Supreme Court: Employers Bear Burden In Disparate Impact Age Discrimination Cases

(Published September 2, 2008)

The U.S. Supreme Court's ruling in Meacham, et al. v. Knolls Atomic Power Laboratory (No. 06-1505, 2008) demands that employers take special care to ensure that their layoff decisions are based on a reasonable factor other than age. The decision could have a "profound impact" on employers defending disparate impact claims under the Age Discrimination in Employment Act (ADEA), noted Richard L. Sloane, a management attorney with Littler Mendelson in Washington, DC . "Of course, only time will tell precisely how significant this impact will be. However, it's clear that Meacham raises the bar on employers."

The Facts Of The Case 

To effect an involuntary reduction-in-force (RIF) after a voluntary buy-out offer fell short, the company instructed its managers to evaluate employees on performance, flexibility, and critical skills. Performance scores were based on employees' two most recent appraisals; flexibility and critical skills scores were left to the discretionary judgment of managers. The three scores were totaled and then added to a score for years of service. A review board, a general manager, and general counsel reviewed the managers' decisions. Employees with the lowest scores were let go. Of the 31 employees laid off, 30 were at least 40 years old. Twenty-eight of them filed a disparate impact claim under the ADEA.

A jury ruled in their favor, awarding them more than $5 million. The 2nd Circuit Court of Appeals (Connecticut, New York, Vermont) affirmed the decision, finding that the company failed the "business necessity" test; that is, the employees alleged at least one alternative, non-discriminatory method for achieving the RIF without having a disparate impact on older workers.

The Supreme Court agreed to hear the case, but before it did, it ruled in a separate case that an employer need only demonstrate that RIF decisions were based on a "reasonable factor other than age" (RFOA), and not on whether there are other ways for an employer to achieve its goals that do not result in a disparate impact on a protected class. (Smith v. City of Jackson, No. 03-1160, 2005)

The High Court sent the case back to the 2nd Circuit, which, in light of Smith, focused on whether the layoff was based on a reasonable factor other than age and placed the burden of persuasion on employees to prove the factors were unreasonable. Finding that they could not satisfy this requirement, the 2nd Circuit reversed the jury award and sided with the employer. The 9th Circuit Court of Appeals had previously ruled that employers bore both the burden of production and burden of persuasion.

The Landmark Ruling

The U.S. Supreme Court stepped back in to resolve the split between the circuit courts. It ruled that the RFOA exemption is an affirmative defense that places both burdens on employers. Now, not only must employers introduce evidence of a reasonable factor other than age to defend against a disparate impact claim under the ADEA, but they must also persuade a judge or jury of the reasonableness of that factor.

The Court acknowledged that its decision makes it "harder and costlier" for employers to defend against ADEA disparate impact claims, but it went on to say that employees must isolate and identify the specific employment practice that is allegedly responsible for statistical disparities. It is not enough to simply allege that there is a disparate impact, or point to a generalized policy that leads to such an impact.

The Impact

Sloane: "Meacham forces employers to more carefully evaluate involuntary RIFs. But there are several steps that prudent employers can take to minimize, and effectively manage, their potential exposure to litigation resulting from layoff decisions." Reminder: This is not an exhaustive list. 

• Consult legal counsel (in-house and/or outside) to identify and analyze all of the issues to consider before making a layoff decision. "Revisit and update the initial list of issues at various stages in the RIF decision-making process," he added.
  
• Develop objective, measurable criteria to support RIF decisions. Evaluate the weight assigned to each criterion.
  
• Train managers on how to assess employees based on these factors. Managers in Meacham were given little guidance on how to assess flexibility and critical skills.
  
• Have selection decisions approved by a trained team of diverse members of upper management.
  
• Create and maintain thorough, comprehensive employee records to support RIF decisions. 
  
• Regularly review and evaluate employee performance (e.g., annually, semiannually), since performance typically factors into layoff decisions. 
  
• Evaluate and analyze the statistical impact of a potential RIF. The employer in Meacham analyzed targeted employees for disparate impact based on race and gender, but no similar analysis was performed for age. 

Related Topic(s): Discrimination - ADEA – Age Discrimination in Employment Act, Termination - Reductions In Force