• Age Discrimination Update: EEOC Issues Final Rule On Defense to Disparate Impact Claims
  • April 13, 2012 | Author: Catherine E. Walters
  • Law Firm: Saul Ewing LLP - Harrisburg Office
  • Summary

    The U.S. Equal Employment Opportunity Commission (EEOC) has issued a Final Rule intended to clarify the "reasonable factors other than age" (RFOA) defense to claims of disparate impact discrimination under the Age Discrimination in Employment Act (ADEA). The Final Rule, published in the Federal Register on March 30, 2012, amends the ADEA regulations effective April 30, 2012. Employers need to understand application of the RFOA defense and how to establish it before implementing employment actions that may have a disparate impact on older workers.

    What Happened?

    Background: Defenses Under the ADEA

    The ADEA, which prohibits discrimination on the basis of age against individuals 40 and over, provides for multiple statutory defenses to allegations of age discrimination, including, but not limited to, the "bona fide" defenses (i.e., "bona fide occupational qualification" (BFOQ), "bona fide employee benefit plan," "bona fide seniority system") and the "non-age" defenses (i.e., "reasonable factors other than age" (RFOA) and "good cause"). The "bona fide" defenses are typically used when defending claims of disparate treatment, that is, claims that an employer discriminated against one or more individuals on the basis of their protected class, in this case, age. When using these defenses, the employer may agree that age was a factor in the decision, but that the decision was lawful under the circumstances.

    The RFOA and "good cause" defenses are typically used when an employer denies that age was a factor in the challenged conduct. In essence, the employer defends the challenged conduct by demonstrating that the differentiation was based on reasonable factors other than age or that it otherwise had good cause for its actions.

    The "business necessity" defense is another defense typically used by employers defending discrimination cases. Here, the employer argues that the decision in question was "job related and consistent with business necessity." The plaintiff may counter by demonstrating that an alternative practice exists that would have had a less discriminatory impact, but although the employer was aware of the practice, it refused to adopt the practice. The employer may counter these allegations by raising cost, feasibility and multiple other factors.

    Employers who raise the RFOA defense with respect to claims for disparate impact age discrimination may not also use the "business necessity" defense. The EEOC's Final Rule discusses this differentiation and clarifies how employers may apply the RFOA defense pursuant to two U.S. Supreme Court decisions on disparate impact.

    Disparate Impact and the ADEA

    In 2005, the U.S. Supreme Court decided Smith v. Jackson, confirming that claims for disparate impact discrimination were allowed under the ADEA and endorsing use of the RFOA defense. The Court followed up in 2008 with its decision in Meacham v. Knolls Atomic Power Laboratory, confirming use of the RFOA defense and its status as an affirmative defense under the ADEA, and, contrary to the EEOC's position, holding that the Title VII "business necessity" defense has "no place in ADEA disparate impact cases."

    While disavowing the EEOC's position on applicability of the "business necessity" test, these holdings confirmed the EEOC's position that the ADEA prohibits both disparate treatment discrimination (intentional discrimination on the basis of age) and disparate impact discrimination (employer's application of facially neutral practice or policy has a greater negative impact on older individuals). The ADEA itself acknowledges that otherwise prohibited actions may not be unlawful when the employer engages in "differentiation" based on "reasonable factors other than age," thus the RFOA defense focuses on whether the practice in question was both reasonable and based on factors other than age, rather than whether the employer should have sought to achieve its goals in a different manner.

    The Final Rule

    The EEOC's Final Rule sets forth amendments to the ADEA regulations, specifically 29 C.F.R. ยง1625.7 titled, "Differentiations based on reasonable factors other than age." According to the EEOC, "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." In addition, the revised regulation includes the following concepts:

    • clear statement that if age is used as a limiting factor, the RFOA defense is not available to employers;

    • creation of a presumption that an employment practice that adversely affects individuals within the protected age group is discriminatory unless justified by a reasonable factor other than age;

    • requirement that the individual challenging a practice specifically identify the practice causing the disparities;

    • assignment of the RFOA burdens of production and persuasion (evidentiary burdens) to employers;

    • confirmation that the RFOA defense is not available with respect to claims of disparate treatment;

    • inclusion of examples of the EEOC's interpretation of a "reasonable factor other than age";

    • confirmation that the RFOA defense is a fact-specific, multi-pronged determination; and

    • continued acknowledgement that a differentiation based on the average cost of employing older workers as a group is unlawful except as to bona fide employee benefit plans which qualify for the ADEA exception to prohibited practices.

    While these revisions to the regulations more accurately reflect the Supreme Court's guidance than prior versions issued by the EEOC, they do not resolve several issues that have been gaining currency in the federal courts. One of these issues is whether there are two classes of employees, including one class of employees under 40 and a second class consisting of either (1) employees 40 and over or (2) employees 40 and over within multi-year incremental ranges (e.g., 60-65, 55-60, etc.). This may be one of the next battles to reach the Supreme Court.

    What Does This Mean For Employers?

    The RFOA defense sets a slightly lower bar for employers to step over than the "business necessity" defense. This is because the RFOA defense inquires whether the employer's actions were "reasonable," rather than whether the employer could or should have achieved its goals in a different manner so as to further minimize the resulting disparate impact on a protected class.

    Similar to the way employers have established the affirmative defense set forth by the Supreme Court in the Faragher and Ellerth sexual harassment cases, employers may put specific steps and methods in place to ensure that they can establish the RFOA affirmative defenses. These include adapting the "considerations" enumerated by the EEOC at revised section 1625.7(e)(2), including:

    • defining the business purpose for specific employment actions and considering the best way to achieve them;

    • defining and applying factors related to achieving the business purpose in a fair and accurate manner;

    • providing guidance and training to managers who will apply the factors so as to avoid discrimination;

    • limiting the ability of managers to engage in subjective assessments, especially where the relevant factors are subject to age-based stereotypes;

    • assessing adverse impact on older workers;

    • attempting to minimize the degree of harm to protected age workers, including the extent of the harm and the number of individuals adversely affected; and

    • taking available steps to prevent more serious harm, balanced against the burden of undertaking such steps.

    In the Final Rule, the EEOC was careful to note that while such "considerations" are relevant to determining whether a practice is based on a reasonable factor other than age, no specific consideration or combination of considerations must be present to establish the defense; likewise, the presence of any of these considerations does not automatically establish the defense.

    Even so, the EEOC's guidance is useful, and with disparate impact age discrimination claims on the rise, employers should consider how to establish the RFOA affirmative defense prior to taking employment actions that may adversely affect protected classes of workers. A strong framework for doing so includes strategic human resources planning, identifying legitimate business purposes, identifying reasonable ways to achieve those purposes, training managers, assessing anticipated outcomes, implementing consistent, relevant processes, and obedience to the old "documentation" mantra.