Handing down another decision this term interpreting the nation’s age discrimination law, the Supreme Court has ruled that an employer must not only produce evidence of, but also bear the burden of proving, a “reasonable factor other than age” for its employment policy or action which has a disparate impact on workers over the age of 40, in order to establish its freedom from unlawful bias. Meacham v. Knolls Atomic Power Laboratory, 06-1505, 554 U. S. ____ (June 19, 2008).

As part of an involuntary reduction in force (“RIF”), Knolls Atomic Power Laboratory ("KAPL") instructed its managers to rate employees from zero to ten on “performance, flexibility, and criticality of…skills,” and to add up to ten points for “company service.”  The company also asked managers to identify which employees had the lowest scores.  These employees were slated for layoff.  The company then conducted a disparate impact analysis to determine if the proposed layoffs would have an adverse impact on protected groups.  KAPL subsequently reviewed the managers’ selections to “assure adherence to downsizing principles.”  Ultimately, 30 of the 31 laid-off employees were over 40 years old.  

Many of the terminated workers joined in bringing a lawsuit alleging the company violated the Age Discrimination in Employment Act (“ADEA”), because the RIF had a disparate impact on older workers.  A jury awarded over $6 million in damages to plaintiffs.  A federal district court upheld the damages award.  In 2004, the United States Court of Appeals for the Second Circuit affirmed the lower court’s decision, and the company appealed to the U.S. Supreme Court. 

In 2005, the Supreme Court vacated and remanded the case back to the Second Circuit for further consideration in light of Smith v. City of Jackson, which it had decided that term.  In City of Jackson, the Court confirmed that a disparate impact cause of action is, in fact, available under the ADEA, but altered the traditional disparate impact analysis employed in cases brought under Title VII of the Civil Rights Act of 1964.  In a typical Title VII disparate impact case, the plaintiff first must identify a specific policy or practice with a statistically significant adverse impact on a protected group; the plaintiff need not allege any discriminatory intent.  Once the plaintiff has made this showing, the burden then shifts to the employer to produce evidence that the policy or action was backed by a legitimate business justification.  Ultimately, the plaintiff bears the burden of proving that the employer failed to satisfy the “business necessity” test because the policy or action either did not conform with the employer’s legitimate employment goals, or the employer could have adopted an equally effective and less discriminatory alternative.  (This is often referred to as the Wards Cove analysis, which was established by the Supreme Court in Wards Cove Packing Co. v. Antonio.)  In City of Jackson, the Court ruled that an employer need not prove “business necessity” in order to rebut a plaintiff’s prima facie case of age discrimination, but instead only needs to demonstrate that the employer’s decision was based on "reasonable factors other than age."  

On remand, the Second Circuit concluded that even though the Supreme Court altered the Wards Cove analysis to allow for a reasonable factor other than age (“RFOA”) standard, the Court intended for the burden of persuasion to remain with the plaintiff.  In other words, instead of coming forward with evidence of business justification, under City of Jackson, the defendant only had to come forward with evidence of a RFOA.  Then, according to the Second Circuit, the burden shifts to the plaintiff to prove “unreasonableness.” 

This time it was the employees who appealed the Second Circuit’s decision to the Supreme Court, asserting that principles of statutory construction require the RFOA to be considered an affirmative defense for which the defendant bears the burden of proof.  The federal government sided with the employees, and, shortly before the Supreme Court heard oral argument in Meacham, the Equal Employment Opportunity Commission (“EEOC”) published a proposed regulation which would place the burden of proof as to reasonableness on the employer. 

Jackson Lewis was pleased to have submitted a friend-of-the-court or amicus brief on behalf of the Association of Corporate Counsel’s Employment and Labor Law Committee in support of KAPL.  ACC is a non-profit corporation with 22,000 individual in-house counsel members working at more than 9,000 businesses worldwide.  As we argued in the brief, which party bears the burden of proof can have a significant impact on how employers go about conducting a RIF, as well as whether or not disparate impact cases survive summary judgment:

Treating the “reasonable factors other than age” as an affirmative defense on which the employer has the burden of proof would render it vastly more difficult for courts to identify and dispose of meritless cases through summary judgment…. Indeed, despite the express recognition by Congress in the ADEA that actions taken on the basis of “reasonable factors other than age” are not unlawful, if required to prove the reasonableness of their personnel actions affirmatively, employers will likely be discouraged from engaging in a thoughtful analytical process like  that utilized by Respondent, when called upon to make difficult personnel decisions affecting groups of employees, such as the selection of those to be affected by a reduction-in-force.  In the interests of reducing the risk of litigation and attendant costs, employers may be motivated to permit a statistical analysis to determine the selection process, thus having the unintended consequence of making age a factor in personnel decisions in order to reduce the risk of litigation under a statute purporting to prohibit consideration of that very factor.

Nevertheless, in its June 19th decision, the Supreme Court ruled that the employer must not only produce evidence supporting the reasonable factors other than age defense, but also must persuade the factfinder of its merit.  The Court’s holding was based on several factors.  First, the Court noted that the RFOA exemption appears alongside the bona fide occupational qualifications (BFOQ) exemption in the text of the ADEA, a part of the statute that is separate from the general prohibitions.  Using principles of statutory construction, the Court reasoned that the RFOA should be deemed an affirmative defense for an employer in an ADEA case, as is the BFOQ.  On this basis then, the Court concluded that Congress intended the RFOA exemption to be treated differently than the general prohibitions of the ADEA, which placed the burden of proof squarely on the employee.

Next, the Court rejected KAPL’s argument that the RFOA should be treated simply as an elaboration on an element of liability, where the burden of proof lies with the employee.  Instead, the Court held that City of Jackson clearly defined a non-age factor as a premise for disparate impact, not a defense to it.  Therefore, the Court reasoned that the focus of a RFOA defense is not to merely assert a non-age factor, but to prove its reasonableness.

As a salve to KAPL and employers generally, the Court held it is not enough for an ADEA plaintiff merely to allege a generalized policy that has a disparate impact on older workers.  Instead, the plaintiff is required to isolate and identify a specific employment practice that is responsible for statistical disparities.  The Court noted that identifying a specific practice is not a trivial burden for a plaintiff, and where an employer’s RFOA defense is plainly reasonable, there should not be much additional burden placed on the employer.  Still, the Court allowed that under its decision, employers will have to produce more evidence where the RFOA defense is not as clear.