Major changes in how 3M Co. treats employees, rather than cash payouts to older workers, may be the greatest consequence of the company's settlement of three age-discrimination cases this year.
The settlements will cost the Maplewood-based company at least $15 million and end seven years of litigation. But a more lasting effect of the cases will be a series of organizational changes and enhanced scrutiny by a federal agency to ensure that older workers are treated fairly, attorneys say.
3M has maintained that it never discriminated against several thousand current and former workers affected by the suits. The company says it is settling -- none of the deals are final yet -- to avoid the cost and distraction of litigation. None of the settlements constitute an admission of guilt.
The latest settlement, announced this month with the U.S. Equal Employment Opportunity Commission (EEOC), spells out 17 practices 3M must follow in evaluating, promoting and terminating employees. 3M also must report on its compliance, which the federal agency will monitor for three years.
"The money is only a one-time thing," said Marshall Tanick, a Twin Cities employment attorney who was not involved in the case. "The things companies are ordered to change and the EEOC oversight, those things have a more lasting impact on an organization."
The changes range from a prohibition on "forced ranking" of employees in ways that allegedly discriminated against older workers to a requirement that the company accept competitive applications for coveted "black belt" training under the Six Sigma quality improvement program.
The impact of these changes is magnified because of the company's size -- 3M has a U.S. workforce of about 33,000, with about 10,000 in Minnesota.
3M spokeswoman Donna Fleming Runyon said "modest changes" will be needed in how the company communicates and trains employees to comply with the settlement terms -- an assertion disputed by an EEOC lawyer.
"The company was not doing most of them," said David Offen-Brown, the San Francisco-based attorney who headed the agency's case. "That's why they're in there."
Six Sigma questioned
One major focus is Six Sigma, the quality and training program established under former CEO James McNerney that was a centerpiece of all three suits. They alleged that 3M's program rewarded and promoted younger workers while older employees got lower performance ratings, fewer advancement opportunities, smaller pay increases and higher rates of terminations.
"After McNerney came you started to see people chosen for special projects and opportunities based on their youth," said one former employee, who spoke on condition of anonymity. "I had a manager ask me, 'How old will you be next January?' That was the beginning of the next cycle for choosing people for these things, and it was common knowledge you wouldn't be selected if you were near 50. It was a change, because 3M previously had a culture that held experienced people in high regard."
Tanick, Offen-Brown and attorneys at AARP, who served as co-counsel in one suit, said they are not aware that Six Sigma has been implicated in other large age-discrimination cases. Representatives of Sprenger Lang, the law firm that represented 3M workers, did not return phone calls last week.
McNerney was the first outsider to be named CEO at 3M, which had long developed executives internally. He brought Six Sigma from his former workplace, General Electric. The program aims to reduce service errors and product defects, and 3M had credited it with helping to boost profits during McNerney's tenure.
In Six Sigma, highly trained employees known as "black belts" and "master black belts" serve as internal experts, putting them in line for promotions and better pay. At 3M, the suits said, executives chose black belts subjectively and picked few people over 45 and none over 55 from 2001 to 2004. 3M now must post such openings and accept applications.
3M managers under McNerney also used "forced ranking" to evaluate employees in comparison to each another, with quotas for how many could be ranked from high to low. The practice has provoked age discrimination lawsuits at other companies, including Ford Motor Co., which paid a $10.6 million settlement in 2002. The 3M suits alleged forced ranking contributed to lower ratings of older workers.
Runyon said 3M only used the system from 2001 to 2002, but a 2006 court filing alleged that managers were still using parts of it. Under the settlement, 3M can't use quotas in performance appraisals.
3M has modified its use of Six Sigma under current CEO George Buckley, who eliminated it in research laboratories, saying that innovation is "an inherently messy process" that doesn't lend itself to the program's focus on precise measurement.
More age-discrimination claims
In the past five years, age discrimination claims have increased at a faster clip than race or sex discrimination charges, according to the EEOC. That's not terribly surprising, given the large numbers of aging baby boomers in the workforce.
But Offen-Brown says he doesn't believe demographics are the only reason. A statistical analysis by the EEOC found 3M terminated a disproportionately high number of workers 45 and older from July 1, 2003, to Dec. 31, 2006.
"It wasn't by chance. Older people were targeted," he said.
A 3M analysis disputed the EEOC's findings.
Tanick believes many companies that trimmed workforces during the recession used the poor economy as an opportunity to weed out older employees. Even though that's wrong, he also believes economic realities can make it easier for managers to justify terminating higher numbers of older employees.
"Older workers tend to cost more, posing a higher risk when it comes to health care, disability, and pension costs," he said. "They can be seen as ticking time bombs. That creates a difficult set of issues for managers."
Susan Feyder • 612-673-1723