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March 2005

Supreme Court Recognizes ADEA Disparate-Impact Claims

In a decision interpreting the Age Discrimination in Employment Act (ADEA), the U.S. Supreme Court has held that employees age 40 and older do not have to prove intentional discrimination in order to establish a claim.  Rather, such workers can state a claim solely by showing that their employer's facially neutral policies or practices had a disproportionately adverse impact on older employees.  Smith v. City of Jackson, 2005 WL 711605 (U.S. Mar. 30, 2005).

Thus, just as it found almost 25 years ago in Griggs v. Duke Power Co., 401 U.S. 424 (1971), with respect to Title VII, the Court has now made clear that the ADEA authorizes recovery in disparate-impact cases.  The Court relied on the text of the ADEA and its similarity to the text of Title VII, the Congressional purpose behind the ADEA, and the fact that the EEOC has repeatedly argued that the statute authorizes disparate-impact claims.

Significantly for employers, however, the Court also held that two important textual differences between the ADEA and Title VII "make it clear that even though both statutes authorize recovery on a disparate-impact theory, the scope of disparate-impact liability under the ADEA is narrower than under Title VII."

First, the Court held that ADEA section 4(f)(1), which permits "any action otherwise prohibited under [the Act] . . . where the differentiation is based on reasonable factors other than age discrimination" (also known as the "RFOA" provision), precludes liability if the adverse impact was attributable to a reasonable non-age factor. 

Second, the Court recognized the significance of the 1991 amendments to Title VII.  One of the purposes of those amendments was to modify the Court's holding in Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989), a case in which the Court narrowly construed the employer's exposure to liability under the disparate-impact theory.  While the 1991 amendments expanded the coverage of Title VII to modify Wards Cove, they did not amend the ADEA or speak to the subject of age discrimination.  Thus, the Court held in Smith that Wards Cove's narrow, pre-1991 interpretation of Title VII's identical language remains applicable to disparate-impact claims under the ADEA.

Applying the narrower scope of ADEA disparate-impact liability to the facts of the case before it, the Court held that the plaintiffs - older police officers and dispatchers in Jackson, Mississippi - had failed to establish their claim.  Specifically, they sued over a pay-performance plan they said gave substantially larger pay raises, as a percentage of salary, to employees with five or fewer years of tenure, resulting in an unfavorable impact on employees 40 and older. 

The Court concluded that, while the employees could raise an age-based disparate-impact claim, they failed to state such a claim.  Specifically, it held that the city's explanation - that it needed to raise the salaries of junior officers to make them competitive with comparable positions in the market - was a "reasonable factor other than age" that responded to the city's legitimate goal of retaining police officers.

What does this decision mean for employers?

While employers now face the prospect of liability under the ADEA even if an employee has not established intentional discrimination, Smith makes clear that older workers will have a high threshold to prove their claims.  As Justice Stevens (who at 84 is the Court's oldest Justice) wrote for the majority, "age, unlike race or other classifications protected by Title VII, not uncommonly has relevance to an individual's capacity to engage in certain types of employment."  In other words, courts may still find that employers were within their rights to treat employees differently even if such treatment has a disparate-impact on older workers.

The Court's analysis may be particularly significant in the context of reductions-in-force, which have the potential to cause a disparate-impact on older workers where employers seek cost-savings by laying off the highest-paid employees, who may tend to be the oldest.  Under Smith, however, such reductions should not give rise to age-based liability where employers can offer a well-supported "reasonable factor other than age" for the layoff selections.

Finally, while the Smith decision stands as the definitive statement that the ADEA authorizes recovery in disparate-impact cases, both the Second and Ninth Circuits have long recognized disparate-impact claims under the ADEA.  Thus, for employers in New York and California, Smith does not necessarily open the door to new age-based disparate-impact claims.  It does, however, alter the legal landscape in employers' favor by articulating a narrower standard of liability for such claims.

For more information about these new developments in employment law, please contact any of Orrick, Herrington & Sutcliffe LLP's employment law partners listed below.

Michael Delikat (New York) 212-506-5230

D. Barclay Edmundson (Los Angeles) 213-612-2397

Lynne C. Hermle (Silicon Valley) 650-614-7422

Mark Howitson (Silicon Valley) 650-614-7643

Timothy J. Long (Sacramento) 916-329-7919 /(Los Angeles) 213.612.2404

Jill L. Rosenberg (New York) 212-506-5215

Ira Rosenstein (New York) 212-506-5228

Robert S. Shwarts (San Francisco) 415-773-5760

Gary R. Siniscalco (San Francisco) 415-773-5833

Julie A. Totten (Sacramento) 916-329-4908

Robert S. Whitman (New York) 212-506-5257