Supreme Court holds employers must prove an employment action was based on reasonable factors other than age.

The purpose of the Age Discrimination in Employment Act of 1967 (“ADEA”) is to promote employment of older persons (defined as older than 40 years old) based on their ability rather than age. One provision of the ADEA prohibits arbitrary age discrimination in employment, but provides an exemption for employer actions “otherwise prohibited” by the ADEA if the action is “based on reasonable factors other than age” (“RFOA”). The United States Supreme Court ruled in Meacham v. Knolls Atomic Power Laboratory, 554 U.S. ___ (June 19, 2008) that employers raising the RFOA defense must both present evidence that their decisions were based on non-age-related factors, and must convince the jury that those decisions were reasonable.

Facts of Meacham

The employer laid off 31 employees during an involuntary reduction in force. All but one of the employees laid off were over 40 years old. The workforce as a whole was 60 percent over age 40. Some of the affected employees sued under the ADEA, claiming that the employer’s scoring system used to determine which employees should be let go had a “disparate impact” (meaning that the action resulted in a disproportionately high number of layoffs of older workers, whether or not the employer intended the unfair outcome). The employer’s managers had scored workers based on subjective factors including flexibility, performance, and “critical skills,” and laid off the employees with the lowest scores. A jury found in favor of the plaintiffs.

The Court’s ruling

The Supreme Court ruled that an employer facing a disparate impact claim under the ADEA and planning to defend on the basis of RFOA must both (1) produce evidence that the factors that the employer relied on in making its decision were not age-related and that the employer’s action was reasonable, and (2) persuade the fact-finder that the employer did, in fact, act on the basis of RFOA. The Supreme Court’s ruling also clarified that an employer’s “business necessity” for the decision does not have any bearing on such a case.

The Court also affirmed that plaintiffs must still “isolate and identify the specific employment practices that are allegedly responsible for any observed statistical disparities.”

What Meacham means for employers

This case highlights yet another reason why reliance on an “at-will” employment relationship is never a safe bet when terminating employees - or in any circumstances. Employers may be concerned that this holding may encourage plaintiffs with borderline cases to sue. Indeed, the Court’s decision “put[s] employers to the work of persuading fact-finders that their choices are reasonable [which] makes it harder and costlier to defend” age-discrimination accusations.

Age discrimination claims are becoming ever more prevalent as the average age of the American worker increases. Therefore, when considering reductions in force or layoffs, employers should carefully consider whether the action might have a greater impact on older employees. Finally, Human Resources personnel should educate company managers to contact HR for guidance before making any decisions (hiring, promoting, retaining or terminating employees) that may have a negative impact on the company’s older employees.