United States Supreme Court Endorses Disparate Impact Claims Under ADEA

2005-10-02

In a decision that surprised many seasoned employment law practitioners, the United States Supreme Court, on March 30, endorsed another theory of proving discrimination on the basis of age under the Age Discrimination in Employment Act ("ADEA"). Although the Supreme Court affirmed the Fifth Circuit's judgment in Smith v. City of Jackson, Miss., 2005 U.S. LEXIS 2931 (U.S. Mar. 30, 2005) ("Smith"), it reversed the lower court's dismissal of the disparate-impact claim. In Smith, a group of older officers filed suit under the ADEA claiming that they had been adversely affected by an employee pay plan. The City of Jackson had granted raises to all police officers and police dispatchers with less than five (5) years service at a proportionately higher rate than those with more seniority. Most officers over the age of forty (40) had more than five (5) years of service and, as such, received proportionately smaller pay raises. The City justified the higher percentage pay raises to those with Less seniority on the basis that the City needed to make junior officers' salaries more competitive with comparable positions in the surrounding labor market.

Twenty-four (24) years ago, the Supreme Court recognized the "disparate-impact" theory of liability under Title VII of the Civil Rights Act of 1964 ("Title VII") in Griggs v. Duke Power Co., 401 U.S. 424 (1971) ("Griggs"). There the Court considered whether Title VII prohibited an employer from requiring a high school education or passing two general education tests as a condition of employment for janitorial jobs when neither the high school education nor the tests were shown to be significantly related to successful job performance. This was especially so when both requirements operated to disqualify African-American applicants at a substantially higher rate than White applicants. Recognizing that the motivation of the employer was immaterial to this type of discrimination, the disparate-impact theory of discrimination focused on the effects of the neutral policy on the minority employees since the policy excluded them at higher rates than non-minorities.

Writing for the Court in Smith, Justice Stevens observed that the ADEA and Title VII used virtually identical language in certain sections of each act that would permit the advancement of the disparate-impact theory in an ADEA action. Significantly, however, the ADEA does narrow the applicability of disparate-impact cases by permitting otherwise illegal or prohibited actions, policies, or procedures where the differentiation is based on reasonable factors other than age ("RFOA"). Therefore, when there are employment practices, which are facially neutral in their treatment of different age groups, (i.e., under the age of forty (40) versus over the age of forty (40)), but that, in fact, fall more harshly on the older age group, an employer may avoid liability if that adverse or disparate impact is attributable to a reasonable factor other than age.

Another protection provided to employers facing disparate-impact age claims is the ADEA's exclusion from the Civil Rights Act of 1991. The Civil Rights Act of 1991 expanded the coverage of Title VII under the disparate-impact theory, when the Act, in effect, overturned the Supreme Court's decision in Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989). Wards Cove set a more stringent test for establishing adverse impact claims by relaxing an employer's burden of proof. As the Supreme Court points out in Smith, however, the Civil Right Acts of 1991 did not amend the ADEA. As such, the more stringent requirements of Wards Cove facing a plaintiff bringing a disparate-impact ADEA action still survives. So, for example, the burden of proof that existed in Wards Cove requiring plaintiffs to isolate specific employment practices which cause an adverse impact to those over the age of forty (40) is still required along with establishing an alternative employment practice which has to be equally as effective as the employer's chosen employment procedure. This would include factors such as the cost or other burdens of a proposed alternative employment practice or selection device.

The fact that the RFOA defense does not require the employer to determine the effectiveness of other ways to achieve its goal makes it the better of the two (2) defenses. In fact, under the RFOA defense, the only burden that an employer must meet, after disparate-impact is established, is to demonstrate that the factors upon which its employment policy or practice is based are reasonable, and nothing more.

For Texas employers, Smith also signals the demise of the Austin Court of Appeals decision in Texas Parks and Wildlife Dept. v. Gearing et al., 150 S.W.3d 452 (Tex. App.--Austifl 2004, pet. denied) ("Texas Parks and Wildlife") which held that disparate-impact claims were not cognizable under the Texas Commission on Human Rights Act ("TCHRA"). The TCHRA required court interpretation to determine the viability of an age-based disparate-impact claim. The Austin Court of Appeals extensively analyzed and adopted the Fifth Circuit's disparate-impact ADEA conclusions in Smith v. City of Jackson, Miss., 351 F.3d 183 (5th Cir. 2003). That reasoning is now no longer valid. As such, employers facing age discrimination claims under the TCHRA will now also face the possibility of disparate-impact claims. Unfortunately, Texas employers do not have the RFOA defense as it is not included in the State act. Additionally, the State legislature adopted the Civil Rights Act of 1991's amendments eviscerating Wards Cove and made the more-onerous disparate-impact burden of proof provisions applicable to age claims.

Practically speaking, employers should always analyze policies, procedures and actions (such as layoffs) for an adverse impact on minorities or age-protected employees. The simple 80% test used by the Office of Federal Contract Compliance Programs ("OFCCP"), the agency that reviews affirmative action plans prepared by federal contractors, is the easiest to perform. The minority or less-favored group (i.e., those over the age of forty (40)) have experienced an adverse impact if their ratio in the employment action, policy or procedure is less than (or more than, depending on the type of employment action), 80% of that experienced by the favored group. However, before implementing any procedure or policy that may adversely affect an older group of employees, companies may want to retain their employment Law counsel to analyze the impact so as to preserve confidentiality under the attorney-client privilege.

In summary, employers should anticipate more age discrimination claims now that older employees may use the effects of an employment action or policy to establish, potentially, liability under the ADEA. This is especially so under the TCHRA which offers plaintiffs the best avenue for pursuit of disparate-impact age claims.