On March 30, 2004, the U.S. Supreme Court made it easier for employees over the age of 40 to sue for age discrimination under the federal Age Discrimination in Employment Act (ADEA). Smith v. City of Jackson, No. 03-1160 (March 30, 2005). The Court ruled that employers can be held liable under the ADEA even without proof of intentional age discrimination. This decision authorizes employees to bring "disparate impact" age discrimination claims - claims that employment policies that are not specifically based on age nonetheless negatively impact older employees more significantly. Although the eventual impact of the Court's decision is difficult to determine, employers will now be forced to defend their employment policies against claims that they disadvantage employees over the age of 40.
The plaintiffs in Smith were a group of police officers, employed by the City of Jackson, Mississippi, who are all over the age of 40. In March 1999, the City granted pay raises to all of its police officers and dispatchers. However, the City granted officers and dispatchers with tenures of five years or less proportionally larger raises than it gave employees with tenures of more than five years.
The plaintiff officers sued. They claimed that even though the City's salary increase policy did not directly rely on age, it nonetheless effectively favored younger employees. They argued that because most officers and dispatchers with fewer than five years of tenure are under the age of 40, the pay plan granted smaller raises to employees over the age of 40. In contrast, the City argued that it had a legitimate, non-discriminatory reason for adopting the revised pay plan: to bring starting salaries for police officers up to the regional average, to develop a more generous pay scale and to consider tenure as a factor in the pay scale.
No one argued that the City adopted the pay scale with the intent to discriminate against older employees. The issue the Supreme Court had to decide is whether the ADEA prohibits only intentional age discrimination, or whether it also includes disparate impact claims.
Supreme Court's Decision
The Court ruled that the ADEA is not limited to intentional age discrimination and that in some cases a neutral policy that merely has a more significant negative impact on older employees can violate the ADEA.
In reaching its decision, the Court adopted differing rationales. Four justices concluded that because the prohibition against discrimination in the ADEA is worded identically to that found in Title VII, the Court's prior decision that Title VII does not require a showing of discriminatory intent and allows disparate impact claims meant the ADEA similarly does not require proof of intentional age discrimination. These justices cited the ADEA's prohibition of actions that "deprive any individual of employment opportunities or otherwise adversely affect his status as an employee," and noted that the statute "focuses on the effects of the action on the employee rather than the motivation for the action of the employer." Justice Scalia relied instead on an EEOC regulation that allowed disparate impact claims, finding that the regulation was a reasonable interpretation of the statute.
The Court further concluded, however, that an employer's burden to defend a disparate impact claim under the ADEA is less than its burden under Title VII. Under Title VII, if a practice has a disparate impact based on race, sex or another prohibited category, the employer must prove that the practice is justified as a "business necessity." To do so, the employer must show that there is no other reasonable alternative method to meet its objectives that would not have a disparate impact. However, the Court recognized that the ADEA contains a defense that Title VII does not, providing that a decision will not violate the ADEA if it is based on "reasonable factors other than age." The Court stated that as long as an employer can show that a policy with a disparate impact on older employees is based on "reasonable factors other than age," it will not be held liable even if the policy impacts older employees more harshly. The employer does not have to show that there were no other alternative ways to meet its goal that would have a lesser impact on older employees.
Even though the Court ruled that the ADEA generally allows disparate impact claims, it ruled that the police officer plaintiffs in Smith were not entitled to recover. It first ruled that to recover for disparate impact age discrimination, the employee must identify a specific employment practice that has an adverse impact on older employees. Here, the Court found that the plaintiffs had failed to identify any specific part of the City's pay plan that had an adverse impact. Rather, they had "done little more than point out that the pay plan at issue is relatively less generous to older workers than to younger workers."
Second, the Court found that the pay plan was based on reasonable factors other than age. It noted that any disparate impact against older employees "is attributable to the City's decision to give raises based on seniority and position." It found that the City's reliance "on seniority and rank is unquestionably reasonable given the City's goal of raising employees' salaries to match those in surrounding communities."
The Smith decision that employees no longer need to prove intentional age discrimination to recover under ADEA broadens federal age discrimination law at a time when the law is of growing importance to an aging American workforce. Within five years, half the labor force will be at least 40 years old, the age at which the ADEA's protections apply. The Supreme Court's conclusion that employees can prove age discrimination without a showing of discriminatory intent means that many current employment practices will likely be subject to age discrimination challenges, and it will be more difficult to dismiss these cases without discovery.
Because certain abilities decline with age, many seemingly neutral qualification requirements and performance standards may very well impact more heavily on employees over the age of 40. The Supreme Court's decision means that employers will now be forced to justify such criteria as based on "reasonable factors other than age." It also means that employers will not be able to get suits challenging such practices on disparate impact grounds dismissed at the outset, but will have to go through discovery and possibly a trial to vindicate their practices.
At the same time, the decision makes clear that an employer's burden to defend against a disparate impact age discrimination suit is not as high as its burden to defend against a disparate impact race or sex discrimination suit. The Supreme Court put up several hurdles that an age discrimination plaintiff must clear. First, the plaintiff must identify the specific practice that impacted more heavily on older employees. Thus, it would probably not be enough simply to claim that more older workers were let go in a reduction in force. The plaintiff would have to show what part of the selection criteria caused the disparate impact. Second, it appears that the plaintiff may retain the burden of proof throughout the case, including the burden of disproving the reasonable factors other than age set forth by the employer to justify its policies. Third, as noted above, an employer will not be required to demonstrate that there were no other alternatives that would have a lesser impact on age, but merely that the policies it chose were reasonable ways to attain goals unrelated to the ages of employees.
The decision leaves open a number of important questions about what kinds of disparate impact claims violate the ADEA. In particular, the decision does not address whether cost-saving can be accepted as a reasonable justification for a policy that impacts older workers - who are often the highest paid - more harshly. Lower court judges have disagreed on this issue, which is of great importance in reduction in force decisions.
It remains to be seen whether the Supreme Court's authorization of disparate impact claims will result in substantially greater numbers of employees prevailing in age discrimination lawsuits. We can be sure, however, that the decision will result in more age discrimination cases being filed and more of those cases making it to trial. Many of those challenges will relate to policies that employers believe are essential to their businesses. Employers can particularly expect that physical qualification standards for employment or advancement are likely to be challenged as having a disparate impact. We can also expect reduction in force decisions challenged as having a disparate impact, particularly since older employees are often more highly paid. In light of Smith, employers must reexamine their policies and practices to see if they have a disparate impact on older employees and make sure they can justify those that do on a basis other than age.
Todd D. Steenson is a Partner in the Labor and Employment Practice Group at the Chicago office of Holland & Knight LLP. He can be reached toll free at (888) 688-8500.