Tossing Formal, Annual Reviews May Affect Workplace Litigation

As some large employers transition from using formal annual performance evaluations for employees to implementing more frequent, informal reviews, several employment law observers told Bloomberg BNA that the change hypothetically could affect some aspects of workplace litigation, such as proving or disproving allegations of discrimination or bringing class claims.

Risa Lieberwitz, professor of labor and employment law at the Cornell University School of Industrial and Labor Relations, said Jan. 21 that the use of performance reviews that are less uniform might make it more difficult for employees to prove commonality, one requirement necessary to certify a class action under Rule 23 of the Federal Rules of Civil Procedure.

Offering a different viewpoint, an Equal Employment Opportunity Commission spokeswoman observed that Rule 23’s requirements don’t apply to the EEOC’s ability to bring class suits under Title VII of the 1964 Civil Rights Act and other anti-discrimination laws.

She told Bloomberg BNA Jan. 28 that, hypothetically, if the EEOC were trying to show that a protected group had been disproportionately refused promotions, the lack of uniform performance appraisals could work in the agency’s favor to show subjectivity and bias.

Joseph S. Lakis, president of the Equal Employment Advisory Council in Washington, said the shift away from annual performance evaluation management processes could be a “sword that cuts both ways.” The EEAC is a nonprofit association that assists employers with workplace compliance requirements.

If it’s implemented well by an employer, the maintenance of less formal and more frequent records and data to assess and manage employee performance could help employers justify and potentially defend employment decisions that are later alleged to be discriminatory, he told Bloomberg BNA Feb. 3.

On the flip side, if an employer fails to maintain those records, it may prove difficult to defend against discrimination allegations using performance-related data, he said.

A Labor Department spokesman shared a similar perspective, pointing out that even in the absence of annual performance reviews, employers—such as federal contractors subject to the jurisdiction of the Office of Federal Contract Compliance Programs—need to document and maintain information on their employment decisions.

When the OFCCP conducts compliance evaluations of federal contractors, the agency requests that information and examines it, he told Bloomberg BNA Feb. 8.

The observers cautioned, however, that it’s still too early to say whether employees and employers in actuality will have an easier or more difficult time bringing or defending workplace lawsuits or class actions.

Trend: Moving Away From Traditional Reviews.

Last summer, global management consulting firm Accenture PLC announced that it was ending traditional annual reviews.

The company said in an August 2015 statement that it would begin a “new approach” that will “enable employees to receive timely feedback from their managers, on an ongoing basis, throughout the year.” In making the change, which went into effect last September, Accenture joined other large firms that made similar moves, including accounting firm Deloitte and technology company Microsoft Corp.

Lieberwitz of Cornell said employers have an “enormous amount of discretion” in determining the best ways in which they evaluate their employees and which processes they use to do so.

A transition away from annual performance reviews, in and of itself, “doesn’t tell us anything” about whether it would affect discrimination allegations brought by employees, she said. However, the change potentially could affect how evidentiary questions are answered in bias cases, Lieberwitz said.

Burden Shifting Under McDonnell Douglas.

When employees lack direct evidence of discrimination, they must prove bias through an indirect method governed by the burden-shifting framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792, 5 FEP Cases 965 (1973).

For bias allegations under Title VII, which prohibits discrimination based on race, sex, color, national origin and religion, employees must first establish a prima facie case.

Generally, employees do so by demonstrating that they belong to a protected class, were meeting their employer’s legitimate expectations and experienced an adverse employment action while similarly situated employees outside of the protected class received more favorable treatment.

From there, the burden of proof shifts to the employer to show that it had a legitimate, non-discriminatory reason for the adverse action.

Finally, the burden reverts to the employees to prove that the stated reason was a pretext for discrimination.

Versions of the McDonnell Douglas burden-shifting paradigm are also used for bias claims under other federal laws, such as the Americans with Disabilities Act and the Age Discrimination in Employment Act, as well as related state laws. Additionally, burden shifting can come into play in retaliation claims under Title VII and other employment laws, including federal whistle-blower laws.

Proving, Disproving Bias With Reviews.

The EEOC spokeswoman said although McDonnell Douglas prescribes burden-shifting, it “doesn’t mandate what types of evidence need to be offered at the difference stages.”

On that note, Lieberwitz said an employee seeking to bring a discrimination case would confront the same types of evidentiary issues, whether or not the employer uses a formal annual review.

She posed a hypothetical in which a female employee brought a Title VII sex bias suit against her employer and alleged that her supervisor was using discriminatory performance criteria against women.

Copies of annual performance evaluations for that employee and similarly situated male workers could provide evidentiary context for her claim, Lieberwitz said.

For example, the reviews could show how the female employee’s supervisor evaluated her in comparison to men, she said. That would be the case whether the performance evaluations were formal and annual or informal and more frequent, Lieberwitz said.

She observed, however, that informal reviews that aren’t uniform have the potential to become highly individualized, which could lead to more claims of inequality and bias, such as in compensation or promotions.

From an employer standpoint, Lakis of the EEAC said it’s difficult to speculate whether companies will have an easier or more difficult time using “less formal documents, records of conversations and data points” to defend against or disprove allegations of unlawful discrimination.

The Importance of Record-Keeping.

However, he emphasized that record-keeping is key.

“To be sure, if an employer has jettisoned its formal performance evaluation management process system, and doesn’t keep the less formal records and data that it will use to assess performance, it will be far more difficult if not impossible for that employer to defend against or disprove allegations of unlawful employment discrimination using performance-related data,” he said.

But if the same employer does develop and maintain the less formal, more frequent records and data to assess and manage employee performance, Lakis said, then those records “in theory should be an adequate and in some cases an even stronger substitute” for once a year evaluations.

For instance, if an employer alleged it took an adverse action against an employee because of poor performance and relied on that worker’s evaluations to support that legitimate, non-discriminatory reason, Lakis said more frequent reviews potentially could work in the employer’s favor.

That employer could rely on more recent performance assessments instead of an annual review that might have taken place months or nearly a year ago, he said.

The DOL spokesman also emphasized the importance of record-keeping for employers, such as federal contractors subject to nondiscrimination requirements enforced by the OFCCP.

He observed that many factors contribute to an employer’s personnel decisions, such as an employee’s prior experience, education, certifications, tenure and work specialization.

“Even in the absence of employee rankings or annual performance reviews, contractors still need to document and maintain information on how they make decisions regarding hiring, terminations, promotions and pay and what factors legitimately account for disparities in these employment decisions,” the DOL spokesman said. “The OFCCP would request this information and examine it during the course of a compliance evaluation.”

Effect on Class Actions Under Rule 23?

Additionally, the employment law observers posited that shifting away from formal annual reviews potentially could affect the ability of employees to bring class actions.

Rule 23 of the Federal Rules of Civil Procedure includes several requirements that employees must satisfy in order to bring a class action. One of those is the commonality requirement, which states that “questions of law or fact common to the class” must exist.

In Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 112 FEP Cases 769 (2011), the U.S. Supreme Court clarified and heightened the commonality requirement. It held that potential class members must present at least “one common claim” that would allow a “classwide proceeding to generate common answers apt to drive the resolution of litigation”36 EDR 713, 6/22/11, 9 WLR 1035, 6/24/11, 119 Corporate Law Daily, 6/21/11, 118 DLR AA-1, 6/20/11, 2011 HRDSN, 6/21/11, 25 LRW 1127, 6/23/11, 11 EXER 314, 7/4/11, 120 Employment Policy & Law Daily, 6/22/11, 120 PBGCN, 6/22/11, 29 HRR 677, 6/27/11.

Following Wal-Mart, Lieberwitz said, one could ponder whether formal, more uniform evaluation systems “perhaps provide a better evidentiary basis” for satisfying the commonality requirement, as opposed to informal, potentially highly individualized methods of reviewing employees.

Lakis said he thought the speculation on performance reviews and Rule 23’s commonality requirement is “well placed.”

“The more formal and widespread a document or a policy or a process is, the easier theoretically it will be for a plaintiff to point to that process or form or document as the evidence of the glue that binds the class together,” he said. “In the case of employers who are moving away from the formality of annual performance evaluations, the evidence of that glue may be harder for plaintiffs to muster.”

EEOC Not Governed by Rule 23.

The EEOC spokeswoman pointed out that the agency doesn’t have to meet Rule 23’s commonality requirement to bring a lawsuit on behalf of a number of individuals.

“For us to represent a large group of people, they have to have been subjected to similar discrimination,” she said.

For example, if the EEOC claimed that Hispanic employees were being disproportionately refused promotion, “a lack of uniform appraisals could work in our favor to show subjectivity and bias,” the spokesperson said.

“But this is a hypothetical,” she added.

Lakis reiterated that the move away from formal annual reviews is a sword that cuts both ways.

If done well, it can help the employer meet its objectives for adopting a less formal process while still allowing it to defend against bias allegations, he said.

“If an employer is doing it well and correctly, and creating and keeping potentially more frequent pieces of information about employee’s performance, [the change] shouldn’t matter,” Lakis said. “The totality of those records and data points should serve as an adequate if not better substitute for the once in a year performance evaluation.

“But if it’s not done well,” he said, “it can help a plaintiff or a regulator demonstrate that bias influenced the employer’s decisions.”

To contact the reporter on this story: Jay-Anne Casuga in Washington at jcasuga@bna.com.

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com.