United States Supreme Court Extends Disparate-Impact Liability to Age Discrimination Claims

On March 30th, in Smith v. City of Jackson, the Supreme Court held that employers are subject to age discrimination claims based on the disparate-impact theory of liability. 2005 WL 711605 (2005). This decision changes the landscape for claims brought under the Age Discrimination in Employment Act of 1967 (ADEA), because an employee is no longer required to prove that the employer’s discrimination was intentional. Rather, under the disparate-impact theory, employees can sue an employer over actions that unintentionally cause a disproportionate amount of harm to older workers. This theory of liability presents the potential for greater exposure to liability, which will undoubtedly impact future business decisions that affect workers age 40 or older.

The Smith case was filed by a group of police officers who claimed that a salary plan instituted by the city of Jackson, Mississippi police department had a disproportionate impact on officers over 40 and therefore violated the ADEA. The plan gave larger raises to officers with fewer than five years of tenure to make their salaries competitive with comparable positions in the market. The plaintiffs argued that even though the salary plan was facially age neutral, it adversely affected older workers, and therefore violated the ADEA.

Justice Stevens authored the Court’s 5-3 decision1 and was joined by Justices Scalia, Souter, Ginsburg, and Breyer. In holding that the ADEA allows recovery in disparate-impact cases, the Court noted that “good faith ‘does not redeem employment procedures or testing mechanisms that operate as “built-in headwinds” for minority groups and are unrelated to measuring job capability.’” Id. at *4 (citing Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971)). However, the Court also recognized that “[a]ge, unlike race or other classifications... not uncommonly has relevance to an individual’s capacity to engage in certain types of employment.” Id. at *7. An employer, therefore, can avoid liability if it shows that the rationale for its decision was based on “reasonable factors other than age,” such as physical capabilities or cost-cutting. Id.

Applying these principles to the facts in Smith, the Court went on to rule unanimously that the police department was not liable for violating the ADEA. Even though the pay increase disadvantaged older officers, the department’s argument -- that the new payment scales were an attempt to make salaries of junior officers more competitive with other police departments -- was reasonable. As Justice Stevens noted, “the city’s decision to grant a larger raise to lower echelon employees for the purpose of bringing salaries in line with that of surrounding police forces was a decision based on a ‘reasonable factor other than age’ that responded to the City’s legitimate goal of retaining police officers.” Id. at *8.

Smith is an important decision because it eliminates the disagreement among the federal circuits regarding whether disparate-impact liability may be applied to age discrimination claims. Prior to the Supreme Court’s ruling, the First, Seventh, Tenth, and Eleventh Circuits refused to apply the disparate-impact theory to claims arising under the ADEA. Conversely, the Second, Eighth, and Ninth Circuits recognized the applicability of this theory of liability in ADEA lawsuits.2 Compounding the uncertainty among the circuits was the Equal Employment Opportunity Commission’s position that disparate-impact claims were permissible under the statute.

Although the City of Jackson prevailed in the Smith case, the Court’s decision is a warning shot for employers. Going forward, employers must carefully evaluate the impact that their business decisions -- even facially age neutral ones -- may have on older employees. Now, for example, if an employer changes its compensation plan or other terms of employment, the employer is vulnerable to disparate-impact liability, even though the change is age neutral and non-discriminatory, if the change has a disparate impact upon older workers.

In short, employers now face potential liability for harm stemming from unintentional age discrimination. Since plaintiffs are no longer required to prove that an employer deliberately discriminated against them when asserting an ADEA claim, they may have an easier time bringing their claims before a jury. Therefore, an employer must evaluate the impact that its actions may have upon employees age 40 or older. Where a policy or action may harm its older workers disproportionately to workers under age 40, the employer will have to determine whether a sufficient “reasonable factor other than age” justifies the difference in treatment, and thus, protects the employer from liability under the ADEA.

Employers now need to tread especially carefully and seek the advice of employment counsel before implementing a policy that could adversely affect older employees.

1 Justice Rehnquist did not participate in the opinion.

2 The Fourth Circuit has not expressly ruled on the issue since Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993) (questioning whether disparate impact claims are viable under the ADEA).

As of March 10, 2005, employers must post a notice for their employees that informs employees of their rights, benefits, and obligations under the Uniformed Services Employment and Reemployment Rights Act (USERRA). USERRA safeguards the job rights of individuals who voluntarily or involuntarily leave their civilian employment positions to assume military service. The law also prohibits employers from discriminating against past and present members of the uniformed services, as well as applicants to the uniformed services. The newly-mandated USERRA posting requirement arises from the “Veterans Benefits Improvement Act of 2004” (VBIA), Public Law 108-484, which President Bush signed on December 10, 2004.

To help employers comply with the new USERRA posting requirement, the Department of Labor created a new poster, which is available online at www.dol.gov/vets/programs/userra/poster.pdf.

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If you have any questions about the Smith v. City of Jackson decision or the new USERRA posting requirement, please contact any attorney in Mintz Levin’s Labor, Employment, and Benefits practice at http://www.mintz.com/
expertise/practices/6/Employment_Labor_Benefits/.

Copyright © 2005 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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