Second Circuit Holds That ADEA Covers Disparate Impact

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March 18, 2005

Second Circuit Holds That ADEA Covers Disparate Impact

Manesh K. Rath The Second Circuit decided recently that a reduction in force that selected the 31 employees based on performance and relevance of skills had a discriminatory impact upon employees over 40 years old. The case is Meacham v. Knolls Atomic Laboratory, Inc. The Facts Of The Case In 1996, Knolls Atomic Laboratory, Inc., based on staffing levels set by its government client, needed to reduce its staffing levels by 143 jobs. Knolls established a voluntary resignation plan with a $20,000 incentive that reduced its staff by 107 employees. Knolls then implemented an involuntary reduction in force (RIF). If a division was over its staffing budget, it was required to participate in the RIF. Managers in those divisions were required to rank their employees, based on 1) their performance scores over the past two years; 2) their flexibility to take on other positions; 3) the criticality of the employee's skills; and 4) tenure with the company. The respective managers identified 31 employees for layoff. Thirty of the terminated employees were older than forty. The plaintiffs sued Knolls, alleging disparate impact age discrimination under the Age Discrimination In Employment Act (ADEA). Knolls responded that their approach was based upon a nondiscriminatory process and criteria, and Knolls further contended that the ADEA should not allow for disparate impact claims.

In 1996, Knolls Atomic Laboratory, Inc., based on staffing levels set by its government client, needed to reduce its staffing levels by 143 jobs. Knolls established a voluntary resignation plan with a $20,000 incentive that reduced its staff by 107 employees. Knolls then implemented an involuntary reduction in force (RIF). If a division was over its staffing budget, it was required to participate in the RIF. Managers in those divisions were required to rank their employees, based on 1) their performance scores over the past two years; 2) their flexibility to take on other positions; 3) the criticality of the employee's skills; and 4) tenure with the company. The respective managers identified 31 employees for layoff. Thirty of the terminated employees were older than forty. The plaintiffs sued Knolls, alleging disparate impact age discrimination under the Age Discrimination In Employment Act (ADEA). Knolls responded that their approach was based upon a nondiscriminatory process and criteria, and Knolls further contended that the ADEA should not allow for disparate impact claims.

What The Court Said The Second Circuit held that the ADEA does give rise to disparate impact claims. This reflects a significant split among the circuits. The Second Circuit acknowledged this split, but held that it will recognize disparate impact claims until or unless the U.S. Supreme Court settles this issue. The most notable case to the contrary is Smith v. City of Jackson in the Fifth Circuit, which case will come before the U.S. Supreme Court this term. The court also held that, although Knolls pointed to a facially neutral employment practice, plaintiffs showed that Knoll's selection criteria were pretextual by showing that another practice would have achieved the same result without impacting older workers. The court held that Knolls could have designed a RIF with safeguards against managerial subjectivity and bias.

The Second Circuit held that the ADEA does give rise to disparate impact claims. This reflects a significant split among the circuits. The Second Circuit acknowledged this split, but held that it will recognize disparate impact claims until or unless the U.S. Supreme Court settles this issue. The most notable case to the contrary is Smith v. City of Jackson in the Fifth Circuit, which case will come before the U.S. Supreme Court this term. The court also held that, although Knolls pointed to a facially neutral employment practice, plaintiffs showed that Knoll's selection criteria were pretextual by showing that another practice would have achieved the same result without impacting older workers. The court held that Knolls could have designed a RIF with safeguards against managerial subjectivity and bias.

What Employers Should Do Employers in circuits where the ADEA supports a disparate impact claim must take great care in implementing virtually any hiring policy, RIF, or benefits plan to determine its impact upon older workers. This involves complex statistical analysis of a plan's impact upon workers older than 40 as compared to their representation in the workforce at large. The U.S. EEOC has suggested use of its fourfifths rule as a guideline for disparate impact. The U.S. Supreme Court is scheduled to hear another case on this point during the coming term. Employers should stay updated on this development, as its outcome could result in significant changes to a wide number of employment practices nationwide. If you have any questions, please do not hesitate to contact us.

Employers in circuits where the ADEA supports a disparate impact claim must take great care in implementing virtually any hiring policy, RIF, or benefits plan to determine its impact upon older workers. This involves complex statistical analysis of a plan's impact upon workers older than 40 as compared to their representation in the workforce at large. The U.S. EEOC has suggested use of its fourfifths rule as a guideline for disparate impact. The U.S. Supreme Court is scheduled to hear another case on this point during the coming term. Employers should stay updated on this development, as its outcome could result in significant changes to a wide number of employment practices nationwide. If you have any questions, please do not hesitate to contact us.

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