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Satya 'Karma' Nadella ignored our complaints over pay gap, thousands of Microsoft women say

Appeals court hears why they should be allowed to collectively sue for $100m

Analysis More than 8,000 female Microsoft employees have appealed a decision not to grant them a collective legal right to sue the software giant for pay discrimination, claiming that top management knew it was a problem but failed to fix it.

According to expert testimony put forward by the women, and unchallenged by Microsoft, there is a six per cent pay gap between men and women at the mega-corp. A lawsuit, brought by infosec specialist Katherine Moussouris back in 2015 in the US, has been trying to identify the root of that bias and eradicate it.

During the course of the lawsuit, thousands of other female Microsoft employees have sought to band together, greatly increasing the chances of success and institutional change, but that effort to turn it into a class-action lawsuit was struck down last year when a district court judge ruled that the evaluation process was so varied that there was no common injury shared by them all. Instead, he ruled, the cases would have to proceed on an individual basis.

At a hearing of the Ninth Circuit appeals court in Portland, Oregon, this week, the lawyer representing the women argued that the judge made a legal error in his decision by insisting it be considered at the manager level rather than at the very top of the management tree where the decisions were signed off.

“The leadership of the company were aware that women suffer serious bias and did not remedy it,” argued Anne Shaver of Lieff Cabraser Heimann & Bernstein, adding that Microsoft’s own pay equity audits had been “ridiculed” and resulted in “scores of emails” from female employees to senior management taking issue with them.

In short, she argued that Microsoft knew that there a big and persistent problem with women being paid less than men for the same job – even when the women were found to have out-performed their male colleagues – but didn’t take steps to figure out why and fix it.

Take it easy, man, it's all karma

It didn’t help that at the same time that female staffers were getting frustrated about pay gaps, in 2014, Microsoft CEO Satya Nadella told a room full of women at the Grace Hopper Celebration of Women in Computing that women shouldn’t ask for a raise but instead rely on “karma.”

"It's not really about asking for a raise, but knowing and having faith that the system will give you the right raise," Nadella said, later adding that staying silent on a pay gap would be a "superpower" for women. Adding to the sense of injustice is how Microsoft has handled hundreds of complaints by female employees over sexual harassment and gender discrimination. The short version: not well.

To Moussouris and other plaintiffs, “karma” didn’t quite cut it, and they feel the system is simply stacked against them. Women received lower performance ratings than male peers, despite having better performance, the initial lawsuit claimed, and women earned less than men for doing the same job.

The lawsuit became built around Microsoft’s “Calibration” system for employee evaluation which also fed into pay and promotion. In the course of the legal process, that system was shown to be widely varied and inconsistently applied – which you might think would act in the women’s favor, especially given that the evaluation committees that made the decisions were overwhelmingly staffed by men, but under the law it had the opposite effect.

The main US legal precedent in this area – when it comes to allowing a class-action lawsuit over gender pay discrimination – stems from a Supreme Court decision in 2011 which overturned the class certification of 1.5 million female Walmart employees, called Wal-Mart v. Dukes.

Duke it out

In that battle, the court decided that because there was not a “general policy of discrimination” i.e. no single, standard process for evaluation, it was not possible for all the women to have suffered a “common injury” and so they could not all sue together on the same point, i.e. have a single class-action lawsuit representing all of them.

It’s not at all clear that attorney Shaver managed to persuade the Ninth Circuit court this week that her case was any different. The judges continually asked to be pointed toward a single policy that demonstrated where the discrimination was happening, and she wasn’t able to give one, arguing instead that there was a structural problem that senior Microsoft management should have identified and corrected when faced with persistent evidence that there was a gender pay gap.

Shaver highlighted an aspect of Microsoft’s evaluation system that hasn’t been raised before in the long-running lawsuit: that of “stock bands” that pre-determine how much someone can be paid. There are two stock bands for each peer group at Microsoft, she explained, and women are disproportionately represented in the lower band, with men disproportionately represented in the higher band.

The end result of this approach is that “a woman can perform better but can’t be paid as much as a man in a different band.” As a result “women are locked into lower salary ranges,” she argued. The stock band that each individual is placed into is decided at the hiring stage and at subsequent evaluations where employees can be promoted to higher ranges and bands. But that decision and promotion practice is based around three criteria that are “not anchored in the job requirements,” Shaver noted.

In other words, she claims to have found the institutional flaw that results in women of equal ability and performance earning less than their male peers. And she referred to judges to a different legal case (Scott vs Family Dollar Store) which challenged the Dukes decision about there needed to be a single consistent policy for a class action to take place if there was an upper management overview of a gender pay gap. The Fourth Circuit largely upheld that challenge, which was then appealed to the Supreme Court but the Supreme Court chose not to take it up.

On the flipside

Legally, it is a decent argument that would allow the Ninth Circuit to overturn the district court’s decision in this case and so allow the female employees of Microsoft to join together in one class-action lawsuit.

But Microsoft’s representative was having none of it. Lynne Hermle, of Orrick Herrington & Sutcliffe, argued that all the evaluations were done through the Calibration system which everyone agrees provides so much discretion to individual managers that the Dukes precedent applies. She said that the idea that senior management had an overview of the process was not realistic and that at that level the decisions were only reviewed in total to ensure they fitted within budget.

The statistical conclusion that women were earning less did not override the issue under question, Hermle argued – whether all the women could become part of a class action lawsuit. Any suggestion otherwise was “completely false as a matter of law and fact,” she stated.

That comment earned a small degree of levity in the court with one of the appeals judges noting that it was a “very bold statement” – and not in a good way.

Hermle went on to argue that the appellants own expert had noted that 96 per cent of the proposed class had seen “no pay or performance disparity” – something that Shaver vehemently disagreed with, arguing that even after accounting for all other factors, the expert had found that women were paid less than men “to a strongly statistically significant degree.”

Big money

An accepted standard deviation for wages is two per cent, Shaver argued, but in this case it was 21 per cent: which leads to a real-world impact of six per cent lower wages. “We are talking about real money here,” she noted.

How much? Across the whole of Microsoft “over $100m”. Which may help explain why Microsoft is fighting the case so vigorously.

In truth, very few of the 8,600 women who have asked for the class-action certification are going to go to the trouble, time, and expense to sue Microsoft individually for their six per cent. It’s just not worth it. Which is why the class action is critical to their cases. If approved, it would be a single case and so much more manageable with a legal team that could agree to work for a cut of the final payment.

Whether that will happen or not is in now in the hands of judges Richard Paez, Johnnie Rawlinson, and Leslie Kobayashi. ®

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