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On the Legal Front:

Art Gutman
Florida Institute of Technology

Smith v. City of Jackson
Adverse Impact in the ADEAWell Sort Of

The Supreme Courts ruling in Smith v. City of Jackson was handed down on March 30, 2005. That evening, the TV newscasters reported that the Supreme Court supported adverse impact claims in the Age Discrimination in Employment Act (ADEA). It sounded like a major victory for older workers and a major setback for employers. The next morning, the front-page headline in my Florida Today newspaper read Age Bias Suits Gain Ground: High Court Makes it Easier for Workers Discrimination Claims. The article stated, in part, that:

Wednesdays ruling puts a new category of age claims on the same footing as those filed under Title VII of the Civil Rights Act of 1964.business groups criticized the decision as opening the door to frivolous lawsuits when businesses make legitimate layoffs or cuts in benefits. [emphasis by author]

Frankly, I expected the Supreme Court to simplify matters by making adverse impact impermissible in ADEA claims as a matter of law. Expecting such an uninteresting outcome, I made no plans to write about the Smith case.1

1 In my January 2005 column, I promised to write Part 2 in my series on sexual harassment in other countries. That column will be written instead for the October 2005 issue of TIP. 

Despite the ominous tones in the media and from business groups, the Smith ruling does not put Title VII and ADEA adverse impact claims on the same footing. Nor does it threaten legitimate economic reasons for layoffs and benefit cuts. If anything, it provides a safe harbor for legitimate practices by permitting the RFOA (Reasonable Factors Other Than Age) statutory defense in age-based adverse impact claims, a defense that is unavailable in Title VII adverse impact claims. In fact, the Supreme Court supported the reasons cited by the city of Jackson for higher percentage pay raises for younger personnel as constituting an RFOA. As for frivolous lawsuits, the author of a solution to that problem is eligible for immortality. 

Comparison of ADEA & Title VII

I have written elsewhere that the adverse impact scenario as articulated by the Supreme Court in Griggs v. Duke Power (1971) and Albemarle v. Moody (1975) is a unique Title VII phenomenon (see Gutman, 2004 & 2005). Although I am surprised the Supreme Court permitted adverse impact ADEA claims, it is clear from the Smith ruling that the Griggs-Albemarle scenario remains unique to Title VII. The reasons for this are depicted in Table 1, which compares the (a) prima facie, (b) defense, and (c) pretext phases for adverse impact claims in the two statutes. 

Table 1
____________________________________________________________________________________
                                                                       Griggs-Albemarle (Title VII)
____________________________________________________________________________________ 

Phase 1 Statistical evidence of an identified employment practice that disproportionately excludes protected group members
Phase 2 Proof that the challenged practice is job related and consistent with business necessity
Phase 3 Proof there is an equally valid, job-related practice with less or no adverse impact

____________________________________________________________________________________
                                                                    Smith v. City of Jackson (ADEA)
____________________________________________________________________________________

Phase 1 Statistical evidence of an identified employment practice that disproportionately excludes protected group members
Phase 2 Proof that the challenged practice is supported by a Reasonable Factor Other Than Age (RFOA)
Phase 3 Proof that the factor cited is unreasonable or not the true reason for the employment practice

____________________________________________________________________________________

Table 1 reveals that the Smith ruling puts ADEA and Title VII on the same footing in the prima facie phase but on different footing in the defense and pretext phases. Both statutes require statistical proof of an employment practice that disproportionately excludes members of a protected group, but thats where the similarity ends. Title VII requires the defendant to prove the employment practice is job related and consistent with business necessity, whereas the ADEA permits the RFOA defense. If the defendant succeeds in Phase 2, the Title VII plaintiff may then prove there are alternative practices that are equally as valid and produce less or no adverse impact, whereas the ADEA plaintiff must directly challenge the reasonable factor offered as a defense. 

Therefore, the defense and pretext phases in Griggs and Albemarle remain unique to Title VII. Interestingly, however, what is offered by the Smith Court for the ADEA is a reincarnation of Wards Cove v. Atonio (1989). Recall that in Wards Cove, the job-relatedness defense was temporarily altered in favor of an articulation of a legitimate reason for a challenged practice from McDonnell-Burdine disparate treatment cases.2 Congress then reestablished the job-relatedness defense in CRA-91. In the Smith ruling, the majority opined that CRA-91 altered the Wards Cove ruling only for Title VII and not for the ADEA. More on that later. 

2 The term McDonnell-Burdine is based on the rulings in McDonnell-Douglas v. Green (1973) and Texas Department of Community Affairs v. Burdine (1981), where the Supreme Court established a much simpler defense applicable to most disparate treatment claims.

Early ADEA Rulings

In the early 1980s, adverse impact ADEA claims followed the same rules as Griggs and Albemarle. Two cases stand out, one on hiring (Geller v. Markham, 1980) and one on reduction in force (RIF; Leftwich v. Harris-Stowe, 1983). For example, in Geller, a 55-year-old art teacher applied for a sudden opening and began teaching. Unfortunately for her, she was soon replaced by a 25-year-old based on a school district policy stating:

Except in special situations, and to the extent possible, teachers needed in West Hartford next year will be recruited at levels below the sixth step of the salary schedule. [emphasis by author] 

Statistically, teachers over 40 were significantly more likely to reach the sixth step than teachers under 40. The defendant argued it needed to cut costs. The 2nd Circuit ruled that the cost-cutting defense is valid for disparate treatment but not for adverse impact. A similar ruling was made by the 8th Circuit in Leftwich where a college used tenure as a RIF principle to save costs. Interestingly, the Supreme Court refused to review the Geller ruling over a dissent by Justice Rehnquist, who stated his opposition to importing adverse impact into ADEA case law.3

3 The full text of Rehnquists dissent may be found in 45 US 945.

The Geller ruling was consistent with preexisting regulations by the Department of Labor (DOL). For example, the DOL regulations barred physical fitness criteria proven to be not reasonably necessary for the specific work performed.4 Shortly after Geller, the EEOC updated these regulations, which (to this day) state:5

When an employment practice, including a test, is claimed as a basis for different treatment of employees or applicants for employment on the grounds that it is a factor other than age, and such a practice has an adverse impact on individuals within the protected age group, it can only be justified as a business necessity. Tests which are asserted as reasonable factors other than age will be scrutinized in accordance with the standards set forth at part 1607 of this title. [Part 1625.7(d)] [emphasis by author]

4 The DOL enforced the ADEA up until President Carters 1978 Reorganization Plan, after which enforcement of the ADEA (and the Equal Pay Act) was transferred to the EEOC.
5 All of the EEOC regulations (and other information)are available at www.EEOC.gov.

The reference to part 1607 is to the Uniform Guidelines on Employee Selection Procedures. Therefore, a literal interpretation of the regulation is that the RFOA statutory defense applies only to disparate treatment theory and is not a safe harbor defense for adverse impact. As we will witness below, Justice Scalia was the only Supreme Court justice in support of this literal interpretation. 

Most courts used Title VII rules for adverse impact ADEA claims up until the Supreme Courts ruling in Hazen v. Biggens (1993). Afterwards, several of the circuit courts, though not all, deemed adverse impact inapplicable in the ADEA as a matter of law. In the Hazen case, Walter Biggens was fired at age 62 just a few weeks before his eligibility date for pension vestment. A jury ruled that the Hazen Paper Company was guilty of (a) violating the Employment Retirement Income Security Act (ERISA); (b) disparate treatment in accordance with ADEA rules; and (c) a willful ADEA violation mandating liquidated (or double) damages. The Supreme Court upheld the ERISA violation but overturned the two ADEA rulings. The Hazen Court never directly ruled on adverse impact. Indeed, six of the nine justices in Hazen expressly refused to consider whether adverse impact is a viable ADEA claim. So why was Hazen so influential in subsequent adverse impact ADEA cases? 

There were three reasons. First, in the Supreme Courts view, the Hazen jury was unduly influenced in its ADEA ruling by a factor correlated with age (years of service). The Hazen Court unanimously agreed that employer decisions may be motivated by factors other than age...even if the motivating factor is correlated with age. Second, in its review of the legislative history of the ADEA, the Hazen Court noted that disparate treatment captures the essence of what Congress sought to prohibit in the ADEA, implying that adverse impact does not. Third, in a plurality opinion, Justices Kennedy, Thomas, and Rehnquist stated there are substantial arguments that it is improper to carry over disparate impact analysis from Title VII to the ADEA. This plurality opinion was consistent with Justice Rehnquists earlier position in relation to Geller. 

After Hazen, three circuit courts continued to entertain adverse impact ADEA claims, including the 2nd and 8th Circuits, which ruled in Geller and Leftwich, respectively, and the 9th Circuit. In comparison, seven other circuit courts rejected such claims as a matter of law. For example, in Adams v. Florida Power (2001), the 11th Circuit ruled:

Finally, while the Hazen Court left open the question of whether a disparate impact claim can be brought under the ADEA, language in the opinion suggests that it cannot. First, the Court noted that disparate treatmentcaptures the essence of what Congress sought to prohibit in the ADEA.In addition, the Court reiterated that, in making employment decisions, the use of factors correlated with age, such as pension status, did not rely on inaccurate and stigmatizing stereotypes and was acceptable.That position is inconsistent with the viability of disparate impact theory of liability, which requires no demonstration of intent, but relies instead on the very correlation between the factor used and the age of those employees harmed by the employment decision to prove liability. [emphasis by author]

The first time I ever cited Hazen, I used the same logic as the 11th Circuit (Gutman, 2000). After all, Factor A cannot adversely impact Factor B unless Factors A and B are correlated. It makes simple statistical sense. However, the ultimate truth is that the correlation between Factors A and B is necessary but not sufficient to prove adverse impact, regardless of whether the case involves race, sex, or age. Factor A must be a specific employment test, requirement, or practice. 

The Smith Ruling

On October 1, 1998, the city of Jackson, Mississippi adopted a pay-raise plan for all city employees. The plan was modified on May 1, 1999 to raise the starting salaries of police officers and dispatchers to equal the regional average. The city feared losing personnel to neighboring cities so it authorized higher percentage raises to officers and dispatchers with less than 5 years experience. Some personnel in this category were older than 40 (the minimum age for making an ADEA claim), but the main beneficiaries were younger than 40. The difference in average age of personnel in the two groups was statistically significant (about four standard deviations apart).6 The plaintiffs claimed both disparate treatment and adverse impact. The district court awarded the city summary judgment on both claims. The 5th Circuit held that summary judgment on disparate treatment was premature and remanded for further discovery. However, in a divided ruling, the 5th Circuit upheld the lower court ruling that adverse impact is unavailable in the ADEA as a matter of law.

6 The reader interested in the most recent and thorough account of the statistics of adverse impact is referred to Sisken and Trippi (2005).

The Supreme Court addressed only adverse impact, blessing it as a valid ADEA claim. Only eight justices took part. Justice Stevens spoke for Breyer, Ginsburg, and Souter in a ruling joined by Justice Scalia in three of its four parts (stay tuned). Justice OConnor spoke for Kennedy and Thomas in rejecting ADEA adverse impact claims as a matter of law. Justice Rehnquist was ill and did not participate, but his opinion is a matter of record. Therefore, it was functionally a 54 ruling on the principle issue of viability of adverse impact ADEA claims, and the swing vote was by Scalia. Critically, despite the marquee ruling, all eight justices concurred in favoring the city of Jackson as the winner in this case. The Smith plaintiffs were deemed losers in all three phases of the adverse impact ADEA scenario.

Phase 1: Specific Employment Practices

Stevens ruled there is nothing in our opinion in Hazen Paper that precludes an interpretation of the ADEA that parallels our holding in Griggs. However, the Smith plaintiffs failed to identify any specific test, requirement, or practice within the pay plan that has an adverse impact on older workers. 

That makes sense, both in terms of the Uniform Guidelines and prior Title VII case law. To illustrate, in Spaulding v. University of Washington (1984), female nurses claimed that market forces adversely impacted jobs overcrowded with women in comparison to jobs overcrowded with men. There was clearly a correlation between the wages paid for so-called male versus female jobs on a national level, and it favored the male jobs. Nevertheless, the 9th Circuit struck down the adverse impact claim because market prices do not represent a specific employment practice.

Returning to the cases cited earlier, the current ruling in Smith implies that Walter Biggens would have lost an adverse impact challenge (had he made one) on the same grounds; time in service, though correlated with age, is not a specific employment test, requirement, or practice. On the other hand, specific employment practices were cited in both Geller (hiring below the sixth step of the salary scale) and Leftwich (termination because of tenure). Interestingly though, because of the RFOA defense, the Geller and Leftwich plaintiffs, winners under the old rules, would have likely have lost under the new rules.

Phases 2 and 3: RFOA and Pretext 

Even though the Smith plaintiffs already lost for failure to prove adverse impact, Justice Stevens spoke to specifics relating to Phases 2 and 3 of the adverse impact scenario. Regarding Phase 2 (and the RFOA defense), Stevens noted:

Reliance on seniority and rank is unquestionably reasonable given the Citys goal of raising employees salaries to match those in surrounding communities. In sum, we hold that the Citys decision to grant a larger raise to lower echelon employees for the purpose of bringing salaries in line with that of surrounding police forces was a decision based on a reasonable factor other than age that responded to the Citys legitimate goal of retaining police officers. [emphasis by author] 

Therefore, even if the Smith plaintiffs had proven adverse impact, the defense (the need to remain competitive) was deemed an RFOA. Furthermore, there is no recourse to alternative practices as in Phase 3 in Title VII. Or as stated by Justice Stevens: 

While there may have been other reasonable ways for the City to achieve its goals, the one selected was not unreasonable. Unlike the business necessity test, which asks whether there are other ways for the employer to achieve its goals that do not result in a disparate impact on a protected class, the reasonableness inquiry includes no such requirement. [emphasis by author]

Thus, it would seem that to counter the RFOA defense, the plaintiff would have to do one of two things: (a) directly rebut the reasonability of what is offered (e.g., prove the city wages are competitive at the lower levels) or (b) prove that the stated factor is not the true reason for the challenged practice (i.e., it was conjured up as a cover up for another, presumably illegal, reason). 

Conclusions

Viewed as a whole, the Smith ruling means it doesnt matter if plaintiffs start the prima facie claim with statistical proof of adverse impact or direct or indirect evidence of disparate treatment. Either way, if the defendant chooses to use the RFOA defense, it ends the same way. However, for those interested in case law, there are several quirks in this ruling; five of them to be exact.

First, in Part III (of IV) in his opinion, Justice Stevens cited the DOL and EEOC regulations as support for adverse impact ADEA claims. However, Justice Scalia, who joined Parts I, II, and IV of the opinion, but not Part III, favored a more literal interpretation of those regulations. He stated this is an absolutely classic case for deference to agency interpretation. He further stated: 

Paragraph (d) of Part 1625.7 has been re-written to make it clear that employment criteria that are age-neutral on their face but which nevertheless have a disparate impact on members of the protected age group must be justified as a business necessity. [emphasis by author]

Scalia joined the Stevens plurality to form a majority of five. However, if his personal view had prevailed as the majority ruling, adverse impact claims in Title VII and the ADEA would be on the same footing. 

Second, as discussed earlier, Stevens (in Part IV of his ruling) appealed to the Wards Cove ruling to help justify the RFOA defense. Specifically, he stated:

Two 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 ADEA is narrower than under Title VII. The first is the RFOA provision, which we have already identified. The second is the amendment to Title VII contained in the Civil Rights Act of 1991....One of the purposes of that amendment was to modify the Courts holding in Wards Cove Packing Co. v. Atonio, .a case in which we narrowly construed the employers exposure to liability on a disparate-impact theory. While the relevant 1991 amendments expanded the coverage of Title VII, they did not amend the ADEA or speak to the subject of age discrimination. Hence, Wards Coves pre-1991 interpretation of Title VIIs identical language remains applicable to the ADEA. 

This is very odd. There is no obvious reason to resurrect Wards Cove if the sole objective is to support the RFOA defense. RFOA stands alone as a congressionally mandated statutory defense. 

Third, it is also odd that the resurrection of Wards Cove was by Stevens, the lone remaining justice who dissented in the original 1989 Wards Cove ruling (along with Justices Brennan, Blackman, and Marshall). 

Fourth, the Phase 2 defenses in Smith and Wards Cove are arguably not isomorphic. The Wards Cove majority imported the McDonnell-Burdine defense from disparate treatment case law to replace the job-relatedness defense, which is simply to articulate (or explain), without having to prove, a legitimate nondiscriminatory reason for the challenged selection decision. In contrast, historically, statutory defenses have required affirmative defenses (i.e., proof). For example, Part 1625.7(e) of the EEOC regulations states:

When the exception of a reasonable factor other than age is raised against an individual claim of discriminatory treatment, the employer bears the burden of showing that the reasonable factor other than age exists factually.

Fifth, there is no argument that the Phase 3 pretext argument in Wards Cove and the Smith ruling are decidedly different. The Wards Cove ruling permitted alternative practices with less or no adverse impact as articulated in Albemarle v. Moody, whereas alternative reasonable factors are expressly excluded in Stevenss ruling.

Despite these quirks and oddities, I dont share the fears reported in the media on March 30 and 31, 2005. Those fears are likely based on the dissenting opinion written by Justice OConnor. For example, in her argument relating to her interpretation of the congressional history of the ADEA, OConnor wrote:

Accordingly, many employer decisions that are intended to cut costs or respond to market forces will likely have a disproportionate effect on older workers. Given the myriad ways in which legitimate business practices can have a disparate impact on older workers, it is hardly surprising that Congress declined to subject employers to civil liability based solely on such effects.

With all due respect to Justice OConnor, I believe she got this one wrong. In the main, the majority ruling in Smith comes with a warning label. That label says that simple correlations between age and other factors, absent identifiable employment practices, need not apply. That label also says that legitimate reasons for layoffs and benefit cuts are explicitly protected by the RFOA defense, particularly when based on economic factors. Thus, whos to say that good attorneys will not read this ruling as a warning to shy away from advocating weak cases. 

References

     Gutman, A. (2000). EEO law and personnel practices (2nd ed.). Thousand Oaks, CA: Sage Publications.
     Gutman, A. (2004). Groundrules for adverse impact. The Industrial-Organizational Psychologist, 41(3), 109119.
     Gutman, A. (2005). Adverse impact: Judicial, regulatory, and statutory authority. In F. J. Landy (Ed.) Employment discrimination litigation: Behavioral, quantitative, and legal perspectives. San Francisco: Jossey Bass. 
     Sisken, B. R. & Trippi, J. (2005). Statistical issues in litigation. In F.J. Landy (Ed.), Employment Discrimination litigation: Behavioral, quantitative, and legal perspectives. San Francisco: Jossey Bass. 

Case Law Citations

Adams v. Florida Power (CA11, 2001) 155 F.3d 1322.
Albermarle Paper Co. v. Moody (1975) 422 US 405.
Geller v. Markham (CA2 1980) 635 F.2d 1027.
Griggs v. Duke Power Co. (1971) 401 US 424.
Hazen v. Biggens (1993) 507 US 604.
Leftwich v. Harris-Stowe State College (CA8 1983) 702 F.2d 686.
McDonnell Douglas Corp. v. Green (1973) 411 US 792.
Smith et. al. v. City of Jackson No. 03-1160. Decided March 30, 2005.
Spaulding v. University of Washington (CA9 1984) 740 F.2d 686.
Texas Dept. of Community Affairs v. Burdine (1981) 450 US 248.
Wards Cove Packing Company v. Atonio (1989) 490 US 642.

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