• Supreme Court Approves Application of Disparate Impact Theory to Age Discrimination Claims
  • April 2, 2005 | Authors: Karl G. Nelson; William J. Kilberg; Eugene Scalia; Deborah Clarke
  • Law Firms: Gibson, Dunn & Crutcher LLP - Dallas Office; Gibson, Dunn & Crutcher LLP - Washington Office; Gibson, Dunn & Crutcher LLP - Los Angeles Office
  • In a decision with potentially broad implications for the nation's aging workforce, the Supreme Court held this week that federal law permits claims of age discrimination even in the absence of discriminatory intent. In Smith v. Jackson, Mississippi, --- S. Ct. ---, 2005 WL 711605 (Mar. 30, 2005), the Court confronted a dispute that has split the Courts of Appeals. By a five to three margin, the Court concluded that employers may be liable for age discrimination under a "disparate impact" theory where facially neutral employment practices have an unintended adverse effect on older workers. The ruling opens the door for a new theory of age discrimination in many circuits that had previously rejected such claims. Left unanswered are key questions surrounding the circumstances in which such claims will ultimately prevail.

    Pay Adjustments Based on Seniority

    Smith involved claims under the federal Age Discrimination in Employment Act of 1967 ("ADEA") by senior members of the Jackson police force challenging a system of pay adjustments. The formula for the adjustments - which relied on an analysis of comparable positions in other communities - had the effect of granting proportionately larger raises to officers and dispatchers with five or fewer years of tenure. Officers with more than five years of service tended to be older, with the result that approximately two-thirds of the officers under 40 received raises of more than 10 percent, while less than half of those over 40 did. The district court dismissed the older officers' disparate-impact claim, and the Fifth Circuit affirmed, holding that "the ADEA was not intended to remedy age-disparate effects that arise from the application of employment plans or practices that are not based on age."

    Although the Supreme Court established in Griggs v. Duke Power Co., 401 U.S. 424 (1971), that disparate-impact claims could be brought under Title VII, it had yet to resolve that theory's application to the ADEA. In the absence of Supreme Court guidance, the Second, Eighth, and Ninth Circuits, focusing on textual similarities between the ADEA and Title VII, had permitted such claims. The First, Seventh, Tenth, and Eleventh Circuits, in contrast, rejected the disparate-impact theory for age claims based on the differing histories and purposes of the ADEA and Title VII. Courts rejecting the disparate impact theory under the ADEA had focused on the statute's prohibition on differential treatment "because of . . . age" as support for the conclusion that an employer is liable only if motivated by age. Further, such courts had pointed to Section 4(f)(1) of the statute, which permits employers to take action otherwise prohibited under the ADEA "where the differentiation is based on reasonable factors other than age . . . ." In Smith, the Fifth Circuit weighed in on the side of the First, Seventh, Tenth, and Eleventh Circuits, widening the circuit split.

    The High Court Recognizes Age Discrimination Absent Discriminatory Intent

    In a plurality opinion,1 Justice Stevens announced that disparate impact claims are cognizable under the ADEA. Noting that the prohibitory language of Section 4(a)(2) of the ADEA and Section 703(a)(2) of Title VII is nearly identical, with the ADEA simply substituting the word "age" for the words "race, color, religion, sex, or national origin," the plurality reasoned that the text of both sections focuses on the effect of conduct on an employee rather than on the employer's motivation. This, according to the plurality, evidenced an intent to allow disparate impact claims and rendered Griggs persuasive precedent.

    The plurality further found that categorical rejection of the disparate impact theory based on the ADEA's "reasonable factors other than age" or "RFOA" exception was unjustified. According to the plurality, the RFOA exception would be unnecessary if the statute did not allow for disparate impact claims - in that case, "if an employer in fact acted on a factor other than age, the action would not be prohibited under subsection (a) in the first place." Rather, the plurality concluded, the "principal role" of the RFOA exception was to preclude liability when an adverse impact was attributable to a nonage factor that was "reasonable." Finally, the plurality observed that the EEOC's regulations support its holding that disparate impact theory is applicable to the ADEA.

    While noting the EEOC's endorsement of disparate impact age claims, the plurality stopped short of deferring to the EEOC's interpretation of the ADEA. The EEOC has suggested that ADEA disparate impact claims are subject to the same standard that has governed Title VII disparate impact claims since the Civil Rights Act of 1991. Under that standard, facially neutral practices that result in a disparate impact are unlawful unless the employer establishes that the practice is a "business necessity." Rejecting the EEOC's application of the "business necessity" standard, the plurality observed that when Congress passed the Civil Rights Act of 1991, it did not amend the ADEA. Thus the higher burden of proof for disparate impact claims that existed prior to 1991, as articulated in Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989), continues to control ADEA disparate impact claims. In the plurality's view, different treatment of ADEA disparate impact claims is consistent with the inherent difference between age as a protected characteristic and traits protected by Title VII. Accordingly, the plurality noted, "Unlike the business necessity test, which asks whether there are other ways for the employer to achieve its goals that do not result in a disparate impact on a protected class, the reasonableness inquiry includes no such requirement."

    Applying its "reasonableness" standard to the petitioners' claim, the plurality noted that any disparate impact suffered by the petitioners was "attributable to the City's decision to give raises based on seniority and position" in light of "the goal of raising employees' salaries to match those in surrounding communities." Thus, while a disparate impact theory of age discrimination was possible, the City's actions were justifiable based on the RFOA exception.

    Implications of Smith

    While the majority in Smith agreed that claims under the ADEA may be brought in the absence of intent to discriminate on the basis of age, it left unresolved the circumstances under which such claims might prevail. By definition, any disparate impact claim will be premised upon a facially neutral policy or practice. To satisfy the RFOA exception, an employer will then have to demonstrate that such policy or practice is "reasonable." While "reasonableness" appears at first blush to be a relatively easy standard for an employer to meet, Smith offers little guidance on this point. Accordingly, a lower court following the plurality opinion in Smith might nonetheless conclude that a neutral policy is unreasonable if there are alternative means by which the employer might have achieved it's same goal - thus minimizing the effective difference between the RFOA and "business necessity" standards. Until a consistent RFOA standard emerges, employers would be well-advised not to take lightly the potential for disparate impact age discrimination claims.

    Moreover, because disparate impact claims inherently involve treatment of a class of employees and typically turn upon statistical rather than individualized proof, Smith is likely to provide additional fuel to the recent explosion of class action challenges targeting employment-related policies and practices. Because many aspects of the employment relationship - including pay practices, benefits, work assignments, performance standards, and severance rights - may vary based upon length of service or other factors that correlate with age, Smith opens a new front on which older employees may attack such practices, particularly within the federal circuits that had previously rejected such claims entirely. For all of these reasons, employers should carefully scrutinize their current practices for unintended impact on older employees and assess whether such practices are likely to withstand a legal challenge under a disparate impact age discrimination theory.

    1 Justices Souter, Ginsberg, and Breyer joined in the opinion. Writing separately, Justice Scalia concurred in the judgment, but would have deferred to the Equal Employment Opportunity Commission's interpretation of the ADEA allowing disparate impact claims absent a showing of "business necessity." Justice O'Connor, joined by Justices Kennedy and Thomas, would have endorsed the Circuit Court's conclusion that the disparate impact theory is unavailable under the ADEA. Chief Justice Rehnquist did not participate in the case.