Yahoo! Inc. (NASDAQ:YHOO) was sued Monday by a former employee on grounds that its employee ratings system was used to fire its workers without issuing them with an advance notice, in violation of state and federal laws.
Gregory Anderson, who previously worked at Yahoo as the editorial director of its auto and travel sites, filed the lawsuit with the U.S. District Court in San Jose, California. He said the Internet firm’s internal employee rating system, dubbed Quarterly Performance Review (QPR), was deliberately being used to designate a fixed percentage of employees as low performers in order to provide a basis to dismiss them.
Sparked Internal Political Infighting
Mr. Anderson alleges the QPR system was influenced by internal political maneuvers that ignited fierce competition that resulted in bribery attempts and that the system contravenes employment laws, Wall Street Journal reported.
“The process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed,” reads an excerpt from the filing.
Mr. Anderson also said that the performance contracting system gave managers room to rate workers under them based on personal bias and stereotypes, and entrenched gender discrimination. He says his previous boss, former CMO Kathy Savitt, publicly advocated increased visibility of women in the media industry. Mr. Anderson states in the lawsuit that Ms. Savitt hired or promoted more female workers at the company and fired or demoted more male workers.
Yahoo quickly responded, saying that the system is based on fairness. “Our performance review process also allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out,” said a company spokeswoman.
Mr. Anderson was among 600 Yahoo workers who were dismissed in November 2014. At the time, he had taken leave to attend a journalism fellowship at the University of Michigan. California law obliges companies to give a 60-day notice before dismissing at least 50 employees within 30 days at a single location. Federal law also requires similar conditions for layoffs involving over 500 employees.
Resembles Infamous Stack Ranking Approach
The lawsuit likens Yahoo’s performance management system, which was initiated about three years ago by CEO Marissa Mayer, to the contentious “stack ranking” or “forced ranking” approach previously used by General Electric (NYSE:GE).
Yahoo workers were assigned ratings ranging from 0 to 5, which were grouped with buckets in which expectations were classified from “greatly exceeds” to “misses” in the order.
Most large corporations such as Microsoft Corporation (NASDAQ:MSFT) have abandoned stack-ranking systems for a qualitative system based on frequent feedback. According to the lawsuit, managers were required to lump a certain percentage of employees into each bucket. This gave top-level executives an opportunity to rate staff they didn’t personally know favorably or unfavorably.
Mr. Anderson wants to be compensated for lost wages, bonuses, stock rights and other benefits and for the “severe emotional distress” he suffered upon his dismissal.
The lawsuit comes at a time when Yahoo is aggressively looking to trim its workforce due to the poor performance.