Steering Clear of “Disparate Impact” for Age Discrimination

The Age Discrimination in Employment Act (ADEA) prohibits employers from discriminating in employment matters against older workers. Overt discrimination is easy to spot and relatively easy to prove in court. Most employers understand this and will (wisely) refrain from saying such things as, “Let’s get rid of the dinosaurs.”

But from that point on, it’s a bit tricky.

In 2005, the U.S. Supreme Court decided that the ADEA had been violated by the City of Jackson, Mississippi, even though there was no intent to do so.[1] This means that an ADEA case can be successful without proof of intent; an employee only needs to show that your decision had a “disparate impact” on older workers.

Exceptions to the ADEA

At the same time, employers are allowed to make business decisions even if they do impact older workers. Your best guidelines to follow are those that you already follow when dealing with job applicants or workers who are members of protected groups. For example, the ADEA generally does not prohibit employment decisions based upon:

  1. Good Cause. You can discipline or terminate an employee who is 40 or older for performance problems or for violating your conduct policies as long as you treat them consistently with other similar employees.
  2. Reasonable Factors Other than Age (RFOAs). You can establish job criteria that differentiate between employees based on factors other than age. So, for example, you may adopt a salary plan that treats younger workers more favorably if you need to improve entry-level wages in order to be competitive in your geographic area.[2]
  3. Bona Fide Occupational Qualifications (BFOQs). You may impose age restrictions if they are reasonably necessary to the normal operation of your business. The BFOQ exception is limited in scope and narrowly interpreted, and few employers have been successful in defending age restrictions using the BFOQ exemption. So be cautious in relying on this exception.
  4. Bona Fide Seniority Systems or a Employee Benefit Plans. The terms of a bona fide seniority system or bona fide employee benefit plan may be implemented so long as the system or plan (a) is not a subterfuge to evade the ADEA and (b) does not require or permit the involuntary retirement of individuals age 40 or older.[3] For example, you may offer early retirement benefits that differentiate between older and younger employees under certain, limited conditions.
  5. Mandatory Retirement for High-Ranking Employees. You may require the retirement of certain high-ranking executives. The executive must be (a) at least 65 years of age; (b) employed in a bona fide executive or high policymaking position for the two-year period immediately before retirement; and (c) entitled to an immediate non-forfeitable annual retirement benefit from an employer pension, profit-sharing, savings, or deferred compensation plan, or any combination of those plans, which equals in the aggregate at least $44,000 per year.[4]

But be aware that many states have their own age discrimination laws that may impact any of the above exceptions. Local, state, and federal court decisions may also impact age-related issues at your agency.

Be Proactive

Quite clearly, you must be prepared to support every decision that adversely affects older workers. Not surprisingly, using “best employment practices” is your safest policy. I suggest taking the following steps:

  1. Update Job Descriptions and Employment Policies. Analyze your job descriptions and personnel policies to ensure they are age-neutral. If a job description or policy is adopted that will favor one age group over another, be sure to document the business reasons for that.
  2. Modify Job Notices. The ADEA makes it unlawful to include age preferences, limitations, or specifications in job notices or advertisements.
  3. Be Consistent. Don’t get caught making inconsistent decisions. If you deviate from approved policy, be sure you have a business-related reason to justify the deviation. If a complaint is filed, study your policies carefully and be sure you know exactly what happened. Shifting excuses for a questionable decision will almost certainly be held against you.
  4. Document Decisions. Document the reasons for hiring, promotion, compensation, discipline and termination. Be sure that each employee’s personnel file contains documentation to support any adverse action, such as performance appraisals and counseling memos.
  5. Give Older Workers Additional Time to Waive Rights. The Older Workers Benefit Protection Act of 1990 (OWBPA) establishes specific criteria that must be met if a terminated older employee signs a waiver of his/her right to sue as part of a severance agreement. A severance agreement that does meet them can be nullified.[5]

Because the “disparate impact” test has been with us for many years in other discrimination arenas,[6] we are not starting with a clean slate. Many courts have applied the theory to cases alleging discrimination based on race, sex, and other protected classifications. However, given the importance of the age issue, we can expect a bit of volatility as courts explore the limits of what constitutes legal behavior where age is concerned. If you use good business practice and common sense, you can limit your exposure on this issue.

– Kathryn M. Vanden Berk

This article is provided for general information and should not be relied upon as legal advice for a specific situation. The attorneys of Bea & VandenBerk are experienced in representing organizations in employment matters. If you are in need of specific advice or legal representation, please do not hesitate to contact us.

©2015 Bea & VandenBerk

[1].            Smith v. City of Jackson, 544 U.S. 228 (2005). Thirty officers and dispatchers in the Jackson, Mississippi, police department, all at least 40 years old, sued the city, challenging a pay system that granted higher percentage salary increases to workers with five or fewer years on the job. Nearly all the workers who qualified for the larger increases were under age of 40. On March 30, 2005, the court ruled that workers over 40 years old could sue under the ADEA when an employer’s action has a “disparate impact” on their age group and the employer’s action was not “reasonable.” Significantly, the employees are not required to prove that the employer intended to discriminate against older workers in a disparate impact case.

[2].            In Smith v. City of Jackson, the Supreme Court determined that the employer’s pay practice giving employees with less seniority (who were typically under 40) bigger raises was lawful even though workers with more seniority (typically over 40) got smaller raises. The pay plan was based on a reasonable factor other than age – the need to raise lower echelon employees’ salaries to make them comparable to the salaries of surrounding police forces.

[3].            29 U.S.C. §§623(f)(2) and 631(c)(1).

[4].            29 U.S.C. §631(c)(1).

[5].            29 U.S.C. §§621 et seq. The ADEA, as amended by OWBPA, sets out specific minimum standards that must be met in order for a waiver of the right to sue to be considered knowing and voluntary and, therefore, valid. Among other requirements, a valid ADEA waiver: (1) must be in writing and be understandable; (2) must specifically refer to ADEA rights or claims; (3) may not waive rights or claims that may arise in the future; (4) must be in exchange for valuable consideration; (5) must advise the individual in writing to consult an attorney before signing the waiver; and (6) must provide the individual at least 21 days to consider the agreement and at least 7 days to revoke the agreement after signing it.

[6].            The “disparate-impact” theory of recovery was established 1971 in Griggs v. Duke Power Co., 401 U.S. 424 (1971).