Can Informal Performance Reviews Lead to Stronger Discrimination Claims?

A growing trend across Fortune 500 companies is the move away from annual employee performance evaluations to more frequent, less formal reviews. Accenture, Deloitte and Microsoft are just a few examples of corporations that have completely changed how they conduct performance reviews.

It’s estimated that 10 to 15 percent of Fortune 500 companies have ended annual performance reviews, and 50 percent will end them by the end of next year.

Employers are making this change to shift the focus to the employee’s work, rather than tying compensation and bonuses to preset goals. Employers say this encourages employees and their managers to discuss their work more frequently, rather than once a year during their formal review.

But there is an often unforeseen side effect: Highly individualized reviews could lead to legal claims of inequality and bias in regard to compensation and promotions.

Rule 23

If a group of employees wants to file a class action discrimination lawsuit against their employer, they must prove commonality (in other words, “questions of law or fact common to the class” must exist) under Rule 23 of the Federal Rules of Civil Procedure.

In its 2011 decision Wal-Mart Stores, Inc. v. Dukes, the Supreme Court clarified and heightened the commonality requirement, requiring that potential class members present at least “one common claim” that would allow a “classwide proceeding to generate common answers apt to drive the resolution of litigation.”

Under this standard, one might presume that an employer’s informal performance review process would make it more difficult for employees to prove commonality, because there may be less evidence for them to point to as proof of discrimination. But theoretically, the reverse might be true.

The Equal Employment Opportunity Commission has said that Rule 23 does not apply to its ability to bring class actions under Title VII of the Civil Rights Act and other anti-discrimination laws. (This stance has been supported by earlier Supreme Court decisions, such as Gen. Tel. Co. of the Northwest v. EEOC.)  What’s more, the EEOC could use an employer’s lack of uniform performance evaluations to show subjectivity when trying to show that a protected group had been discriminated against.

Burden-Shifting Framework

For individual lawsuits, the same risks apply. If employees lack direct evidence to prove employer discrimination, they must prove it instead through an indirect framework developed under the Supreme Court’s 1973 decision McDonnell Douglas Corp. v. Green, known as the burden-shifting framework. It goes like this:

1. Employees must demonstrate that they belong to a protected group; that they were meeting employer expectations; and that they experienced an adverse employment action while similarly situated employees received more favorable treatment.
2. Once an employee establishes that these conditions existed, the legal burden then shifts to the employer to show it had a legitimate, nondiscriminatory reason for taking the action that it did.
3. If the employer can successfully make that claim, the burden once again returns to the employee, who must prove that the employer’s stated reason was a pretext for discrimination.

Under this model, an employee’s lawyer could satisfy step 3 by using the company’s own informal, individualized performance reviews to dispute its claim that its actions were strictly performance-based.

What Can Employers Do?

For employers, the crucial component of implementing a less formal, more frequent employee performance review system should be maintaining accurate records of all performance-related conversations with employees.

Accurate records can help employers justify and defend any employment decision that might later be alleged to be discriminatory. A lack of recordkeeping, on the other hand, can work against employers, because they won’t have the evidence to disprove employment discrimination claims.

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