by Art Gutman Ph.D., Professor, Florida Institute of Technology

The final rule ( alters the definition of RFOA in light of Supreme Court rulings in Smith v. City of Jackson (2005) [544 U.S. 228] and Meacham v. Knolls Atomic Power Lab (KAPL) (2008) [554 U.S. 84]. The discussion below is longer than in most alerts. I toyed with the idea of writing this in two or three parts, but decided that would be too fragmented. Therefore, below, I provide an overview of the historical factors leading up to the new rules, followed by the most important parts of the new rule itself.

Let’s begin by examining the original rule and important historical considerations related to that rule. The critical portion for present purposes is Section 1625.7(d). Accordingly:

When an employment practice, including a test, is claimed as a basis for different treatment of employees or applicants for employment on the grounds that it is a “factor other than” age, and such a practice has an adverse impact on individuals within the protected age group, it can only be justified as a business necessity. Tests which are asserted as “reasonable factors other than age” will be scrutinized in accordance with the standards set forth at part 1607 of this title.

The key reference above is to “part 1607”, which is the Uniform Guidelines on Employee Selection Procedures (or UGESP). The UGESP establishes a three-phase procedure in relation to adverse impact derived from the landmark Supreme Court rulings in Griggs v. Duke Power (1971) and Albemarle v. Moody (1975). Accordingly:

Title VII Adverse Impact Scenario
Phase 1 Statistical evidence of an identified employment practice that disproportionately excludes protected group members
Phase 2 Proof that the challenged practice is job related and consistent with business necessity
Phase 3 Proof there is an equally valid, job related practice with less or no adverse impact

The history of adverse impact in the ADEA can be divided into three eras. In the first era, at least two courts applied the Title VII scenario in ADEA cases, namely the 2nd Circuit in Geller v. Markham (1980) and the 8th Circuit in Leftwich v. Harris-Stowe (1983). Both cases involved proof of adverse impact based on factors correlated with age. For example, in Geller v. Markham (1980), a 55 year-old art teacher was replaced by a 25-year-old based on the following school district policy:

Except in special situations, and to the extent possible, teachers needed in West Hartford next year will be recruited at levels below the sixth step of the salary schedule

The adverse impact claim was based on a significant positive correlation between age and step, (i.e., teachers older than 40 were much more likely to reach the "sixth step" than younger teachers) and the school district offered a “cost cutting” defense. This defense was rejected based on a then applicable DOL regulation that “unless one of the other statutory defenses applies” (e.g., RFOA), that higher average cost for employing older as compared to younger workers “will not be recognized as a differentiation under the terms and provisions” of the ADEA. The EEOC then adopted the DOL regulations after it took administrative control of the ADEA in 1978.

The second era is marked by a landmark Supreme Court ruling in Hazen v. Biggens (1993), which was actually a disparate treatment case. Previously, the Geller ruling was appealed to the Supreme Court, but only three justices agreed to hear the case (four are needed). However, one of the justices (Rehnquist) wrote a stinging dissent arguing that adverse impact is not a valid ADEA charge. Subsequently, several circuit courts agreed with Rehnquist’s dissent, creating a conflict among circuit courts.

As for the case itself, Biggens was fired at age 62, shortly before he was eligible for pension vestment. This was an ERISA violation on which Biggens prevailed. However, Biggens lost on disparate treatment because pension vestment was based on years of service, not age and a unanimous Supreme Court ruled “employer decisions may be motivated by "factors other than age ... even if the motivating factor is correlated with age." Additionally, nine justices also agreed that the Supreme Court had never decided whether adverse impact is “available under the ADEA”, and three justices believed that "there are substantial arguments that is improper to carry over disparate impact analysis from Title VII to the ADEA."

The third (and modern) era is marked by the landmark Supreme Court rulings in the Smith and Meacham cases. Technically, Hazen v. Biggens did not invalidate adverse impact in the ADEA. Nevertheless, in its aftermath, most circuit courts either rejected adverse as a valid ADEA claim or applied the RFOA defense. In Smith, a city, fearing loss of staff to neighboring communities, authorized higher % raises to personnel with less than five years of experience (i.e., a factor correlated with age). The two lower courts ruled that adverse impact is not a valid ADEA claim, but the Supreme Court reversed and supported the RFOA defense. Interestingly, this was a 5-4 ruling in which Scalia, the deciding vote, actually supported the EEOC position.

There were two important ruling in Smith: (1) adverse impact was not proven in Phase 1 because the challenged was to a factor correlated with age (much like years of service in Hazen v. Biggens) and (2) the city had a strong RFOA defense (the need to compete successfully with neighboring communities). However, there was a residual problem; it was not clear from the Supreme Court’s majority ruling whether the RFOA is an affirmative defense (requiring factual proof) or whether an articulation by the defense was sufficient, thus requiring the plaintiff to prove that the articulation (i.e, verbal explanation) by the defense is a pretext for age discrimination. This question was answered definitively in Meacham in favor of the affirmative defense.

Meacham was a stronger case than Smith. As part of a RIF, KAPL used a voluntary separation plan (VSP) for employees with 20 or more years of service and two layoff criteria for non-volunteers: (1) criticality of skills and (2) flexibility for retraining. Adverse impact was clearly proven in Phase 1, as 98% of the laid off workers were over 40. The key issue was whether KAPL had a legitimate defense in view of Smith.

The 2nd Circuit reviewed Meacham before 2004 (Meacham I, 2004) and after Smith (Meacham II, 2006). In Meacham I, the 2nd Circuit ruled that the defendant need only articulate (without proving) a nondiscriminatory reason for the adverse impact and the plaintiffs must counter with legitimate alternatives with less or no adverse impact. KAPL articulated that the laid off employees were rated lowest in criticality of skills and flexibility for retraining, as expected. However, the plaintiffs proved to a jury that there were legitimate alternatives with less adverse impact, most notably, a hiring freeze and extension of the VSP to employees with less than 20 years of service. The plaintiffs won in Meacham I.

In Meacham II, two of three 2nd Circuit judges maintained the easier articulation defense and ruled that the plaintiffs could not rebut KAPL’s articulation. The third judge (Pooler) argued that RFOA is an affirmative defense, meaning it requires evidential proof, not a simple articulation. The Supreme Court unanimously agreed with Judge Pooler, listing reasons why all statutory defenses (i.e., RFOA, BFOQ, BFBP, BFSS) are affirmative defenses and remanded the case to the district court to determine if KAPL could support their defense affirmatively. Based on the Smith and Meacham rulings, the three-phase scenario for ADEA adverse impact cases reads as follows:

ADEA Adverse Impact Scenario
Phase 1 Statistical evidence of an identified employment practice that disproportionately excludes protected group members
Phase 2 Proof that the challenged practice is factually supported by a Reasonable Factor Other Than Age (RFOA)
Phase 3 Proof that the factor supported is unreasonable, or not the true reason for the employment practice

The ADEA scenario mimics the Title VII scenario in Phase 1, but that’s where the similarity ends. Phase 2 requires the affirmative RFOA defense, and Phase 3 requires factual proof by the plaintiff that the factors offered are either not reasonable, or were adopted for pretextual reasons. Critically, if the defendant is successful in Phase 2, the plaintiff does not have the option to prove there are other reasonable policies or practices that produce less or no adverse impact. So, for practical purposes, if the defendant can prove reasonability, the case is over.

The modified EEOC rules reflect the Smith and Meacham rulings. The key sections are as follows:

Section 1625.7(c): Any employment practice that adversely affects individuals within the protected age group on the basis of older age is discriminatory unless the practice is justified by a “reasonable factor other than age.” An individual challenging the allegedly unlawful practice is responsible for isolating and identifying the specific employment practice that allegedly causes any observed statistical disparities.

In addition to citing the RFOA defense, this rule is primarily a restatement of the Phase 1 requirement in both Title VII and the ADEA

Section 1625.7(e)(1):A reasonable factor other than age is a non-age factor that is objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances. Whether a differentiation is based on reasonable factors other than age must be decided on the basis of all the particular facts and circumstances surrounding each individual situation. To establish the RFOA defense, an employer must show that the employment practice was both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known, to the employer.

This rule speaks to the factual proof of the RFOA and the importance of applying it to a “legitimate business purpose. To amplify this point, the EEOC adds in Section 1625.7(e)(2) five “Considerations that are relevant to whether a practice is based on a reasonable factor other than age include, but are not limited to:

(i) The extent to which the factor is related to the employer's stated business purpose;
(ii) The extent to which the employer defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance or training about how to apply the factor and avoid discrimination;
(iii) The extent to which the employer limited supervisors' discretion to assess employees subjectively, particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes;
(iv) The extent to which the employer assessed the adverse impact of its employment practice on older workers; and
(v) The degree of the harm to individuals within the protected age group, in terms of both the extent of injury and the numbers of persons adversely affected, and the extent to which the employer took steps to reduce the harm, in light of the burden of undertaking such steps.

That’s sufficient for now. It’s important to note that there were many commentaries questioning aspects of the rules (in the proposal stage). The general fear (for employers) is that the rules are too arduous. The thing employers must realize is that the EEOC had no choice in how the rules are written. They accurately reflect the rulings in Smith and Meacham, and rules that would advocate lesser burdens for employers would be struck down in court, just as the original EEOC regulation supporting the UGESP approach was struck down in Smith v. City of Jackson.

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