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EMPLOYMENT LAW — 4/17/07

FedEx tentatively settles bias suit for $54.9 million, abandons "Basic Skills Test"

FedEx Corp and a class of African-American and Hispanic employees have reached a tentative $54.9 million agreement settling allegations of systemic race and national origin discrimination. The settlement, covering a class of 20,000 hourly employees and managers who have worked in the western region of FedEx since October 1999, will be submitted to the United States District Court, Northern District of California for preliminary approval on April 13, 2007 (Satchell v FedEx Express, NDCal, Nos 3-03659 & 03-02878, proposed consent decree filed 4/9/2007).

Background. Filed by current and former employees of the company, the lawsuit alleged that FedEx paid African-American and Hispanic employees less than non-minority employees, denied minority hourly employees promotions that they were qualified to receive and subjected minority employees to unfair and harsher discipline than non-minority employees for the same conduct. A subsequent complaint challenged as having a disparate impact FedEx's "Basic Skills Test" which was used by the company as a prerequisite to promoting employees. A third complaint eliminated claims under California's Fair Employment and Housing Act and broke the Title VII causes of action into separate claims for disparate impact and disparate treatment.

On September 28, 2005, the district court granted class certification. In its certification order, two nearly identical classes were certified: (1) the "Minority Employee Class," which included African-American and Hispanic nonsupervisory employees; and (2) the 'African-American Lower-Level Manager Class," which included lower-level African-American managers. After the district court and the Ninth Circuit Court of Appeals (86 EPD ¶42,116) denied a motion by FedEx to overturn the class certification, the parties conducted "broad, extensive and thorough discovery on the merits," according to the proposed consent decree. The parties also participated in several settlement negotiations, including "face-to-face negotiating sessions" with mediator Hunter Hughes. The last negotiation occurred in March 2007 and the proposed consent decree was filed before the court on April 9, 2007.

Proposed settlement terms. Under the terms of the proposed consent decree, which would last four years, FedEx has agreed to not just monetary relief, but also comprehensive injunctive relief. The proposed settlement requires the company to reform its promotion, discipline and pay practices and implement multiple steps to promote equal employment opportunities, including making its performance evaluation process less discretionary. As part of the proposal, FedEx has agreed discontinue use of its "Basic Skills Test" as a condition for promotion to various positions (i.e., ramp transport driver or customer service) without "requiring passage of an alternative cognitive-ability test as a condition precedent to being offered one of those positions." If the company chooses to implement a new selection device or test for those positions, it must monitor whether the device or test has an adverse impact on African-Americans or Hispanics. FedEx will also revise its personnel policies to "provide for greater consistency in the use of disciplinary tools such as warning letters and performance reminders."

The company will also develop "an interactive, mandatory diversity training module to help managers identify barriers that inhibit valuing race and ethnic diversity, understand why race and ethnic diversity awareness and acceptance is important to FedEx’s growth and future, learn how racial and ethnic stereotypes hinder effective communication and workplace interactions, and learn how to recognize differences and how those differences can enhance the workgroup." FedEx must provide each of its western region officers, managers and employees a written notice attesting to its commitment to diversity, equal employment opportunity and implementation of the non-monetary aspects within 30 days of settlement approval an annually during each year of the decree.

The proposed decree will also establish a settlement fund of approximately $54.85 million, plus one half of the FedEx's share of payroll taxes, to pay class members and pay attorneys' fees. The class includes the above-referenced covered employees in the western region from October 1999 to the present. Payment to the class members will be based on: (1) length of service; (2) status as part-time or full-time employee; and (3) if they failed the "Basic Skills Test." Of the $54.85 million settlement, nearly $38.5 million will provide payments directly to the class, $15 million will be used to reimburse class counsel for the approximately $2.575 million in costs they have incurred to date and $12.425 million in attorneys' fees for their work performed through the date of preliminary approval. The settlement also will provide service payments of up to $30,000 for each class representative and up to $5000 for 18 additional class members who submitted sworn declarations and, in some cases, were deposed by FedEx. The parties have agreed to the appoint Hunter Hughes as "Special Master" to oversee the terms of the decree.

For more information on this and other topics, consult CCH Employment Practices Guide or CCH Labor Relations.

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