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New EEOC Rule Significantly Increases Employer Burdens in ADEA Disparate Impact Cases

The Equal Employment Opportunity Commission (EEOC) recently amended its regulations under the Age Discrimination in Employment Act (ADEA) concerning disparate impact claims.  The final rule, which became effective on April 30, 2012, is likely to impose significant administrative burdens on employers as well as increase potential litigation exposure and costs of ADEA claims.

The Equal Employment Opportunity Commission (EEOC) issued a final rule on March 30, 2012, to amend its regulations under the Age Discrimination in Employment Act (ADEA) concerning disparate impact claims.  The final rule, which became effective on April 30, 2012, is likely to impose significant administrative burdens on those employers aware of its existence, increase the exposure of employers not aware of its existence, increase the potential volume of litigation and litigation costs overall of both “aware” and “unaware” employers, and leave both sets of employers vulnerable to being second-guessed by the administrative and judicial systems.

Historical Context

Title VII of the Civil Rights Act of 1964 (Title VII) prohibits discrimination based on race, color, religion, national origin, or sex.  An employer may violate Title VII by “disparate treatment” (i.e., intentionally treating people differently based on a protected classification) or by causing a “disparate impact” (i.e., using a facially neutral policy that adversely affects people within a protected classification). 

Under Title VII, in a disparate treatment case, the plaintiff retains the burden of proof and may either use direct evidence of discrimination or circumstantial evidence.  In a disparate treatment case involving circumstantial evidence, the plaintiff basically must show that the employer treated similarly situated people differently.  The employer may then articulate (but need not prove) the existence of a legitimate, non-discriminatory reason for its treatment and, if it does, the plaintiff must show that the proffered reason is a pretext for discrimination. 

In contrast, in a disparate impact case under Title VII, if a plaintiff shows that the employer’s facially neutral practice adversely affects a protected classification, the employer must prove that its practice is justified by business necessity (i.e., necessary for the safe and efficient operation of the business).  However, if the plaintiff can show that a less discriminatory alternative was available, the employer would lose the case.

While the courts have always held that the disparate treatment theory is available to plaintiffs under the ADEA, there had been some dispute since at least the early 1990s as to the availability of the disparate impact theory under the ADEA.  The EEOC long had taken the position in its ADEA regulations that the disparate impact theory is available under the ADEA and that an employer could only defend such a claim based on business necessity, as under Title VII.

In 2005 and 2008, the United States Supreme Court issued two decisions (Smith v. City of Jackson and Meacham v. Knolls Atomic Power Lab) holding that the disparate impact theory is available under the ADEA, but to defeat a claim the employer need only meet its burden of proving that the challenged policy or practice was based on a reasonable factor other than age (RFOA) (not business necessity).

After taking four years (and issuing two prior notices of proposed rulemaking on different aspects of the regulations) to correct a glaring error in its regulations, the EEOC elected to do so in a particularly grudging fashion.  While the EEOC acknowledged that the business necessity defense requirement was rejected by the Supreme Court, the EEOC has established requirements for the RFOA defense in a manner that appear to be as close to the business necessity defense as possible.  For employers who are interested in the practical impact of legal requirements, as opposed to fine theoretical distinctions, the difference between the business necessity defense and the EEOC’s articulation of the RFOA defense is akin to the difference between glossy black paint and matte black paint.  The fact that the final rule was adopted on a 3-2 vote along the party lines of the political affiliations of the EEOC Commissioners further invites skepticism regarding the legitimacy of the final rule and challenges to the degree of deference the courts may give the EEOC’s new regulation.

The Amended RFOA Regulation

The amended regulation continues to make it clear that the RFOA defense is not available to defend an employment practice that uses age as a limiting criterion or a claim of disparate treatment.  (29 C.F.R. §1625.7(b) and (d)).  An individual challenging an employer’s practice on a disparate impact theory is responsible for isolating and identifying the specific practice allegedly causing the observed statistical disparities (29 C.F.R. §1625.7(c)), and the employer has the burden of proving the applicability of the RFOA defense in the course of a “fact intensive inquiry” (29 C.F.R. §1625.7(d)).  (77 F.R. 19082, Mar. 30, 2012).

An RFOA is defined as “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” and is “decided on the basis of all the particular facts and circumstances surrounding each individual situation” (29 C.F.R. §1625.7(e)(1)).  The employer will be required to “show that the employment practice was both reasonably designed to further or achieve a legitimate 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.  (Id.).

The EEOC identified considerations that are relevant, but not required or sufficient, to whether a practice is based on an RFOA, including the extent to which the following apply:

  • The factor is related to the employer’s stated business purpose.
  • 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.
  • The employer limited supervisors’ discretion to assess employees subjectively, particularly where the criteria that the supervisors were asked to evaluate were known to be subject to negative age-based stereotypes.
  • The employer assessed the adverse impact of its employment practice on older workers.

(29 C.F.R. §1625.7(e)(2)(i)-(iv) and (e)(3)).

The amended EEOC regulation also identifies as a relevant consideration the degree of the harm to individuals within the protected age group, in terms of both the extent of the 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 taking such steps.  (29 C.F.R. §1625.7(e)(2)(v)).

The supplementary comment to the amended regulation candidly acknowledges that the EEOC has borrowed from tort law (which historically has governed personal injury and similar claims) to guide its definition of “reasonableness”.  (77 F.R. 19083-86, Mar. 30, 2012).  The EEOC’s analysis focuses on both the reasonableness of the employer’s design of its policies and practices and the reasonableness of the manner in which it implements and applies the claimed age-unrelated factor.

Issues with the EEOC Approach

In some respects, the well-counseled and sophisticated employer’s day-to-day business practices may not be significantly impacted because those employers likely have been proactively assessing the potential adverse impact of their employment practices on the protected age group, in addition to the classifications protected under Title VII.  Such employers also are likely to have been taking steps either to diminish the potential adverse impact or verifying that the impact was susceptible to justification based on factors other than age.  However, for less-sophisticated employers or those that lack ready and consistent access to employment counsel, it is possible that they may have adopted or perpetuated employment practices without engaging in the a priori analyses implicitly, if not explicitly, required by the EEOC’s treatment of the RFOA defense.  For either employer, the risks and the expense of litigation significantly increased with the adoption of the amended regulation.

One of the problems with the EEOC’s approach is that it projects onto all employers a philosophy or style of management that is not required by the language of the statutes and that an employer may or may not wish to adopt.  For example, in another context, the language of Title VII and the ADEA do not require an employer to create documentation of performance deficiencies or to use progressive discipline.  However, an employer would be reckless to terminate an employee without some form of documentation or warning because the failure to do so would leave the employer more vulnerable than necessary to a claim of discrimination.  In the context under discussion in this On The Subject, the amended regulation effectively forces an employer to monitor and evaluate its employment policies and practices to identify those that may have a disparate impact and to engage in advance the analysis that the EEOC states “will carry more weight than mere self-serving statements or after-the-fact rationales.”  (77 F.R. 19086, Mar. 30, 2012).

Similarly, while the EEOC states that an employer is not required to train its managers or supervisors, the EEOC’s amended regulations clearly put employers on notice that there is a premium on providing guidance and training to managers and supervisors, particularly in connection with any criteria that are subjective in nature, and which may elevate the risk of age-based stereotyping.  The EEOC supplementary commentary refers to rating criteria such as flexibility, willingness to learn and technological skills as being particularly susceptible to such stereotyping.  (77 F.R. 19088, Mar. 30, 2012).  While the individual bears the burden of isolating and identifying the specific employment practice that causes the adverse impact, the EEOC notes that the courts have held that a plaintiff may challenge an overall decision-making process “if the employer utilizes an ‘undisciplined system of subjective decision making.’”  (Id.).  At that point, failure to have provided guidance and training to remove the risk that age-based stereotyping may have infected the evaluation could prove fatal to the employer’s defense of a claim of disparate impact.

Practical Implications

In light of the final rule, an employer should work with its counsel to accomplish the following:

  • Identify any practices or policies that may be having a disparate or adverse impact on members of a protected classification.
  • Identify the cause(s) of any such disparate impact.
  • Either eliminate the cause(s) of such disparate impact or establish the existence of a reasonable factor other than age based on the “considerations” identified by the final rule as relevant. 
© 2019 McDermott Will & Emery

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About this Author

Stephen D. Erf, McDermott Will & Emery LLP, Labor & Employment Attorney
Partner

Stephen D. Erf is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Stephen focuses his practice on civil rights and labor/employment counseling and litigation, restrictive covenants, wage and hour, union organizing, collective bargaining, employment discrimination, wrongful discharge and public accommodations.  He has worked with clients in a wide range of industries, including health care, education, construction, manufacturing, service, food, social service, chemical and transportation.  Stephen has been recognized as a leading...

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