The Equal Employment Opportunity Commission (EEOC) issued a new regulation (29 CFR Part 1625; http://www.gpo.gov/fdsys/pkg/FR-2012-03-30/pdf/2012-7819.pdf), effective April 30, 2012, addressing the “reasonable factor other than age” (RFOA) defense to disparate impact claims under the Age Discrimination in Employment Act (ADEA). The regulation, among other things, defines “reasonable factor other than age” and provides specific considerations to aid in determining whether an employer’s specific employment practice is non-discriminatory based on the RFOA defense.
By way of background, in the Supreme Court’s 2005 decision in Smith v. City of Jackson (544 U.S. 228 (2005)), the Supreme Court held that the ADEA permits claims under the disparate impact theory. A disparate impact claim is based on a facially neutral employment practice (e.g., all employees must have high school diplomas) that has a disproportionately adverse effect on individuals in specific protected classifications (race, sex, age, etc.). Disparate treatment claims, in comparison, involve treatment of one employee differently than other similarly situated employees, such as terminating an employee over age 40 for one unexcused absence, but giving only an oral warning to a 25 year-old employee in the same position. In 2008, the Supreme Court also held in Meacham v. Knolls Atomic Power Laboratory (554 U.S. 84 (2008)) that the employer bears the burden of production and persuasion in advancing the RFOA defense. The new regulation, issued almost four years after Meacham, is intended to bring the EEOC’s official interpretation of the ADEA in line with these Supreme Court decisions.
The regulation provides that “an individual challenging the allegedly unlawful practice is responsible for isolating and identifying the specific employment practice that allegedly causes any observed statistical disparities.” The regulation then defines a RFOA 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.”
The regulation further identifies five “considerations” relevant to determining whether an employment practice is based on a RFOA:
- the extent to which the factor is related to the employer’s stated business purpose
- the extent to which the employer defined the factor accurately and applied it 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 extent to which the employer limited supervisors’ discretion to assess employees subjectively, particularly in cases in which the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes
- the extent to which the employer assessed the adverse impact of its employment practice on older workers, and
- the severity 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.
The effect of the regulation will most likely be increased scrutiny of employment practices that have adverse impact on older employees. Thus, employers implementing facially neutral policies with the potential to have greater impact on older workers (e.g., reductions in force, compensation plans that have a seniority-based component, etc.) should be cognizant of and consider each of the above factors prior to implementing the contemplated practice. While no single factor is dispositive, passing muster under as many factors as possible should help support the RFOA defense should a claim be filed.
With regard to the first factor, that the practice is related to the employer’s stated business purpose, it is important to generate and preserve documentation regarding the business goals and needs to substantiate this factor later. The second factor, defining the factor accurately and guidance given to managers for implementation, requires effective internal communication to ensure that managers are aware of the factors and that there is little or no room for misinterpretation. In other words, in a reduction in force context, before managers evaluate staff in their departments, they should be informed of the criteria at issue and how such criteria are to be applied. The second factor also dovetails with the third factor, the amount of discretion supervisors are permitted; use of objective, rather than subjective, factors can help satisfy this third consideration. Using a reduction in force example again, it is generally preferable for employers to focus on objective factors such as attendance or achievement of sales goals rather than subjective determinations and rankings. The fourth factor generally requires review by counsel to determine whether there is an adverse impact based on statistical review of the proposed employment action. The fifth factor is closely related to the fourth, as the degree of harm is best determined after such an analysis is completed. As always, every situation is different and assessing the above considerations can be a difficult task.
Ultimately, the new regulation is intended to avoid disparate impact age discrimination claims, and the regulation provides useful guidance in this respect. Employers should consider the identified considerations to assist in not only avoiding disparate impact of its employment practices with regard to older workers, but, if necessary, to successfully defend ADEA claims using the RFOA defense.
Russell E. Adler