editor of a Bloomberg BNA book on alternative dispute resolution in employment.

The women who allege Sterling engages in a “pattern or practice” of sex discrimination sued in 2008, before the U.S. Supreme Court issued a series of decisions on class arbitration.

So perhaps it’s not surprising Sterling spent almost four years litigating whether class arbitration was available while the Supreme Court was in flux, professor Michael Z. Green of Texas A&M University Law School in Fort Worth, Texas, said.

But it’s also been five years since the Supreme Court denied Sterling review of an appeals court ruling that allowed the class arbitration to proceed.

A Long and Winding Road

Many arbitrators have special expertise in employment law, Green told Bloomberg BNA March 6. That doesn’t mean they necessarily are skilled in managing class claims, he said.

Arbitrators lack the resources available to federal judges, including law clerks and magistrate judges who can help speed things along, Klein said. Arbitrators also are less accountable than federal judges regarding scheduling and deadlines, he said.

Many employers now insert class action waivers in their arbitration agreements. But Sterling’s agreement requiring its workers to arbitrate employment disputes predated the 2011 Supreme Court decision that generally enforced such waivers. Absent such a provision, Arbitrator Kathleen Roberts ruled the agreement permitted class arbitration.

Sterling and the female employees find themselves locked into class arbitration when a federal court would be a much better place to try their case, Klein said.

“I just don’t see the point of the whole exercise,” Klein said. “It’s taking too long” to reach the merits of the employees’ claims, he added.

Sterling Challenges ‘Distorted’ Image

The Sterling case received new scrutiny after the company and the women’s attorneys agreed to make public women’s statements alleging that some male executives and managers pressured female workers for sex, conditioned promotions on the women’s responses to their advances and engaged in other inappropriate sexual conduct.

The sworn statements from more than 100 female former employees put a glaring spotlight on Sterling, a subsidiary of Signet Jewelers Ltd., and owner of the Kay, Jared and Zales jewelry chains.

Allegations relating to events that happened years ago paint “a distorted and inaccurate picture” of Sterling, the company told Bloomberg BNA in a written statement.

Claims of inappropriate sexual behavior “involve a very small number” of people in a workforce of more than 84,000 employees, the company said. Sterling “takes any concerns seriously and had—and continues to have—multiple processes in place to receive and investigate allegations of misconduct.”

Women comprise “more than 68 percent of store management staff” and “female participation in management continues to grow,” Sterling said.

Harassment Claims Boost Bias Claims

The women in the case say Sterling pays women less than men doing the same jobs and systematically discriminates against female employees in promotions.

Sexual misconduct allegations are relevant to the equal pay and promotion claims, said Kotagal, a partner with Cohen Milstein Sellers & Toll PLLC in Washington.

The women’s statements provide “a shocking window” into how female employees were treated by Sterling’s male executives and managers, who had the power to decide how employees would be paid and promoted, Kotagal told Bloomberg BNA.

Attorneys don’t expect sexual harassment claims to be pursued in the trial before Arbitrator Roberts, Kotagal said. But it was critical to make the charges public so absent class members knew what was being alleged in the typically private arbitration proceedings, she said.

The women’s statements, which were released with the male employees’ names blacked out, are “quite clearly relevant” to a company practice of “devaluing women” in the workplace, Kotagal said.

Claims of sexual misconduct toward women could support findings of intentional sex discrimination under Title VII of the 1964 Civil Rights Act and “willful” violations of the Equal Pay Act, Kotagal said. The women could recover liquidated or double damages for willful violations of the federal pay law, she said.

Trial at Least a Year Away

Nine years after 15 Sterling female employees first filed their sex bias lawsuit in federal court, a trial-like hearing before the arbitrator remains at least a year away.

In addition to the arbitration, the Equal Employment Opportunity Commission in 2008 filed a separate lawsuit against Sterling, alleging nationwide violations of Title VII’s sex bias ban. That case also has been mired in procedural disputes. Discovery is proceeding in that case and no trial date has been set in a federal district court in Buffalo, N.Y.

Discovery has been completed in the arbitration case and attorneys representing the women now are working with experts, pondering motions to file and planning trial strategies, Kotagal said.

The lawyers “hope and expect” the arbitrator’s hearing will begin next year, but no date has been set, Kotagal said.

Sterling has two appeals regarding the arbitrator’s class certification rulings pending before the U.S. Court of Appeals for the Second Circuit, which could slow things down.

Sterling Takes a Hit

Sterling may already be damaged regardless of how the pending arbitration and litigation play out, said Jonathan Segal, a partner with Duane Morris LLP in Philadelphia who represents employers.

Retailers spend millions to build their brands, but those efforts can be futile if a company is publicly accused of allowing widespread harassment, Segal told Bloomberg BNA.

Even if the Sterling employees’ harassment claims aren’t true, there’s a “perception of a problem” that could lead potential customers to avoid its stores, Segal said.

Sterling’s parent company, Signet Jewelers Ltd., saw its stock price fall after published reports of alleged sexual harassment and other bias against female employees.

More “reputational” harm to Sterling may be coming, Segal said. A company publicly accused of harassment “has a new brand and it’s not a good one,” he said.

Companies seeking to rebuild their public images after such a hit face a tough task, said Segal, who served on an EEOC workplace harassment task force that completed its work in 2016.

“It takes a long time for a company to burrow its way out of these allegations,” he said.

Such companies must seek to become “leaders” at preventing future harassment and building a culture of respect, Segal said. A company in Sterling’s position should do a “cultural audit,” identifying risk factors that might have caused the alleged workplace misconduct.

“If there’s a systemic problem, you need a systemic solution,” he said.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Christopher Opfer at copfer@bna.com

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