Goodyear Tire & Rubber Co. knows what it's like to defend itself against accusations of age discrimination. In 2002 several of the company's older employees filed a class action suit against the Akron, Ohio-based tire manufacturer for violating the Age Discrimination in Employment Act (ADEA), which Congress enacted in 1967 to protect employees over 40 from
The plaintiffs sued under the theory of disparate impact--employment practices that are neutral on their face but fall more harshly on a protected group and can't be justified by a business necessity. They claimed the company's performance-evaluation system gave a "disproportionate" number of them low grades. As a result of those scores, the company either refused to give the employees raises or fired them.
Goodyear was lucky. The court ultimately dismissed the case, stating the
disparate impact claim wasn't cognizable under ADEA. But Goodyear's story
Throughout the years employees have brought a plethora of disparate impact cases under ADEA. And the courts have returned conflicting decisions.
In March 2005, when the Supreme Court decided Smith v. The City of Jackson, however, all that changed. In Smith, the high court said if a policy, practice or other employment action a company takes results in a disparate impact on employees over 40, those employees can sue for age discrimination under ADEA. Although the court ultimately ruled in favor of the city, it recognized the validity of disparate impact claims brought under the ADEA.
"This decision has resolved the dispute that has been going on for years among the lower courts," says John A. Snyder II, a partner at Jackson Lewis in New York. "In the jurisdictions where these types of claims were dismissed as a matter of law, it's likely now that a disparate impact claim would survive a motion to dismiss."
But that doesn't necessarily mean companies will face greater liabilities.
The Supreme Court also said a company only needs to show that the action or policy in question was "reasonable;" it doesn't have to show the action was a business necessity. But the court didn't define what it considers to be reasonable. As a result, the decision makes it easy for plaintiffs to bring this type of suit but very hard for them to win it--an ambiguity that could ultimately be very expensive for employers.
"While I don't think this is a decision that would require employers to go back and completely re-evaluate all their employment practices, they should make sure none of the policies they currently have in place could result in this type of lawsuit," says Ted Meyer, partner at Jones Day in Houston. "Even if the company is likely to win the case, it will still have to pay to defend it."
The ADEA contains the same language as Title VII of the Civil Rights Act of 1964, which protects against discrimination based on race, religion, color, gender or national origin. Courts recognize disparate impact claims under Title VII. Therefore, plaintiffs' lawyers historically have argued disparate impact claims also should be recognized under ADEA.
For whatever reason, the lower courts have been split on the issue. By allowing employees to bring disparate impact claims under ADEA in Smith, the high court has put that debate to rest. But the decision made "disparate impact" narrower in scope for ADEA than it is under Title VII.
ADEA permits any "otherwise prohibited" action where the "differentiation is based on reasonable factors other than age (RFOA)." The Supreme Court said Congress limited ADEA's coverage by including this provision because it isn't uncommon that age, unlike Title VII's protected classifications, has relevance to an individual's capacity to engage in certain types of employment.
In Smith, for example, several Jackson, Miss., police officers filed suit against the city, claiming it gave substantially higher raises to officers who had been on the force for less than five years. Because those officers were on the job longer, most were over 40. And they said the city's actions created a disparate impact on them because of their age.
But Jackson officials said they structured the pay increases to attract and retain qualified people, provide incentive for performance, and bring the starting salaries of police officers up to the regional average. Because the court believed the city proved its actions were based on RFOA, it decided in Jackson's favor.
"The City's explanation for the differential between older and younger workers was its perceived need to make junior officers' salaries competitive with comparable positions in the market," Supreme Court Justice John Paul Stevens wrote in his majority opinion. "Thus the disparate impact claim was attributable to the City's decision to give raises based on seniority and position. Reliance on these factors is unquestionably reasonable given the City's goal."
Furthermore, the court said the plaintiffs did nothing more than point out that the city's pay plan was relatively less generous to older workers than younger ones. The employees provided statistical evidence to the court, but didn't offer specific employment practices that were responsible for any of the statistical disparities.
While Smith may have ended the age-old debate between the lower courts, it's neither employee- nor employer-friendly. And experts believe no one will benefit from the decision except for the plaintiffs' bar.
"This decision makes things more difficult for employers without being particularly favorable to employees because the people who bring these claims aren't likely to win," says Ann Reesman, general counsel for the Equal Employment Advisory Council, a Washington, D.C.-based organization that represents the interests of large, privately held companies. "Smith just opens up another door for plaintiffs' lawyers to make a lot of money."
Prior to Smith, the 1st, 3rd, 5th, 6th, 7th, 10th and 11th circuits didn't recognize disparate impact as a cause of action under ADEA. The 4th and D.C. circuits hadn't yet ruled on the issue, and the 2nd, 8th and 9th recognized the claims.
"We certainly expect to see an increase in litigation for these types of suits, especially in the circuits where, prior to Smith, the courts refused to recognize disparate impact under ADEA," Snyder says.
What happens in that litigation will further define the high court's decision
"I predict significant litigation over the RFOA provision of the statute," Snyder says. "The decision certainly provides an avenue of relief for employees. But the defense available on RFOA is very strong. All of this will have to be fleshed out through the courts."
Laurie McCann, senior attorney at the AARP, agrees. Although she lauds the high court's decision, she's skeptical about exactly how it will play out in the courts.
"We want to make sure this isn't merely a right without a remedy," she says. "It's going to be a wide open playing field as to how the courts will interpret 'reasonable.' We're certainly hoping not just anything will be reasonable."
McCann says AARP plans to keep the issue on their radar and to look for amicus opportunities to shape the law as it develops. But she doesn't envision the courts being flooded with ADEA suits.
"It's going to be easy to bring these cases in the circuits that didn't allow it before this decision," she says. "But these are unusual cases based on policies and practices that affect a large segment of an employer's workforce. I just don't see a huge number of these cases being brought."
Regardless, experts believe companies should ensure their employment policies and practices are in tip-top shape so they are as protected from these suits as possible.
"Employers have to think prospectively," says Michael Reilly, co-chair of the labor and employment department at Lane Powell in Seattle. "If they want to implement a policy that affects a substantial number of employees, they have to look forward, plan and design policies that will better articulate and provide evidence that these changes are based on reasonable, nondiscriminatory factors."
Reilly suggests companies do statistical analyses on the affects any major employment decision may have on their workforces. And if they find a decision has an adverse affect on employees over 40, they must articulate reasonable factors that justify the employment practice.
Meyer agrees. "For example, during the planning of a reduction in force, if it's determined there are some statistical problems as they relate to age, you have to take a hard look at it and make sure you have an absolute justification for the disparate impact," he says. "It has to be a reason that can be articulated in short, clear sentences. That is ultimately what the analysis will be."
Additionally, companies should conduct an audit on their existing policies, plans and practices to ensure they aren't disproportionately impacting employees over 40.
"They should maintain records of any employment-decision-making processes and the conduct in which they engage so they can afford themselves an affirmative defense if a lawsuit does arise," Snyder says.
Just how many of these suits will pop up remains to be seen. But any way you look at it, McCann believes this decision is great news for employees.
"The best thing to come out of this case is now when employers are developing new employment policies or practices, they will review them for possible disparate impacts based on age, just as they've always had do for race and gender," she says.
Others don't see this decision in such a positive light.
"Despite the fact that the chances of winning these types of cases are on the employer's side, there are a fair number of instances where plaintiffs' lawyers bring suits that are destined to be uphill battles," Reesman explains. "And the employer still has to defend it. You're talking about paying outside counsel upward of $75,000 to $100,000 just to get to summary judgment."
Reilly couldn't agree more.
"There is a pot of gold at the end of this decision for plaintiffs' lawyers," he says.