Employers Must Prove Reasonableness of Non-Age-Related Factors Supporting Employment Decision

In Meacham v. KAPL, Inc., 06-1505 (June 19, 2008), the United States Supreme Court clarified an employer's burden in age discrimination cases. According to the Court, when an employee brings a disparate-impact claim under the Age Discrimination in Employment Act of 1967 (the “ADEA”) and the employer defends the claim by asserting its actions were “based on reasonable factors other than age,” the employer has the burden of producing evidence raising the defense and persuading the jury of its merit. Practically speaking, this means employers must prove that reasonable non-age factors justify their decisions, rather than placing the burden on employees to disprove those factors.

Background and Holding

Although the ADEA prohibits age discrimination in employment, it provides an exception for “otherwise prohibited” conduct “where the differentiation is based on reasonable factors other than age.” This exception applies to disparate-impact cases in which an employee alleges that a facially neutral employment policy or practice has an unjustified adverse impact on employees 40 years of age or older. Until recently, federal appellate courts disagreed as to whether the burden of production and persuasion regarding the asserted “reasonable factors” fell on the employer or the employee. In Meacham v. KAPL, Inc. the Supreme Court resolved this dispute and placed both burdens on the employer.

KAPL, Inc. operates the federal government's Knolls Atomic Power Laboratory. In 1996, the federal government ordered KAPL, Inc. to reduce its work force by approximately 143 employees. Just over 100 employees opted for a voluntary buyout. In order to determine which of the remaining employees would be involuntarily laid off, KAPL, Inc. told its managers to score their subordinates on three scales: performance, flexibility, and critical skills. The scores were summed, together with points for years of service, and the totals determined who would be laid off. Of the 31 salaried employees who were laid off, 30 (or 96.8%) were at least 40 years old. Conversely, of the 245 employees who were at risk for involuntary layoff, only 179 (or 73%) were 40 years old or older.

Based on these statistics, 28 of the 31 laid-off employees sued KAPL, Inc. and asserted disparate-treatment (discriminatory intent) and disparate-impact (discriminatory result) claims under the ADEA. The Court held that an employer defending a disparate-impact claim under the ADEA bears both the burden of production and the burden of persuasion for the “reasonable factors other than age” affirmative defense. According to the Court, the “reasonable factors other than age” defense in disparate-impact cases “is not focused on the asserted fact that a non-age factor was not at work.” The Court assumes it was. The focus, instead, is whether the factor the employer relied upon was “reasonable” under the ADEA. “Reasonableness is a justification categorically distinct from the factual condition ‘because of age' and not necessarily correlated with it in any particular way.” The burden of producing evidence to support the reasonableness of its decision, and proving the merits of that decision to the jury, rests with the employer not the employee.

Although a victory for employees, the Meacham v. KAPL, Inc. decision provided some recourse for employers by reaffirming that an employee fails to state a claim for age discrimination “by merely alleging a disparate impact, or pointing to a generalized policy that leads to such an impact.” Rather, employees asserting disparate-impact ADEA claims must isolate and identify the specific employment practices that are allegedly responsible for any observed statistical disparities. According to the Court, “t]he aim of this requirement . . . is to avoid the result of employers being potentially liable for the myriad of innocent causes that may lead to statistical imbalances.” Once the employee has identified a specific employment practice and shown that it has a statistically significant disparate impact on older employees, however, the employer bears the burden of proving that its actions were nevertheless based on “reasonable factors.”

What Should Employers Know?

As the economy continues to struggle, employers face an additional hurdle when deciding which employees will be let go pursuant to a reduction in force program. Rather than simply demonstrate the existence of non-age-related factors used in their layoff decisions, employers must now prove that those factors were reasonable. To satisfy this burden, employers should strategically identify the factors that will be used in the layoff decisions and determine (and document) their relation to business needs. As always, employers should consult legal counsel when making these decisions. In addition to potential discrimination pitfalls, employers should be aware of federal and state laws dictating appropriate notice procedures when implementing workforce reduction programs.