The current economic crisis is reshaping the business world in many ways—and one is an increasingly graying workforce. Many workers are deferring retirement because their retirement funds shrank in the stock market meltdown. The end result of an older workforce may well be an escalation in age discrimination complaints—a trend already evident as the Baby Boomers, now in their 50s and 60s, claim they are disproportionately targeted for layoffs. (For analysis of the latest Supreme Court decision affecting Age Discrimination in Employment (ADEA) lawsuits, see “Motivation Action.”)

In February, Watson Wyatt surveyed more than 2,200 active employees to gauge the effect of the economic crisis on Americans’ retirement planning. They found that 50 percent of workers age 50 and over now plan to work past age 65. Fifty-four percent of workers aged 50 to 64 who plan to postpone retirement say they will work at least three years longer than expected, and three-quarters of that age group cited the decline in their 401(k) plans as the key reason they will defer retirement.

Meanwhile, the EEOC reported almost 25,000 age discrimination claims filed in fiscal year 2008, a 29 percent increase over the previous year. Acting EEOC Chairman Stuart Ishimaru linked that to employers who hold negative stereotypes of older workers, underestimate their contributions to the enterprise and disproportionately select them for layoffs.

But Gregg Lemley, a shareholder at Ogletree Deakins, sees a different pattern in the spike in age discrimination claims. Lemley says that in a recession, employers look for the way to maximize their savings, with layoffs often resulting.

“When trying to cut payroll costs, they look to the highest salaries, and those frequently correlate with age,” he says. “The bottom line is, even if the employer has completely innocent motives, often layoffs will hit older workers more than younger workers. Those who get laid off look in the mirror and say, ‘What can I sue over?’ and age will be one of those reasons. So you will always see an uptick in age discrimination claims in an economic downturn.”

The fact that more employees feel compelled to work longer because their retirement funds have shrunk could aggravate the situation. Lemley notes that employers frequently offer early retirement packages as a way to trim the payroll before resorting to layoffs. But workers who feel they must extend their working years won’t be as willing to take such a package, so layoffs are likely to follow, with the resulting risk of class action age discrimination litigation.

Additionally, he adds, employees who stay on the job only because they need the money may not perform up to standards.

“You could end up with employees who have mentally checked out and who are staying around for the paycheck even though their heart is not in it,” he says. “An individual like that who is fired [for poor performance] may feel backed into a corner by his economic situation and may be more likely to file an individual lawsuit.”

Michael Duffee, a partner at Ford & Harrison, advises employers to think about how a jury will view the facts behind a layoff or an individual termination involving older workers.

“At the end of the day in a termination, if you have bad facts, you have bad facts,” he says. “If you are an employer dealing with people in the protected age group, you need to look realistically at how a third party will look at what you did. How did you treat this person? Can you defend it as a practical matter? If you can’t pass the red face test—if you can’t argue your case without your face turning red—you have a problem.”