The Price of Discrimination: The Nature of Class Action Employment Litigation and its Effects

Abstract

This article analyzes the recent wave of large class action employment discrimination suits to determine their effects on the firms that are sued and the members of the plaintiff class. The first part of the paper includes an event study that measures the effect the lawsuits and their settlements have on stock prices of the companies that are sued, and the second part of the paper involves three case studies (Texaco, Home Depot and Denny's) to explore how the lawsuits actually change corporate practices. The study finds that the lawsuits do not generally affect stock prices, and rarely provide meaningful benefits to the plaintiff class. Although the damages obtained in the cases are substantial, they are generally not sufficient to affect large corporations, which also means that the lawsuits are unlikely to provide a sufficient deterrent against discrimination. An important subsidiary finding of the study is that employment discrimination class actions have lost their public nature and have evolved into private tort claim where there is little public oversight. The last part of the article proposes several reform measures, including increasing damages available in employment discrimination suits, and imposing a public monitoring function on the settlement.