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Sex discrimination and CPA firms.

President Bush late last year signed the Civil Rights Act of 1991, which amends Title VII of the Civil Rights Act of 1964. Precisely what this act achieves will not be clear until it is interpreted in the courts. However, we do know the law increases the potential liability of employers found to have discriminated on the basis of sex. Male-dominated CPA firms may be particularly vulnerable. Firm partners, after all, will be passing judgment on the thousands of women who become eligible for partnership nominations. As they do, they should be conscious of what is and is not acceptable behavior.

It's important, then, that partners carefully design and fully understand their firms' personnel evaluation procedures. All evaluations must be gender neutral. Unfortunately, no one is exactly sure what gender neutrality means in practice. However, the new law does offer important clarification of the issues raised in Hopkins v. Price Waterhouse, a very meaningful case for the accounting profession, which was tried under Title VII of the 1964 act. Partners can draw conclusions from the case to help them avoid sex discrimination.

THE NEW LAW

The Civil Rights Act of 1991 amends earlier legislation. It also offsets several U.S. Supreme Court decisions that narrowed the scope and effectiveness of discrimination law and makes it easier for victims of alleged job discrimination to sue and collect damages.

The act is aimed at victims of sex and other kinds of discrimination. In cases of intentional discrimination, it gives either companies or employees the right to jury trials instead of the prior right to bench trials only. Victims of intentional discrimination are entitled to compensatory damages. Also, if individuals can demonstrate their employers unlawfully discriminated with malice or reckless indifference to their rights, they are eligible for punitive as well as compensatory damages. And courts may award victims the jobs or promotions they were denied.

However, there are two important qualifications. First, it's possible that an individual could prove sex discrimination was a motivating factor in a personnel action while the employer proves it would have taken the same action had there been no illegal discrimination. In these "mixed-motives" cases, the court may grant only certain kinds of relief (such as limited injunctions) plus attorney fees and related costs. It may not award money damages or require admission, reinstatement or promotion.

Second, the new law limits damage dollar amounts for intentional discrimination based on company size: $50,000 for businesses with 15 to 100 employees, $100,000 for those with 101 to 200, $200,000 for companies with 201 to 500 employees and $300,000 for those with more than 500. The sum of compensatory and punitive damages can't exceed these caps, but the limits don't include attorney fees or court costs. It isn't clear if these caps are constitutional, especially since the law places no caps on racial discrimination case awards.

Since it is not yet possible to know how courts will interpret the act, firm partners must be guided by relevant case law. The most important recent decision is Hopkins v. Price Waterhouse, which offers instructions on the standards CPA firms must meet. However, because the case predates the 1991 act, it must be read in conjunction with it.

THE CASE

Price Waterhouse said Ann Hopkins was turned down for partnership in 1983 and not renominated because she lacked the necessary interpersonal skills. She resigned and, after following appropriate administrative remedies, sued the firm in federal court, charging it with sexual discrimination in its promotion practices under the 1964 Civil Rights Act. The U.S. Supreme Court decision in the case has a significant bearing on all CPA firms because, for the first time in U.S. history, an accounting partnership was forced to accept as a partner a person it did not want to remedy discriminatory behavior.

THE LEGAL ISSUES

To understand this final determination and its meaning for CPA firms, it is important to take into consideration the following four major legal issues:

* The legitimacy of using "interpersonal skills" as an evaluation criterion.

* A firm's right to weigh its evaluation criteria in any way it wishes.

* The permissibility of using criticisms based on sexual stereotyping in personnel actions.

* The responsibility for the burden of proof.

Arguing in federal district court before Judge Gerhard Gesell, Hopkins claimed Price Waterhouse's reference to her interpersonal skills in its evaluation process violated the 1964 Civil Rights Law. She added that even if her interpersonal abilities sometimes came up short, they were more than offset by other strengths. Finally, she asserted partners' criticisms of her interpersonal skills violated her civil rights because they were based on sexual stereotyping. She believed suggestions she was given such as "take a course at charm school" and "walk more femininely, talk more femininely, dress more femininely" were clear indications of sexual discrimination.

In its counterarguments, Price Waterhouse relied heavily on Hopkins's inability to get along with other workers. Partners, the firm said, must be able to work well with other supervisors, successfully oversee staff members and avoid jeopardizing morale through abrasive behavior. According to the firm, Hopkins's gender was never an issue. Rather, the problem was her inability to act as a good team player.

Judge Gesell declared that Hopkins's inability to get along with people was a legitimate, nondiscriminatory reason for denying her a partnership. He also rejected her claim that her substantial professional strengths offset her problems with colleagues. He ruled that firms retain the fight to weigh their evaluation criteria as they choose, so long as they don't discriminate. Price Waterhouse had the right to choose to give substantial weight to interpersonal skills in its decision.

However, Judge Gesell held in regard to sexual stereotyping that the comments in Hopkins's evaluations, as well as partners' stereotypical comments in previous evaluations of women candidates and the firm's failure to take corrective action, signified de facto discrimination. While such stereotyping may have been unconscious, it was nevertheless present and probably helped block Hopkins's promotion.

According to Judge Gesell, a firm found employing both legal and illegal (discriminatory) criteria in its personnel decisions must prove by "clear and convincing evidence" (not just by the "preponderance of the evidence") that the same decisions would have been made had no bias been present. In this case, Price Waterhouse did not do so and was thus guilty of discrimination. But, because Hopkins resigned voluntarily, he ruled she was not entitled to financial relief other than reasonable attorney fees.

On appeal, the U.S. Court of Appeals affirmed the district court's finding of liability, as well as the employer's burden to provide clear and convincing evidence that it would have reached the same decision if bias had not been present. But it concluded the partners' decision not to nominate Hopkins for partnership a second time constituted a career-ending discharge. As a result, despite her voluntary resignation, the court ruled she should receive a monetary award.

Price Waterhouse appealed to the U.S. Supreme Court, which reached two conclusions in December 1990. First, it affirmed (by a 6to-3 vote) that sexual stereotyping was a form of discrimination and, thus, illegal. Second, it held the lower courts had applied the wrong test of evidence to the case. Instead of the clear and convincing standard of proof test, they should have applied the less stringent preponderance of the evidence test. The Court as a result remanded the case for reheating.

Upon rehearing, Judge Gesell reaffirmed his conclusion that Price Waterhouse had illegally discriminated against Hopkins. This time, however, he ordered Price Waterhouse to promote her to principal and enjoined the firm from retaliating against her. Her monetary award, computed as if she had become a principal in 1983, was $371,000, plus reasonable attorney fees. Price Waterhouse lost its appeal of this decision in the U.S. Court of Appeals.

IMPLICATIONS AND SUGGESTIONS

The case has four clear implications for CPA firms:

* Businesses may continue to use interpersonal skills as a consideration in personnel evaluations, as long as application of this criterion is gender neutral.

* Employers may give any weight they choose to nondiscriminatory evaluation criteria used in personnel actions.

* It is illegal to base personnel action on sexual stereotyping, even if that stereotyping is unconscious.

* Employers charged with sexual discrimination bear the burden of proof and must show they would have reached the same decisions if discriminating factors had not been present. Under the 1991 act, when gender is proved to be a motivating factor in a mixed-motives case, the plaintiff can receive a judicial declaration of illegality and be awarded attorney fees and court costs, but not money damages or admission, reinstatement or promotion.

Clearly firms must make every effort to avoid even the hint of discriminatory behavior, particularly because the new civil rights law allows punitive damages. There are a number of steps firms can take to reduce the risk of liability:

* Create formal education programs to ensure employees understand what constitutes sexual discrimination and firm policies on it. These programs should inform employees of the importance of avoiding discrimination.

* Let employees know that discrimination or harassment will not be tolerated. Firms can get this message across using written discrimination policies, prompt discipline of individuals guilty of discrimination and annual reviews of employee attitudes toward particular groups.

* Reprimand anyone who shows any sign of sexual bias in written evaluations or comments. A firm must investigate comments about an employee that suggest a double standard and disregard such biases in decision making. For example, the term "abrasive" tends to be used as criticism for female professionals and thus is likely evidence of sexual stereotyping. Employers should also discourage seemingly positive stereotyping, such as "women are more understanding" or "she always dresses well."

* Identify specific, objective measures for employee performance and promotion. Downplay subjective factors that lend themselves to stereotyping. Identify characteristics that constitute a good supervisor or professional appearance before attempting to determine whether an employee has those characteristics. If requesting written comments, tell supervisors to restrict them to the criteria being evaluated. Encourage respondents to provide actual examples of employee performance.

* Do not be afraid to challenge difficult personalities, but take care to do it in gender-neutral language. If someone can't get along with others or is a poor supervisor, say why and give specific examples. Remember, courts don't forbid negative evaluations, only those that discriminate based on sex or other prohibited bases.

In addition, try not to use potentially stereotyping terms. Negative comments should be specific and supported by concrete examples. For example, it is permissible to say an employee is consistently late for work, or that his or her reports are often late and poorly written or that a candidate for partnership has lost a major account. However, it is ill-advised to characterize an individual as lazy or to say he or she ' has a domineering personality. These are generalizations, not concrete examples.

* Inform employees in writing when they are not performing to standard and place the report in their personnel files. Keep a record of all warnings and responses. It is necessary to have careful, genderneutral documentation to rebut discrimination charges.

* Explain why a promotion was denied or postponed only if it's made clear there may be other reasons for the decision. Let employees respond and correct any false information contained in their files. If there are gross errors in a file or if discrimination is suspected, employees should be able to appeal to a separate appeals board. When partnership decisions are placed on hold, employees should be told what they can do to improve their chances the next time.

A KEY TO FUTURE SUCCESS

For the foreseeable future, the impact of the Civil Rights Act of 1991 is quite clear. There will be more lawsuits surrounding hiring and promotion. The financial costs of fighting such suits will be heavy.

At the same time, most CPA firms' future success will depend on recruiting more women and minorities. If a firm is to attract and retain these individuals, it will have to discourage discrimination in the workplace and create a fair job-performance evaluation method. This means, quite simply, that firms must design objective evaluation systems to reach defensible personnel decisions. If this is accomplished, discrimination in employment decisions will not be eliminated but will be substantially reduced.

CHARLES W. WOOTTON, DBA, is associate professor of accounting at the College of Business, Eastern Illinois University, Charleston. STEPHEN D. HOGAN, PhD, is associate professor offinance at the Eastern Illinois University College of Business. MARSHA C. HUIE, JD, LLM, is a professor at the School of Law, St. Mary's University, San Antonio, Texas.

EXECUTIVE SUMMARY

* THE CIVIL RIGHTS Act of 1991 increases the potential liability of employers found to have discriminated on the basis of sex. Because the act still must be interpreted in the courts, the most important existing case law is Hopkins v. Price Waterhouse, in which a woman denied partnership sued the firm, alleging sex discrimination.

* THE CASE, which ultimately went to the U.S. Supreme Court, established that employers may use interpersonal skills as a consideration in personnel evaluations and may give any weight they choose to nondiscriminatory evaluation criteria used in personnel actions. Under the 1991 act, however, gender cannot affect decisions.

* THE COURTS RULED that it is illegal to base personnel action on sexual stereotyping, even if it is unconscious, and that employers charged with sexual discrimination must prove by a preponderance of the evidence they would have reached the same decisions if they hadn't discriminated.

* TO AVOID POTENTIAL litigation, employers should educate employees about sexual discrimination and their policies on it. They also should demonstrate discrimination or harassment will not be tolerated and reprimand those who show sexual bias in evaluations or comments.

* FIRMS ALSO MUST identify specific, objective measures for employee performance and promotion. It's permissible to challenge difficult personalities, but it must be done in gender-neutral language. Employees who aren't performing to standard should be informed in writing. Firms should explain in part why a promotion was denied, giving genderneutral reasons.
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Author:Huie, Marsha C.
Publication:Journal of Accountancy
Date:Aug 1, 1992
Words:2338
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