Guest Article

(From the April 4, 2005 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Disparate Impact Claims Available Under ADEA, Supreme Court Rules

The Supreme Court on March 30, 2005, ruled employers can be sued under the federal Age Discrimination and Employment Act (ADEA) for employment practices that have a disparate impact on older workers, even if they do not intend to discriminate against such workers. Smith, et al. v. City of Jackson, Mississippi, et al., 544 U.S. _____ (2005). The Court's ruling, which is consistent with the Equal Employment Opportunity Commission's interpretation of the ADEA, makes it easier for older workers to bring federal age discrimination claims against their employers, and this could include offering new grounds for challenges to the adoption of cash balance plans.

Case Background

The plaintiffs were police and public safety officers who worked for the defendant, the city of Jackson, Mississippi ("City"). In 1998, the City adopted a new pay plan for all employees designed to "attract and retain qualified people, provide incentive for performance, maintain competitiveness with other public sector agencies and ensure equitable compensation to all employees regardless of age, sex, race and/or disability." The City revised the plan in 1999 to provide raises to all police officers and police dispatchers in order to bring the starting salaries for those positions up to the regional average. Under the revised plan, those with less than five years of tenure received larger raises, as a percentage of compensation, than those with longer tenures.

According to the plaintiffs, who are all age 40 or older and have more than five years of tenure, the City's revised plan violates the ADEA. Specifically, they claim the plan deliberately discriminates against them because of their age (the "disparate treatment" claim) and affects them adversely because of their age (the "disparate impact" claim). A federal district court granted summary judgment to the City on both claims, but the Fifth Circuit Court of Appeals reversed the district court on the disparate treatment claim. The court of appeals also ruled "disparate impact claims are categorically unavailable under the ADEA."

ADEA

At issue is ADEA § 4(a)(2) (29 USC § 623(a)(2)), which makes it unlawful for an employer "to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's age." This language is identical to section 703(a)(2) of the Civil Rights Act of 1964 (Title VII), except the word "age" is replaced by "race, color, religion, sex, or national origin." Another difference between the relevant provisions of the ADEA and Title VII is that the former includes a specific exception if "the differentiation is based on reasonable factors other than age." See ADEA § 4(f)(1) (29 USC § 623(f)(1)).

Supreme Court's Decision

Unlike the Fifth Circuit Court of Appeals, the Supreme Court concluded "the ADEA does authorize recovery in 'disparate impact' cases." The Supreme Court noted disparate impact claims are recognized under Title VII, and that as a matter of statutory interpretation, "when Congress uses the same language in two statutes having similar purposes, particularly when one is enacted shortly after the other, it is appropriate to presume that Congress intended that text to have the same meaning in both statutes." Also, the Supreme Court pointed out the EEOC, which has regulatory authority over the ADEA, has "consistently interpreted the ADEA to authorize relief on a disparate impact theory."

Even though the Supreme Court's decision should make it easier for employees to bring ADEA claims against their employers, the Supreme Court made clear that "it is not enough to simply allege that there is a disparate impact on workers, or point to a generalized policy that leads to such an impact." Instead, the Supreme Court ruled, "the employee is 'responsible for isolating and identifying the specific employment practices that are allegedly responsible for any observed statistical disparities.'" According to the Supreme Court, the plaintiffs failed to carry this burden in this case.

Furthermore, the Court concluded, the City's plan "was based on reasonable factors other than age." The plaintiffs cited statistics to prove older officers on average received smaller increases as a percentage of salary than younger officers because "older officers tended to occupy more senior positions." But, according to the Supreme Court, "The basic explanation for the differential was the City's perceived need to raise the salaries of junior officers to make them competitive with comparable positions in the market." Also, "Reliance on seniority and rank is unquestionably reasonable given the City's goal of raising employees' salaries to match those in surrounding communities."

As such, even though the Supreme Court ruled disparate impact claims are permitted under the ADEA, it concluded the plaintiffs' case is not sufficient to make out a disparate impact claim.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Bart Massey 202.220.2104, Elizabeth Drigotas 202.879.4985, Diane McGowan 202.220.2077, Taina Edlund 202.879.4956, Martha Priddy Patterson 202.879.5634, Laura Edwards 202.879.4981, Tom Pevarnik 202.879.5314, Mike Haberman 202.879.4963, Tom Veal 312.946.2595, Stephen LaGarde 202.879.5608, Deborah Walker 202.879.4955, J.D. Lutz 202.879.5366 Copyright 2005, Deloitte.