Age Discrimination Laws Shouldn't Stop You From Managing Your Workforce

November 14, 2000
With the advent of an "older" population, employees protected by federal and state discrimination laws are both entering and leaving the workforce at higher rates than ever.

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Age discrimination cases are currently a favorite with plaintiffs’ lawyers. Most judges and jurors are over the age of 40, and the "older" plaintiff often comes across sympathetically. Moreover, these cases can yield large verdicts.

Older employees generally make more money, so their losses are higher; and because it is somewhat difficult to secure new employment for older workers, front pay is often awarded until retirement age.

An Employer-friendly Supreme Court Decision

Despite the potential threat of these suits, employers need not feel restricted in making personnel decisions and running their businesses as they see fit. Under the ADEA, we know it is "unlawful for an employer… to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment, because of such individual’s age." 29 USC § 623(a)(1), (emphasis added).

Don’t be afraid to use factors other than age, such as high salaries, as the basis for employment decisions.

Employers often overlook, however, the teachings of Hazen Paper Co. v. Biggins, 507 US 604 (1993), in which a unanimous Supreme Court made clear that age must actually motivate an adverse employment decision and that it had a determinative influence on the outcome. This means that just because an employee who is over the age of 40 incurs an adverse employment action, a viable age discrimination claim does not automatically follow.

In the Hazen Paper case, Mr. Biggins was terminated at the age of 62, largely because his pension was to vest within a matter of weeks. The Supreme Court ruled that the ADEA is not violated by interfering with an older employee’s pension benefits that would have vested based on years of service, rather than on age.

Justice O’Connor reasoned that when a decision is motivated by factors other than age, the problem that prompted the ADEA’s passage -- inaccurate and stigmatizing stereotypes about older workers’ productivity and competence -- disappears. Thus, it would be incorrect to say that a decision based on years of service, or any other reason which is analytically distinct from age, is necessarily age-based. This is true even if the motivating factor is correlated with age, as pension status typically is.

Although the employer’s conduct in Hazen Paper is most certainly actionable under §510 of ERISA, without more, it does not violate the ADEA. The Court further explained that the ADEA is not violated every time an older worker is terminated, even if the termination is otherwise improper for reasons other than age. "For example, it cannot be true that an employer who fires an older black worker because the worker is black thereby violates the ADEA. The employee’s race is an improper reason, but it is improper under Title VII, not the ADEA."

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 What These Decisions Mean to You

So how does this help employers? In general, employers may manage their businesses as they see fit, even it entails adverse employment actions against older workers, as long as that action is not motivated by age.

In Marks v. Loral Corp., 66 Cal. Rptr. 2d 46, (1997), the California Supreme Court, traditionally pro-employee in employment decisions, upheld the employer’s right to lay off workers on the basis of salary. Even though a larger proportion of higher salaried workers was also over age 40, the court found that where the motivating factor was salary, there was no age discrimination.

This is one example of the court’s recent trend to strike the balance between protecting older workers and preserving the employers’ ability to cut costs in favor of employers.

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Should You Offer a Pay-Cut to Employees Before a Reduction-in-Force?

The pay-cut offer would certainly tend to help in establishing that cost, rather than age, was the motivating factor behind the employer’s decision. However, using this alternative to help avoid claims of age discrimination may do more harm than good. Some workers might be resentful, even if they "gladly" accept a reduction in compensation.

Productivity and morale may decline, and the affected employees may "jump ship" as soon as something better comes along. Moreover, the employer should have more control over its business decisions and not be forced into restructuring compensation in addition to taking otherwise legitimate cost-saving measures. This is a matter that can best be left to each individual employer under each set of unique circumstances -- but remember that any decisions should be consistently applied.

Although rather obvious, it is critical to avoid using a reduction in force as a means to terminate employees for poor performance or other reasons not related to a stated business purpose. If a laid-off employee is replaced shortly after a "cost-cutting" reduction, that reason is likely to be viewed as a pretext.

This is particularly true if the replacement employee is younger than the displaced employee. Performance problems should be addressed honestly and openly to avoid falling into the pretext trap that more often than not results in verdicts against employers for age discrimination.

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The "Overqualified" Employee or Applicant

We have seen that basing adverse employment decisions on pension status, although not violative of the ADEA, is an unacceptable reason because it runs afoul of ERISA; and that using salary as the criterion is acceptable. What about deciding not to hire an older applicant because he or she is "overqualified"? This reason is not directly based on age (i.e. applicants under age 40 may also be "overqualified" for certain positions), although it is generally viewed as being correlated with age.

Counsel should be consulted prior to instituting such an 'overqualified employee' policy.

Although this criterion appears to be legitimate, it can be a danger area -- particularly if the "overqualified" decision is made after an interview. The qualifications of applicants are known prior to the interview, otherwise they would not have been selected. The face-to-face interview is often the first time an applicant’s age can be evaluated, so rejection after the interview indicates at least the potential for age discrimination.

Moreover, rejecting an applicant for being "overqualified" does not sound like a legitimate business reason. If the applicant has superior qualifications but still wants the job at the rate of pay offered, the employer will be viewed as benefiting from having the most qualified worker for the job.

Indeed, courts have at times looked down at being "overqualified" as a legitimate business reason, and have even remarked that "overqualified" is a code word for "too old", see, e.g. Taggart v. Time, Inc. 924 F.2d 43 (2d Cir. 1991).

Employers may, however, and legitimately so, feel that "overqualified" workers, regardless of their age, are not likely to stay in inferior positions past the time when they can secure alternate, more suitable, employment.

This situation results in increased costs (including recruiting, training, replacement, downtime and perhaps even lower morale) to the employer, thus providing the legitimate, nondiscriminatory business reason for the policy. Despite the dangers, I believe that employers can use such a policy.

The policy should state the reasons for its existence, clearly define minimum and maximum job requirements and be supportable by objective evidence (such as a history of high turnover of "overqualified" hires), and a showing that both applicants under as well as over age 40 have been rejected in accordance with the policy). Again, this is a risky area, and individual circumstances may or may not support such a policy. Counsel should be consulted prior to instituting such a policy.

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What About Reeves v. Sanderson Plumbing Products?

In my opinion, Reeves (No. 99-536, June 12, 2000), written for a unanimous Supreme Court by Justice O’Connor (as was Hazen Paper), doesn’t curtail employers’ ability to manage their businesses as they see fit or to make decisions based on factors correlated with age, such as high salaries.

In fact, Reeves may even help employers in the long run by providing additional incentive to ensure that adverse employment decisions are truly based on legitimate, nondiscriminatory business reasons, as they should be. The rule in Reeves is neither new nor dramatic.

Simply put, the plaintiff’s prima facie case, combined with sufficient evidence to find that the employer’s proffered nondiscriminatory reason is false, may permit the trier of fact to conclude that the employer unlawfully discriminated. Consequently, "additional proof" of discrimination may not be required in some cases.

Although it may have been lost for a while in the courts, this has always been the rule.

Once a plaintiff successfully demonstrates pretext, the trier of fact is not required to find for the plaintiff, but may do so. A showing of pretext by the plaintiff will not always be adequate to sustain a jury’s finding of liability. Further analysis from Justice O’Connor’s opinion is helpful: Whether judgment as a matter of law is appropriate in any particular case will depend on a number of factors, including the strength of the case, the value of the proof that the employer’s explanation is false, and any other evidence that supports the employer’s case.

The first significant post-Reeves decision supports this analysis. In Taylor v. GHQ of Springdale, Inc., (No. 99-4207, July 18, 2000), the Eighth Circuit affirmed the dismissal of plaintiff’s age discrimination claim and held that Reeves was not applicable because plaintiff did not produce sufficient evidence to discredit the employer’s legitimate nondiscriminatory reason for discharging her.

In sum, Reeves generally means that a very good case supported by ample evidence and/or a very bad offer of a legitimate nondiscriminatory reason for its actions by the employer is enough to support judgment for the plaintiff.

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Two Important Points to Remember:

  1. Ensure that all adverse employment decisions are supported, and documented, by legitimate, nondiscriminatory business reasons.

  2. Don’t be afraid to use factors other than age, such as high salaries, as the basis for employment decisions even if those factors correlate with age. Care must be taken, however, to ensure the factors relied upon are not merely a proxy for age discrimination or contrary to other law.

Finally, employers should have all potential adverse employment decisions reviewed either by seasoned human resources professionals or employment attorneys to ensure that proper reasons for the decision have been used and they can be supported to fend off any additional challenges made possible by Reeves. If the reasons for the action are not pretextual, then the employer will justifiably fare well if its decision is challenged in court.

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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.