The Cost to Older Workers: How the Adea Has Been Interpreted to Allow Employers to Fire

FRAN10.DOC11/04/2018 2:12 PM

2003]THE COST TO OLDER WORKERS1

THE COST TO OLDER WORKERS: HOW THE ADEA HAS BEEN INTERPRETED TO ALLOW EMPLOYERS TO FIRE OLDER EMPLOYEES BASED ON COST CONCERNS

Lee Franck[*]

INTRODUCTION

The Age Discrimination in Employment Act (“ADEA”) was enacted to promote the ability of older workers to compete in today’s marketplace. It recognized a disturbing change in the way that companies were treating older workers. Historically, older workers were regarded as a valuable commodity because of their skill and experience. The advance of the modern age brought about a shift in ideologies in corporate America. Older workers came to be considered a liability in the fast-paced business world. Congress drafted the ADEA to eliminate unfounded stereotypes of older workers as less productive and more expensive to employ. It gave statutory protection against discrimination to anyone over forty years of age.

Courts have struggled with implementing uniform decisions regarding the scope of the ADEA and the protections that are afforded older workers. The ADEA parallels other remedial statutes, like Title VII, but also has its own unique provisions. These similarities and differences have caused scholars to debate whether the ADEA should be interpreted and applied in the same manner or more narrowly than Title VII.

The Supreme Court has left many issues regarding the ADEA unresolved since its major opinion in Hazen Paper Co. v. Biggins,[1] and lower courts have interpreted the ADEA in a variety of ways. The focus of this Note, however, is a more recent phenomenon in ADEA interpretation. Federal courts are increasingly willing to hold that employers do not violate the ADEA by terminating older workers based on their higher earnings. Specifically, courts have upheld employer decisions to terminate or lay off older workers because of their higher salaries and their impact on the profitability of the company. This new trend limits the ability of the ADEA to protect older employees in the workplace, and requires rethinking the extent to which the ADEA actually protects older workers from discrimination. Allowing courts to view employer costs as analytically distinct from age discrimination may result in a disproportionately adverse effect on the employment of older workers.

This new trend is another reason for the Supreme Court to allow disparate impact as a cause of action under the ADEA. Disparate impact focuses on discriminatory effect, rather than on discriminatory intent. It establishes an approach to proving discrimination when an employer’s decision is facially neutral with respect to age, but has a disproportionately adverse effect on older employees. Disparate impact claims allow the employee to state a claim without identifying the employer’s subjective motivations.

The circuits have been divided for some time over the question of whether disparate impact can be used to prove age discrimination under the ADEA. The Second, Eighth, and Ninth Circuits have held that disparate impact is available under the ADEA. In contrast, the First, Third, Sixth, Seventh, Tenth, and Eleventh Circuits have questioned the viability of disparate impact claims under the ADEA. The remaining circuits have not addressed the issue in their case law. The Supreme Court in Hazen specifically chose not to address this issue.

This Note focuses on the trend among circuit courts to allow employers to consider costs when making decisions about terminations and lay-offs, and why this new trend represents another reason to apply disparate impact analysis to the ADEA. Part I addresses the statutory language of the ADEA and the interpretation of the Act. Part II discusses the similarities and differences between the ADEA and Title VII. Title VII is a similarly drafted remedial statute that allows discrimination claims to be proven through disparate impact analysis. Many scholars have argued that because the two are so similar, the ADEA should be interpreted to allow disparate impact. Others focus on the differences between the two statutes, including several key provisions in the ADEA that are absent in Title VII. They contend that these differences foreclose the use of disparate impact analysis as a way of proving age discrimination in violation of the ADEA. Part III discusses how courts view employer costs in decisions to lay off older workers. It examines the recent court cases that have allowed for such action and the reasoning behind those opinions. This trend represents yet another reason why disparate impact should be considered in ADEA cases. Part IV addresses a recent Eleventh Circuit case involving a disparate impact claim. Although the Supreme Court initially granted certiorari, after hearing oral arguments they dismissed certiorari as being improvidently granted. The Eleventh Circuit did not extend disparate impact analysis to the ADEA. This case presents several of the traditional arguments for and against applying disparate impact to the ADEA. Part IV also addresses additional arguments regarding the use of disparate impact in this context and includes a discussion of some of the scholarly work for and against applying disparate impact to the ADEA. Part V discusses why this recent trend of allowing courts to consider employer costs in the termination process undermines the protections that Congress intended the ADEA to give to older workers, and presents several scholars’ views on alternative ways to solve the problem of employer costs. This Part concludes that the effectiveness of the alternatives is limited, therefore presenting another reason to uphold disparate impact in the area of age discrimination. Part VI discusses how disparate impact cases are resolved and the consequences to both businesses and older workers that would result from allowing these claims under the ADEA.

I. THE HISTORY AND CREATION OF THE ADEA

Congress adopted the ADEA in 1967 to address a variety of concerns regarding older workers.[2] Specifically, “older workers [found] themselves disadvantaged in their efforts to retain employment, and especially to regain employment when displaced from jobs.”[3] Additionally, Congress found that setting “arbitrary age limits regardless of potential for job performance [had] become a common practice, and certain otherwise desirable practices [might] work to the disadvantage of older persons.”[4] Therefore, Congress’ purpose was to “promote employment of older persons based on their ability rather than age; to prohibit arbitrary age discrimination in employment; to help employers and workers find ways of meeting problems arising from the impact of age on employment.”[5]

Section 623 makes it unlawful for an employer to fail or refuse to hire or to discharge “any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.”[6] It is also unlawful under this section to reduce the wage rate of any employee in order to comply with the Act.[7]

The ADEA allows an employer to take otherwise prohibited action where “age is a bona fide occupational qualification reasonably necessary to the normal operation of the particular business, or where the differentiation is based on reasonable factors other than age.”[8] Additionally, the ADEA allows the use of a “bona fide seniority system that is not intended to evade the purposes of [the Act].”[9] The ADEA reflected many of the same concerns of other remedial anti-discrimination statutes, and not surprisingly was drafted using very similar language. In fact, the language of the ADEA closely parallels that of Title VII.[10] This has led many courts to interpret the ADEA similarly to Title VII, while other courts have found that the two statutes are different enough to preclude parallel interpretations. Analyzing the similarities and differences between the two statutes clarifies the reasons behind these different interpretations.

II. APPLYING TITLE VII ANALYSIS TO THE ADEA

The concern over age discrimination was initially discussed during the Title VII debates, where many House and Senate members argued that an age discrimination provision should be included in the statute.[11] Instead, Congress assigned to the Secretary of Labor the duty to prepare a report on age discrimination, which led to the creation of the ADEA.[12] The drafters of the ADEA relied to a large extent on the language of Title VII, and as a result the ADEA contains similar language to that of Title VII.[13] In fact, the ADEA and Title VII have nearly identical sections forbidding discrimination.[14] This has led many courts to apply the same standards for the ADEA that are applied to Title VII.[15]

Applying identical analyses to the two statutes is problematic in that several key provisions of the ADEA differ from those of Title VII. This makes a direct application of Title VII analyses to ADEA actions less feasible. For example, the ADEA stipulates that “[i]t shall not be unlawful for an employer...to take any action otherwise prohibited...where the differentiation is based on reasonable factors other than age.”[16] This
so-called “reasonable factor other than age” defense allows employers to use factors other than age as grounds for employment-related decisions without violating the ADEA.[17] This provision has no counterpart in Title VII.[18]

In addition, Title VII was amended in 1991 to codify the use of disparate impact as a cause of action.[19] No similar codification of the ADEA occurred, despite the fact that Congress has amended other parts of the ADEA.[20] As a result, some courts have held that this aspect of Title VII analysis should not apply to the ADEA.[21] Other courts have disagreed, arguing that the lack of a comparable amendment for the ADEA does not foreclose Title VII analysis.[22] In Camacho v. Sears, Roebuck de Puerto Rico, for example, the court noted that Congress amended Title VII because many court opinions had limited its scope.[23] There was no comparable assault on the ADEA that would warrant an amendment.[24]

Nevertheless, this Note argues that Title VII analysis should be applied to the ADEA in two specific areas. First, employer costs (or profits) do not justify discrimination under Title VII.[25] Title VII generally prohibits the use of discrimination irrespective of economic rationale.[26] Scholars have labeled this the “anti-cost” rule of Title VII.[27] Second, it is clear that Title VII allows for claims based on both disparate treatment and disparate impact.[28] If Title VII analysis is applied to the ADEA, it would become unlawful to consider economic rationale in discrimination cases and would allow disparate impact analysis as a way of proving age discrimination.

III. THE RECENT TREND ALLOWING EMPLOYERS TO TERMINATE OLDER WORKERS BASED ON THE HIGHER COSTS OF EMPLOYING THEM

Scholars have become concerned with the growing trend[29] in courts that allows employers to lay off older workers on the grounds that their salaries are too high and that they limit the profitability of the business.[30] In a recent article, Kester Spindler noted that a “string of cases around the country” focused on employer costs and “found for the employers on the employees’ charges of age discrimination.”[31] The most recent is the First Circuit decision in Mullin v. Raytheon Co., which looked at employer costs in the defense industry.[32] In Raytheon, the defendant needed to make drastic cuts after the end of the Cold War because the volume of work potentially available to it decreased considerably.[33] The plaintiff had worked for Raytheon for twenty-nine years and had gained the status of a grade fifteen employee (highly paid manager).[34] As a result of downsizing, the defendant lowered Mullin’s wage grade to match the lower grade salary.[35] The court found that the defendant’s need to downsize articulated a legitimate, nondiscriminatory reason for both restructuring and demoting the plaintiff.[36] Also, since the plaintiff had not proven that the legitimate nondiscriminatory reason was a pretext for age discrimination, the court held that there was no cause of action for intentional discrimination.[37] Additionally, the court took the opportunity to hold that violations of the ADEA could not be proven by evidence of disparate impact.[38]

Raytheon is the most recent decision in a growing trend allowing employer profitability (or more generally, employer cost concerns) to limit the protection the ADEA gives to older workers. This has concerned commentators who have observed that when courts approve discrimination based on wages, the courts give employers a clear roadmap on how to rid their ranks of older, higher-paid workers.[39]

This trend began with the Supreme Court’s decision in Hazen Paper Co. v. Biggins. In Hazen Paper, the Court upheld a decision by the defendant to fire sixty-two-year-old Walter Biggins shortly before his pension plan would vest.[40] The Supreme Court held that pension-vesting rules based on years of service represent a reasonable-factor-other-than-age, because an employee’s age is analytically distinct from the years of service.[41] Additionally, the Court noted that as long as the employer’s decision is based on a reasonable-factor-other-than-age it does not violate the ADEA, no matter how correlated the factor is with age.[42] Although pensions often correlate with age, they can be seen as distinct because they vest according to years of service, not a particular age.[43] Even though it is more likely that an older employee has had more years in the workforce and has accumulated more years of service with an employer, the vesting criteria does not necessarily serve as a proxy for age.[44] Therefore, the Court held that the defendant did not violate the ADEA when the defendant fired Biggins, because its reason for preventing the pension from vesting was to save money rather than age discrimination.[45]

Since Hazen Paper, “courts have been inclined to side with employers who fire older, higher-paid employees in order to cut costs.”[46] Four
post-Hazen Paper cases have upheld employer cost concerns.[47] The first is a 1994 decision by the Seventh Circuit Court of Appeals in Anderson v. Baxter Healthcare Corp.[48] In Anderson, fifty-one-year-old Arthur Anderson was discharged from his job as unit manager.[49] He claimed that the employer’s motivation was to simply reduce its salary costs.[50] The court stated that the rationale of Hazen Paper carried over to decisions based on salary.[51] It noted that “[c]ompensation is typically correlated with age, just as pension benefits are. The correlation, however, is not perfect.”[52] It concluded that the plaintiff “could not prove age discrimination even if he was fired simply because [the defendant] desired to reduce its salary costs by discharging him.”[53] Although Anderson has been criticized on its standard of proof for a prima facie case of age discrimination, its decision that employer costs (in the form of salary) are a reasonable-factor-other-than-age has not.[54]

Two cases in the Eighth Circuit Court of Appeals have addressed the issue of employer costs. In 1995, the Eighth Circuit first addressed the issue in Bialas v. Greyhound Lines, Inc.[55] In Bialas, the Eighth Circuit held that the defendant did not engage in age discrimination when it fired several older workers in an effort to cut costs because it used a reasonable-factor-other-than-age (salary) in making its decision.[56] The defendant was having financial problems and fired several older employees, whom it eventually replaced with younger and cheaper employees.[57] The court followed Hazen Paper, holding that terminating older employees “because their salaries were greater than their replacements’ salaries...does not necessarily support an inference of age discrimination.”[58]

In 1997, the Eighth Circuit Court of Appeals once again held that employer costs are a reasonable-factor-other-than-age in Snow v. Ridgeview Medical Center.[59] In Snow, the plaintiff argued that she was terminated because she was the most senior employee and she earned the highest salary.[60] The court, relying again on Hazen Paper, held that there was not enough evidence to prove age discrimination.[61] Again, it focused on the idea that age and years of service are analytically distinct, and therefore, decisions based on years of service are not age discrimination because they represent a reasonable-factor-other-than-age.[62]

In 1997, the California Court of Appeals for the Fourth District in Marks v. Loral Corp.[63] affirmed a lower court’s decision upholding a jury instruction that stated, “An employer is entitled to choose employees with lower salaries, even though this may result in choosing younger employees. If the choice is based on salary, there is no age discrimination.”[64] The court held that as long as salaries, or other factors, are not a pretext for a decision really based on age, there is no violation of the ADEA.[65] Additionally, even though the court acknowledged that experience and seniority necessarily count for something, it did not want to get in the way of business decisions.[66] The court concluded: