Could Lawsuit Topple Signet's(SIG) US Brands?

 

What a difference 19 months can make?   It was on March 20, 2008 when I first wrote about a pesky lawsuit 15 disgruntled female employees had brought against the Sterling. In the lawsuit, the employees alleged among other things that Sterling, Signet jewelers US subsidiary, discriminated against the them when they paid males more doing similar work, while simultaneously, choosing males over equally qualified female employees for promotion. Frankly, this kind of lawsuit doesn’t get much attention in the news beyond the announcement and the a settlement and then only if it’s big enough. That certainly has been the results to date, but that could be changing.

A Federal court judge recently upheld an arbitrator’s ruling that an action in arbitration could be certified as a class action. According to some reports, that opens the way for the plaintiffs to bring as many as 20,000 current and former employees into the complaint against Sterling. For comparison, that is more plaintiffs than the company has employed in the US today. 

Still, the plaintiffs have numerous procedural hurdles to overcome.   In fact, it remains to be seen whether the parties involved in the process can actually receive due process under arbitration. Arbitration came into vogue in the 1990’s as a way for big retailers and banks to circumvent the state and federal court system after the Supreme Court ruled parties in a complaints were afforded the same rights in that process as in the public courts. No matter that, no court in any western democracy recognized arbitration as a legitimate substitute for trial by jury; the Supreme Court chose to open the door to compulsory arbitration.

What will happen next isn’t certain. If the arbitrator rules in favor of the class action certification, Sterling’s attorneys will have a much harder time proving that the 15 original complaints were just a coincidence and not a willful, planned, disregard of its female employee’s rights in the workplace. That could not only mean substantial awards for lost wages, but consequential damages too. It could also mean criminal investigation by US Attorney’s Office to determine if there was a conspiracy by Sterling to deprive female employees of their civil rights, none of which is good for Sterling or Signet’s stockholders. Nevertheless, it could be months before the outcome of this case is know.

Closer to today, Sterling executives may need to do a lot of spin control, if the original complaint is enlarged to a class action suit. For instance, many current employees could become Plaintiff’s in the case, which could undermine in-store morale, while a greater gaggle of disgruntled, former employees can only mean more bad press too. What was once considered a periodic, local news storey could rise to national prominence. Still, whether the Plaintiff’s allegations are covered by national media isn’t as important as the effects of social media like Facebook, Twitter, and UTube too on the consumer’s attitude toward Sterling and its leading brands. Let’s face it, discriminating against 20,000 women employed in Kay and Jared jewelry stores isn’t a great way to motivate women to choose those brands for their precious diamond jewelry. Remember, about 85% of what Sterling sells is chosen by and used by women.

 Meanwhile, Sterling faces one of toughest business environments its history and a lot more change thereafter. According to reports, Walker Boyd, the company’s Financial Director will retire in June 2010 and Terry Burman will follow him shortly into retirement on about January 29, 2011.