Third Circuit Rules In Favor Of Subgroup Comparisons In ADEA Adverse Impact Claims

The case is Karlo v. Pittsburgh Glass Works, a class action ADEA ruling handed down on 1/10/17 [849 F.3d 61]. Pittsburgh Glass Works (the Company) terminated 100 employees across 40 locations in a RIF.  There was no layoff plan.  In the words of Circuit Court Judge Smith, who wrote the ruling:

PGW did not train those directors in how to implement the RIF. Nor did PGW employ any written guidelines or policies, conduct any disparate-impact analysis, review prospective RIF terminees with counsel, or document why any particular employee was selected for inclusion in the RIF.

Though clearly not a good plan for doing a RIF, there is nothing per se illegal about haphazard downsizing.  However, haphazard downsizing becomes difficult to defend when there is adverse impact based on age because it is difficult to prove the statutory defense (Reasonable Factor Other Than Age (or RFOA) when decisions are made in such fashion.  In the present case, the alleged adverse impact was on employees aged 50 and older.  In other words, there was no evidence of adverse impact on employees under 50 and over 40, which is the lower age limit in the ADEA.  The plain fact is, if I was a devious employer, and it was legal to discriminate against employees over 50, I could hide this fact with favorable statistics in the 40 to 49 subgroup that mask the effect on the over 50 subgroup.  However, three circuit courts had previously ruled that such subgroup comparisons are not permitted in the ADEA (more on those cases later).

Indeed, this masking effect was noted by Circuit Court Judge Smith, who wrote:

Disparate-impact claims in ADEA cases ordinarily evaluate the effect of a facially neutral policy on all employees who are at least forty years old—that is, all employees covered by the ADEA. In this case, plaintiffs claim to have identified a policy that disproportionately impacted a subgroup of that population: employees older than fifty. But because the policy favored younger members of the protected class, adding those individuals to the comparison group washes out the statistical evidence of a disparity.

Enough teasing.  In the words of Judge Smith:

The question in this case is whether a disparate-impact claim is cognizable where a "subgroup" of employees at the upper end of that range—in this case, employees aged fifty and older—were alleged to have been disfavored relative to younger employees.

In other words, the subgroup comparison would involve comparing those that are 50 and over to those that are 39 and under regardless of how the 40 to 49 age subgroup is treated.  Judge Smith’s answer to the question was that the “ADEA prohibits disparate impact based on age, not forty-and-older identity.”

The bottom line is that Judge Smith ruled that subgroup adverse impact claims are cognizable under the ADEA, thus overturning the district court ruling, which favored the company.  Judge Smith’s ruling was based on two prior Supreme Court precedents: O’Connor v. Consolidated Coin Caterers (1996) [517 U.S. 308], an ADEA disparate treatment case, and Connecticut v. Teal (1982) [457 U.S. 440], a Title VII race-based adverse impact claim.  Both proved decisive in this case, particularly as compared to the three prior rulings in other circuits that found that such subgroup adverse impact claims are not cognizable under the ADEA.

In O’Connor, the lower courts denied a discriminatory discharge claim by a 56-year-old who was replaced by a 40-year-old because the latter was also within the protected class. Speaking for a unanimous Supreme Court, Justice Scalia ruled that the key to the presumption of age discrimination is whether “a replacement is substantially younger than the plaintiff.”  In other words, it would be more probative of age discrimination if a 50-year-old was replaced by a 40-year-old, both of whom are protected by the ADEA, than if a 42-year-old was replaced by a 38-year-old, only one of whom is protected by the ADEA.

In Teal, a written test was the first hurdle in a multiple hurdle selection procedure.  There was adverse impact based on the test alone, but when the process was completed, a higher percentage of blacks than whites were promoted (at the bottom line).  A 5-4 majority of the Supreme Court ruled that Title VII protects individuals, not the class as a whole.  Therefore, regardless of how the class as a whole fares on the bottom line, the individuals impacted by the first hurdle are protected as individuals.

Judge Smith applied the same reasoning to the present case, ruling:

The Supreme Court rejected this so-called "bottom-line" defense and held that the purpose of Title VII "is the protection of the individual employee, rather than the protection of the minority group as a whole." …… "[F]avorable treatment of . . . members of these respondents' racial group" did not justify discrimination against other members of the protected class. …..  ("Title VII operates not primarily to the benefit of racial or minority groups, but to ensure that individual applicants receive the consideration they are due . . . .").

Now, considering the three prior cases, Judge Smith rejected two of them on grounds that they occurred before the O’Connor ruling in 1996 (Lowe v. Commack, (1989 CA2) [886 F.2d 1364] & Smith v. Tennessee Valley Authority (1991 CA6) [924 F.2d 1059].  Thus, these rulings were made before Justice Scalia’s proclamation that the key factor in age discrimination is age itself rather than the line drawn between under and over 40 years of age.  Or in Judge Smith’s words:

The forty-and-older line established 29 U.S.C.S. § 631(a) does not convert age into a binary trait. By its own terms, it imposes a limitation on the individuals covered by the prohibitions in this chapter, 29 U.S.C.S. § 631(a). It simply establishes the age at which ADEA protection begins. The appropriate disparate-impact statistics should be guided by the trait protected by the statute, not the population of employees inside or outside the statute's general scope.

Lastly, the third case did occur after O’Connor (EEOC v. McDonnel Douglas (1999 CA80 [191 F.3d 948]) but, to use Judge Smith’s words, “The Eighth Circuit's analysis is also unpersuasive because it contradicts Teal and ignores important limitations on the scope of disparate-impact claims”.  Basically, the 8th Circuit ruled that:

[A] plaintiff could bring a disparate-impact claim despite the fact that the statistical evidence indicated that an employer's RIF criteria had a very favorable impact upon the entire protected group of employees aged 40 and older, compared to those employees outside the protected group. We do not believe that Congress could have intended such a result.

In what I think is a brilliant extension of Teal, Judge Smith likened the entire over 40 group to the bottom line comparison in Teal and the 50 and over subgroup comparison to the first hurdle in Teal.  Or in Judge Smith’s words:

This is no more than an endorsement of the bottom-line defense that the Supreme Court rejected in Teal. The State of Connecticut tried a similar argument by suggesting that black employees were favored for promotions as an overall class. But that bottom-line outcome concealed individual rights violations. Far from being a result "Congress could [not] have intended," the Supreme Court's ruling in Teal vindicated Title VII's plain text and purpose. The same applies to the ADEA.

In summary, I think the Judge Smith’s ruling is elegant in combining a landmark ADEA disparate treatment case with a landmark Title VII adverse impact case to establish what is an entirely new precedent in ADEA case law --- that subgroup comparisons are ripe for ADEA adverse impact claims.  It doesn’t affect subgroup comparisons in Title VII adverse impact cases because the protected classes are of the binary (or at least discrete) whereas age is continuous (and don’t I know it!).

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

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