January 17, 2017
For any business contemplating a reduction in force (“RIF”) it is no doubt a difficult process given the knowledge that you are going to layoff a significant number of employees. From a business perspective, for businesses in PA, NJ and DE, the Third Circuit Court of Appeals has added an additional layer of difficulty. Specifically, in examining whether your RIF guidelines/policies violate the Age Discrimination in Employment Act (“ADEA”), the Third Circuit in Karlo, et al. v. Pittsburgh Glass Works, LLC, has concluded that a disparate impact on a subgroup of employees is a basis for a claim under the ADEA.
What is Subgroup Disparate Impact?
This is a fair question, because with respect to most other protected classes there are no subgroups. For instance, Title VII protects group identities such as race, which are no subject to subgroups. The ADEA is different, because the protected class of individuals is defined as an age – forty (40) and those older. Subgroup disparate impact is possible because although the protected class begins at 40, the ADEA prevents discrimination as to “age” not “those over 40”. As stated by the Third Circuit, “age is a continuous variable, whereas race and sex are treated categorically in the mine-run of Title VII cases.”
Therefore, it is possible that a subgroup of the age protected class – those aged 50 to 55 – are disparately impacted by a policy, which favored individuals aged 40 to 45 who are also in the protected class. The question for the Third Circuit was whether such an impact is unlawful.
ADEA Disparate Impact
To win a disparate impact claim under the ADEA a plaintiff must (1) identify a specific, facially neutral policy, and (2) proffer statistical evidence that the policy caused a significant age-based disparity. Once a plaintiff proves this, the employer can defend by arguing that the challenged practice was based on “reasonable factors other than age.
Notably, the ADEA’s disparate impact prohibition makes it unlawful for an employer to adversely affect an employee’s status because of such individual’s age. Importantly, the Third Circuit emphasized, the ADEA does not state that the impact must be adverse to those over 40 years old and favorable to those under 40 years of age.
Although the Third Circuit’s decision is contrary to three other circuit courts that have ruled on this issue, the Third Circuit’s legal analysis is more persuasive. Thus, subgroup disparate impact in ADEA cases is the law in PA, NJ and DE for now and will in my opinion be the law of the land should the Supreme Court consider the matter.
What Does It Mean for Employers
When planning a RIF, an employer must now review the impact its RIF guidelines/policies will have on age subgroups. By example, an employer will run afoul of the Third Circuit’s decision if it simply concludes that the RIF is impact neutral because 4 employees over 50 are being terminated while 4 employees 40 to 45 are being retained. Instead, unless the employer feels confident in its reasonable factors other than age, the RIF should be planned to evenly impact age groups. For instance, if 50 employees are being terminated, approximately 10 employees each should be terminated in the following age ranges – 40 to 45, 46 to 50, 51 to 55, 56 to 60, and 61 to 65.
Also, there is a chance that enterprising plaintiff’s lawyers will expand subgroup disparate impact to other subgroup-able protected classes, such as religion or disability. Therefore, employers should contact an attorney when contemplating/planning a reduction in force.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.