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Walmart announced on Friday that it had settled a lawsuit that accused the company of discriminating against gay and lesbian employees when it denied health insurance benefits to same-sex spouses.
Under the deal, Walmart will set aside $7.5 million, mostly to compensate employees affected by the denial of spousal benefits during the three years before Jan. 1, 2014, when the company changed its policy. More than 1,000 people may be eligible.
But the agreement also signals how legal doctrine on discrimination against gays and lesbians is rapidly changing, making it increasingly likely to be considered a form of sex discrimination. Such a doctrine would generally make it easier for gay and lesbian plaintiffs to prevail in court, as federal civil rights laws prohibit sex discrimination.
“We’re happy both sides could come together to reach a resolution,” Sally Welborn, a Walmart senior vice president, said in a statement. “We will continue to not distinguish between same- and opposite-sex spouses when it comes to the benefits we offer under our health insurance plan.”
Since the late 1980s, the primary way for plaintiffs to fight discrimination based on their sexual orientation has been to argue that an employer treated them unfairly because they did not conform to gender stereotypes.
So, for example, a gay plaintiff might win in court by arguing that he was denied a promotion because he did not appear sufficiently masculine. But he was unlikely to win by arguing that he had been denied the promotion because he was gay or in a same-sex relationship. This frequently limited plaintiffs’ ability to prevail.
In recent years, however, the federal Equal Employment Opportunity Commission, along with some federal courts, have found that discrimination on the basis of sexual orientation is “inherently” sex discrimination, as the commission wrote late year, and therefore outlawed by the Civil Rights Act of 1964.
The commission’s stance could change under President-elect Donald J. Trump, who will nominate new commissioners to the agency over time. But by then there could be an emerging consensus in the federal courts, making a reversal less relevant.
The Walmart settlement, pending preliminary approval by the judge in the case, William G. Young of the United States District Court for the District of Massachusetts, appears to reflect the growing acceptance of the commission’s analysis by private sector employers.
In their motion for preliminary approval of the settlement, lawyers for the lead plaintiff, Jacqueline Cote, argued that Walmart had discriminated against Ms. Cote because she was married to a woman. They also made the more traditional argument that the company had discriminated against Ms. Cote because she did not conform to the stereotype that women must marry only men.
Although Walmart did not endorse any particular legal theory as part of the settlement, it also did not move to dismiss the case on grounds that the arguments were flawed.
“Some employers, as well as some employee groups, will be wondering if this reflects Walmart’s assessment of where courts might be moving,” said Helen Norton, a professor at the University of Colorado Law School.
Ms. Cote began working as an associate at Walmart in Maine in 1999 and worked continuously at the company there and in Massachusetts through 2015. In 2004, she married Diana Smithson, another Walmart associate, in Massachusetts, where she lived.
In 2008, Ms. Smithson left the company to become the primary caregiver for Ms. Cote’s mother. Around that time, Ms. Cote began trying to enroll Ms. Smithson in Walmart’s spousal health insurance plan. The company repeatedly blocked her from signing up because of its policy of denying health insurance benefits to same-sex spouses.
In 2012 Ms. Smithson was diagnosed with ovarian cancer, and the couple ran up some $150,000 in uninsured medical expenses over the next few years.
Under the deal, Walmart will reimburse current or former employees affected by its previous policy for the full out-of-pocket cost of their spouse’s health care from Jan. 1, 2011, to Dec. 31, 2013, if they submit documentation of the costs incurred. The company will also pay 250 percent of out-of-pocket costs for those who submit documentation for expenses of $60,000 or more in health care expenses for their spouse.
The settlement identifies roughly 1,100 people who may be eligible for compensation, though it acknowledges that the number could be higher.
The company also committed to treating same-sex couples and heterosexual couples equally when administering its health benefits. Walmart made same-sex spouses eligible for health benefits in 2014, but even after this it claimed it had no legal obligation to do so. Ms. Cote’s lawyers argued in their complaint that this left same-sex couples in a more precarious financial situation, since Walmart could easily rescind the coverage.
“We are glad that as part of the settlement Walmart will continue to provide the same health insurance benefits regardless of the gender of the associate’s spouse,” Peter Romer-Friedman, one of Ms. Cote’s lawyers, said in a statement.
A judge’s preliminary approval in this sort of settlement typically happens within a matter of weeks.
The broader legal landscape suggests a coming shift in federal courts’ thinking on whether discrimination on the basis of sexual orientation violates existing civil rights law.
While much of the recent litigation in this area has focused on employment-related issues, plaintiffs may successfully challenge similar discrimination in the realms of housing and lending, where federal law also prohibits discrimination on the basis of sex. At least one plaintiff has brought such a complaint.
Cases litigating the question of whether sexual orientation discrimination is inherently sex discrimination are pending in multiple federal appeals courts, and Attorney General Loretta Lynch told BuzzFeed this spring that the Justice Department was “looking” at whether to adopt the new position. (The department declined to comment on when it would reach a conclusion.) The issue could come before the Supreme Court in the next few years.
One prominent case had a rehearing last month before the full United States Court of Appeals for the Seventh Circuit in Chicago, after a three-judge panel from the court had rejected the new discrimination doctrine. At the rehearing, the judges appeared sympathetic to overturning the court’s previous position.
“The trend lines are very positive,” said P. David Lopez, general counsel of the Equal Employment Opportunity Commission. “The courts have really drilled down and started to re-examine whether prior precedent makes sense.”
He added: “Walmart is the latest data point in what we’ve seen is a real fundamental shift.”