Recent Supreme Court Ruling And The Implications For Employers

Published on: 7/25/2005

Disparate impact claims involve employer actions that, while appearing neutral, fall more harshly on a protected group of employees. Although long recognized in areas involving race, gender, and other classifications protected by the Civil Rights Act of 1964, federal courts had previously split over whether to recognize such claims under the Age Discrimination in Employment Act of 1967 (“ADEA”). For example, if a business required every prospective employee to complete an intelligence test that appeared age-neutral but 80% of applicants under 40 years of age passed the test and only 10% of applicants over 40 years of age passed, a disparate impact would have occurred regardless of the employer’s intent in administering the test.

On March 30, 2005, the United States Supreme Court resolved the debate over the feasibility of disparate impact claims under the ADEA with its decision in Smith v. City of Jackson, Mississippi. In Smith, the City of Jackson, Mississippi (“City”) adopted a pay plan granting raises to all City employees. The plan was motivated by the City’s desire to bring the starting salaries of police officers up to the regional average. Those officers who had less than five years of tenure received proportionately greater raises, when compared to their previous pay, than those with more than five years of tenure. A group of older police officers filed suit under the ADEA claiming both that the City deliberately discriminated against them because of their age and that they were adversely affected by the City’s pay plan.

The United States Supreme Court analyzed the case in light of the history of the ADEA, the language of the ADEA, and its relationship to the Civil Rights Act of 1964. “During the deliberations that preceded the enactment of the Civil Rights Act of 1964, Congress considered and rejected proposed amendments that would have included older workers among the classes protected from employment discrimination.” Though Congress decided against adding older citizens as a protected class under the Civil Rights Act of 1964, it later passed the ADEA with very similar language to the Civil Rights Act. Except for the substitution of “age” for “race, color, religion, sex, or national origin,” the language of the ADEA § 4(f)(1) mirrors that of Title VII § 703(a)(2) of the Civil Rights Act of 1964. The Court concluded that the ADEA also encompassed disparate impact claims. The Court has interpreted these two statutes as placing the burden on the plaintiff to isolate and identify the specific employment practices that are allegedly responsible for the statistical disparities.

In addition to placing the burden on the plaintiff to identify the specific employment practice, the employer’s position is also strengthened by the “reasonable factor other than age” (“RFOA”) provision of the ADEA. This section of the ADEA provides that it is legal for an employer to take any action otherwise prohibited if the action or policy is based on a “reasonable factor other than age.” Essentially, this provision gives courts great latitude in defining what the RFOA provision entails. In Smith, the United States Supreme Court determined that a disparate impact claim was feasible under the ADEA and that a disparate impact had resulted from the City’s pay plan. Ultimately, though the Court resolved the case in favor of the City, citing the plaintiffs’ failure to identify a specific practice that had an adverse effect on older workers. The Court also determined that the City’s pay plan was based on a reasonable factor other than age.

So what is the upshot of the Smith decision for employers? One likely result is that in those jurisdictions where disparate impact claims were dismissed before Smith as a matter of law, many such claims will today survive a motion to dismiss. Before the Smith decision, disparate impact claims under the ADEA were recognized only in the 2nd, 8th, and 9th Circuits. It is instructive to examine employment practices that were challenged – particularly successfully – in these Circuits. Further, an examination of litigation issues that have cropped up since the Court’s decision in Smith sheds additional light on the possibilities.

In the 2nd, 8th, and 9th Circuits, a myriad of employment practices resulted in disparate impact claims under the ADEA. Some practices and situations that have drawn judicial scrutiny include: forced retirements, promotion decisions, terminations, offering early retirement to a select group of employees, terminating a death benefit fund, requiring a fee for inclusion in a medical plan, reductions in force (RIF), enforcing maximum weight requirements, denying severance packages, requiring a high school education, and instituting a mandatory intelligence test. In a particularly interesting 9th Circuit case, Frank v. United Airlines, Inc., female flight attendants brought a class action suit against United Airlines, Inc. (“United”) alleging disparate impact under the ADEA as well as sexual discrimination under the Civil Rights Act of 1964. From 1980 to 1994, United had forced flight attendants to comply with maximum weight requirements based on height and age. Failure to maintain weight below the applicable standard subjected the flight attendants to various forms of discipline and even termination. The trial court granted United summary judgment on all claims, holding that the plaintiffs failed to present evidence of a pattern or practice of sex or age discrimination. The 9th Circuit Court of Appeals reversed the trial court decision and granted the plaintiffs summary judgment based on sexual discrimination but also stated that a disparate impact claim was cognizable under the ADEA.

In another successful case brought prior to the Smith decision, the 8th Circuit Court of Appeals affirmed the trial court’s decision that the Harris-Stowe State College in Missouri and its Board of Regents violated the ADEA and the Civil Rights Act of 1964 when the defendants excluded the plaintiff from the faculty. In 1978, the Missouri Legislature enacted a statute to transfer control of Harris-Stowe College to the state college system. The school and its Board of Regents decided to reduce the faculty from 51 to 34 professors.

Subsequently, the school invited the faculty of the old Harris-Stowe College to apply for a position with the new Harris-Stowe State College. In order to reduce costs, the school selected a designated number of tenured and nontenured professors from the old Harris-Stowe College to join the new Harris-Stowe State College. The plaintiff was excluded from the faculty of the new school and filed suit. The trial court held that the defendants’ plan to reserve certain positions on the new school’s faculty for nontenured staff had a disparate impact on employees protected by the ADEA and the 9th Circuit Appellate Court affirmed the trial court’s holding.

Since the Smith decision came down in March, disparate impact cases have been litigated over hourly wage caps, terminations, and RIF. In Ackerman v. Home Depot, an employee brought an action alleging sex and age discrimination against Home Depot over a corporate policy instituting standardized wage caps for designated job titles. The plaintiff reasoned that since older employees generally had more seniority and higher wages, the wage caps disproportionately harmed the older workers. At the time the parties briefed the motion for summary judgment, 5th Circuit precedent did not support disparate impact claims under the ADEA. Smith was decided just prior to the District Court’s holding in this case and was duly noted. Ultimately, the District Court granted Home Depot’s motion for summary judgment due to the plaintiff’s lack of statistical proof of disparate impact.

Though it appears as if many human resource policies can result in a suit, relatively few disparate impact claims cases brought under the ADEA have been successful. Successful claims have been brought under the rubric of employee terminations and denials of severance pay. The lack of success by many disparate impact claimants serves as little comfort to employers who still must defend the suits and pay substantial fees to counsel.
Employers should take preventative measures to protect themselves from the potential ramifications of the Smith case. The RFOA provision offers employers a measure of protection, provided employers are able to clearly articulate a reasonable factor other than age which led to the disparate impact. For example, in the Smith case, the legitimate business purpose served by the City’s plan was the retention of police officers by raising employee’s salaries to match those in nearby communities. While it remains uncertain what other practices will be judicially deemed to have a “legitimate business purpose,” employers should review all current human resource policies that affect a large number of employees for disparate impacts.
During their review of current policies, businesses should consider conducting statistical analyses to determine whether older workers are disproportionately affected. When an employer identifies a policy that has an adverse affect on older employees, the business should closely scrutinize that procedure to ensure there is an articulable justification for the policy and for the resulting disparate impact. Also during any audit of current policies, it is advisable that employers record any and all steps taken to analyze the policies, document the findings, and document the legitimate business purpose the policy serves.

In addition to current policies, employers should scrutinize prospective procedures regarding compensation, benefits, hiring, promotions, retirement benefits, layoffs or any other human resource strategy that affects a large number of workers. As with current policies, potential decisions should be analyzed statistically to predict and identify any possible disparate impacts. Accordingly, each plan should have a clearly stated business goal or objective, as well as a document memorializing the rationale behind the decision.

In order to minimize the number of suits arising over disparate impacts, employers should also consider performing regular statistical analyses of current business practices that could potentially adversely affect older workers. A policy that did not create statistical disparities at inception may develop a disparate impact over time. Additionally, a company’s record retention guidelines should be reviewed to ensure important information relating to payroll, bonuses, terminations, hirings, promotions, layoffs, and statistical analyses of human resource policies are retained in a convenient and safe location. These steps will afford businesses some degree of protection from liability should a disparate impact claim be brought against them.


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