The Equal Employment Opportunity Commission (EEOC) has proposed a rule to provide guidance on the meaning of “reasonable factors other than age” (RFOA) under the Age Discrimination in Employment Act (ADEA). The RFOA defense is one of several ADEA affirmative defenses and is particularly important to employers facing an allegation that a seemingly neutral employment action or policy had a disparate impact on older employees.
The proposed rule lists factors to consider in determining whether an employer’s actions were “reasonable” and based on “factors other than age.” Interested parties may submit comments on the proposed regulation to the EEOC until April 19, 2010.
Background
The ADEA prohibits employers with 20 or more employees from discriminating on the basis of age against employees aged 40 and older. The law’s protections extend to all terms and conditions of employment, including hiring, promotion and employment termination decisions, along with compensation programs and employee benefit plans.
In 2005, the U.S. Supreme Court ruled in Smith v. City of Jackson that a seemingly neutral policy or action that disproportionately affected older employees could violate the ADEA — a “disparate impact” violation. However, the court also recognized that such a policy or action is not discriminatory if it is based on RFOA. The test, according to the court, is not whether the employer’s actions were a matter of business necessity, i.e., the only way to achieve its goals, but rather whether they were a reasonable means of achieving the employer’s business goals.
In 2008, the Supreme Court ruled in Meacham v. Knolls Atomic Power Laboratory that in a disparate impact lawsuit under the ADEA, the burden of proof with respect to the RFOA defense falls on the employer, which made disparate impact lawsuits more difficult and costly for employers to defend. The EEOC’s proposal responds to these court cases and to public comments requesting more information on the meaning of “reasonable factors other than age.”
Factors for evaluating RFOA defense
In addition to emphasizing the necessity of a case-by-case approach to evaluating an employment practice, the proposed rule provides nonexhaustive lists of factors relevant to whether an employment practice would be considered reasonable and based on factors other than age.
According to the EEOC, a practice is reasonable if a prudent employer mindful of its ADEA responsibilities would consider it so. An employer must show the employment practice in question was both reasonably designed to further or achieve a legitimate business purpose, and administered so as to reasonably achieve that purpose.
It might be reasonable, for example, to take job performance and skill sets into account when making layoff decisions. It also could be reasonable to consider whether a worker has critical skills or is flexible, such as being able to work on different assignments or acquire new skills. These considerations would be considered reasonable under the ADEA as long as the employer:
Makes reasonable efforts to administer its employment practice accurately and fairly
Assesses the age-based impact of the practice
Takes steps to ameliorate unnecessary and avoidable harm, such as training managers to avoid age-based stereotyping and identifying knowledge or skills that the employer needs to retain
The determination of reasonableness also requires consideration of what the employer knew or should have known about the effect of the challenged practice, according to the EEOC. If the employer had no reason to expect an age-based adverse impact, it cannot be expected to have taken any ameliorating action; however, employers are expected to evaluate their processes with an eye to whether they adversely affect older workers disproportionately.
To assess whether an employment practice satisfies the RFOA defense, the proposed regulation lists the following factors:
Whether the employment practice and the manner of its implementation are common business practices
How closely the factor relates to the employer’s stated business goal
Whether the employer took steps to define the factor accurately and to apply the factor fairly and accurately (such as providing training, guidance and instruction to managers)
The extent to which the employer assessed the adverse impact of its employment practice on older workers
The severity of the harm to workers aged 40 and older, in terms of both the degree of injury and the number of workers adversely affected, and the extent to which the employer took reasonable preventive or corrective steps to minimize the damage
Whether other options were available and the reasons the employer selected the option it did
The EEOC says that, while employers are not required to adopt the practice with the least impact on workers aged 40 and older, their knowledge of — but failure to use — equally effective but less discriminatory alternatives is relevant to whether a practice is reasonable.
The importance of various factors would vary according to the employer’s facts and circumstances, and the list is not exhaustive; employers could cite other factors relevant to whether a practice is reasonable, according to the EEOC.
Non-age-related factors
In a typical disparate impact case, the practice is based on an objective non-age-related factor, and the only issue is whether the practice is reasonable. In its proposed rule, the EEOC also anticipates situations involving a disparate impact arising from giving supervisors unchecked discretion to engage in subjective decision making. In that case, an impact may be impermissibly based on age because the decision maker acted out of conscious or unconscious age-based stereotypes.
To assess whether an employment practice is based on a non-age factor, the proposed regulation would consider the following factors:
Whether the employer gave supervisors unchecked discretion to assess employees subjectively
Whether supervisors were asked to evaluate employees based on factors associated with age-based stereotypes
Whether supervisors received guidance or training on avoiding age discrimination
The EEOC cites “flexibility” as an example of a criterion often subject to age-based stereotyping and advises employers to give supervisors guidance on measuring flexibility objectively. For example, instead of asking supervisors to rate employees’ willingness to take on new tasks, employers should instruct supervisors to describe how employees responded when asked to perform new tasks.
An RFOA defense does not require that all the “non-age” factors be present, and the importance of various factors will vary according to the facts and circumstances. The EEOC notes that the list is nonexhaustive, so employers may present other relevant factors.
Implications
The uncertainty facing employers going forward is being able to prove they based their employment decisions, compensation policies and benefit programs on reasonable non-age-related factors. A reasonableness standard is, by definition, subjective, and different courts might evaluate the factors differently.
This emphasizes the importance of the EEOC’s proposed rule to the RFOA defense. The Supreme Court has articulated a test for determining whether courts must defer to a federal agency's interpretation of a statute — even one that differs from the court’s interpretation. That test requires such deference if the statute is ambiguous on the matter at issue and the agency's interpretation is reasonable. As a result, many courts are likely to defer to the EEOC’s regulatory interpretation of the RFOA defense; thus, the EEOC’s guidance gives employers an idea of the level of proof they are likely to need to successfully defend an ADEA claim. And the EEOC’s lists of factors can help employers evaluate the defensibility of their policies and practices.
Employers should be particularly vigilant in reviewing the age-related implications of their HR polices, including hiring, promotion, termination, compensation and employee benefit plans (particularly age-sensitive programs). When facially neutral policies or decisions have a disparate impact on older employees, the RFOA defense could play a crucial role in helping avoid liability. In this regard, employers should consider evaluating the legal defensibility of their employment policies and benefit plans before implementation, if possible, to minimize their risk of ADEA liability.
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