Supreme Court Issues Two Important Age Discrimination Decisions

June 19, 2008

Today, the Supreme Court issued two important opinions interpreting the Age Discrimination in Employment Act (“ADEA”).

In Meacham v. Knolls Atomic Power Laboratory, aka KAPL, Inc., et al., the Supreme Court resolved an emerging split among the U.S. Courts of Appeal regarding who bears the burden of persuasion that an employment policy with a disparate impact on older workers was based on “reasonable factors other than age” and therefore does not violate the ADEA. The Court held that the “reasonable factors other than age,” or “RFOA,” defense is an affirmative defense for which the burden of persuasion belongs to the employer.

In Meacham, the defendant employer, Knolls Atomic Power Laboratories (“Knolls”), reduced its workforce significantly in 1996. The employer directed its managers to rate each employee on three criteria — “performance,” “flexibility,” and “critical skills” — and used the results to make layoff decisions. Thirty of the thirty-one employees laid off were over age forty; twenty-eight of them sued, alleging disparate impact claims under the ADEA. The jury returned a verdict in the plaintiffs’ favor. The Second Circuit reversed, holding that the plaintiffs had failed to disprove the “reasonableness” of the company’s approach.

The Supreme Court, on a largely unanimous basis, reversed and remanded. It held that an employer who asserts the RFOA defense not only must produce evidence in support of the defense, but ultimately must also persuade the factfinder of its merit. The Court analyzed the text and structure of 29 U.S.C. § 623(f)(1) and found that RFOA is an affirmative defense, just like the bona fide occupational qualifications (“BFOQ”) defense, the “RFOA clause’s nearest neighbor.” The Court also noted that Congress had written the defense against the backdrop of the longstanding convention that, when carving an exception out of the body of a statute, “those who set up such exception must prove it.” And the Court made clear that the “business necessity” test used in Title VII disparate impact cases has no place in disparate impact cases under the ADEA.

The Court recognized that “putting employers to the work of persuading factfinders that their choices are reasonable [will] make it harder and costlier to defend” a disparate impact claim, and even suggested that it “will sometimes affect the way employers do business with their employees.” But the Court also noted that the plaintiff’s task of identifying a specific practice resulting in disparate treatment “is not a trivial burden,” and that in cases where the reasonableness of the factors is readily apparent, the defendant will face an easier burden. “It will mainly be in cases where the reasonableness of the non-age factor is obscure for some reason, that the employer will have more evidence to reveal and more convincing to do . . . .” 

In Kentucky Retirement Systems v. Equal Employment Opportunity Commission, the Court held that employers do not violate the ADEA by determining eligibility for certain benefits based on pension status, even if pension status is in turn linked to age, unless the employer acted from an actual motive to discriminate. The Court rejected the view — which had been adopted by every Court of Appeals to consider the issue — that tying benefits to age-based pension plans violates the ADEA unless the employer can provide a cost justification for the distinction or fall within another enumerated exception to the statute. 

The case involved the State of Kentucky’s retirement plan — similar to those in place in many other states — which permitted workers in certain “hazardous position[s],” such as police officers and firefighters, to retire after working for 20 years or working for at least 5 years and attaining the age of 55. The state also “imputed” additional years of service to younger police officers and firefighters who become disabled before reaching ordinary retirement age. Under certain circumstances, the system operated to “disadvantage” older employees: if, for example, two firefighters, aged 45 and 55, each with 10 years’ service, were injured in the same accident, the 45-year-old would receive 10 years’ additional “imputed” service when calculating pension benefits, while the older employee would receive none because he or she was already eligible for a regular pension. 

Justice Breyer, writing for Chief Justice Roberts, and Justices Stevens, Souter, and Thomas, upheld Kentucky’s plan, holding that “[w]here an employer adopts a pension plan that includes age as a factor, and that employer then treats employees differently based on pension status, a plaintiff, to state a disparate treatment claim under the ADEA, must come forward with sufficient evidence to show that the differential treatment was ‘actually motivated’ by age, not pension status.”

The Court’s decision may affect not only enhanced retirement benefits based upon disability, but also other changes in benefits tied to pension status, such as reductions in benefits to employees who are eligible for Social Security.

The tenor of both the Meacham and Kentucky Retirement Systems opinions suggests a tolerance for adverse effects associated with age that the Court historically has not shown toward race or gender.