Corporate reorganizations, job layoffs, and age discrimination: has Smith v. City of Jackson substantially expanded the rights of older workers under the ADEA?

• Author: Alaka, Aida M.
• Position: Age Discrimination in Employment Act of 1967

1. INTRODUCTION

   The American workforce is aging. The Department of Labor's Bureau of Labor Statistics (BLS) forecasts a 10 percent overall increase in the civilian labor force between 2004 and 2014. (1) During the same period, however, the BLS predicts that the number of workers age fifty-five and older will increase by 49.1 percent-almost five times the overall growth rate. (2) The BLS estimates that by 2012, workers under the age of forty will comprise only 46.8 percent of the civilian labor force. (3)

   These trends reflect the aging "baby-boom" generation--those individuals who were born between 1946 and 1964, all of whom are now over forty years old. (4) Of late, much has been made of the potential impact baby-boom generation workers may have once they leave the workforce. In anticipation of large numbers of baby-boomers retiring, and out of concern for concomitant under-funded payout obligations, for example, President George W. Bush unsuccessfully made "reforming" Social Security a key item on his second-term agenda. (5) Others have noted that private pension plans will also be affected, (6) and indeed the Pension Benefit Guaranty Corporation reports that "[c]ompanies with underfunded pension plans reported a record shortfall of $353.7 billion in their latest filings" with the agency. (7) This number represents a 27 percent increase in the funding shortfall reported one year earlier. (8)

   Whether or when to retire is obviously not always a function of personal choice, however. A recent national survey of close to 3,100 individuals showed that job loss or health issues caused four out of ten retired workers to leave their jobs earlier than they had intended. (9) The survey also showed that although 45 percent of the employed respondents intended to continue working after age sixty-five, only 13 percent of the retirees had actually done so. (10) Of the early retirees, 44 percent cited job loss as the reason they had left the work force. (11)

   Corporate bankruptcy, company mergers or reorganizations, and relocation of work, often resulting in permanent worksite closures, can all result in involuntary retirement. (12) Whatever the reason, when older workers are terminated during these events, statistics indicate that they are likely to remain unemployed for a longer period than younger workers. (13) For example, while workers aged fifty-five or older comprised 16.9 percent of those filing initial claims for unemployment benefits due to layoffs in 2004, 19.7 percent exhausted unemployment insurance benefits. (14) Not only are older workers who are laid off more likely than younger workers to remain unemployed, but they are more likely to be re-employed on a part-time basis. (15)

   Although the labor participation rate for older workers is trending upwards, they can be disproportionately affected when employers conduct layoffs to cut costs, eliminate duplicative jobs, or streamline operations simply because they are paid the most or because of employer concerns regarding pension liability. (16) One question that has long troubled older workers is whether employers discriminate when they lay off workers for economic reasons such as higher salaries or potential pension liability. Because salary and pension eligibility are often correlated with age, layoff plans using such factors to determine which workers to cut often affect older workers in greater numbers. (17) Until recently, the question of whether older workers have any protection against these actions has been met with considerable controversy. In particular, courts and commentators have disagreed regarding whether layoff selection criteria may properly be based on economic factors highly correlated with age. (18)

   In March 2005, the Supreme Court resolved an issue that had confounded the lower federal courts for years. In a case rising from the Fifth Circuit, Smith v. City of Jackson, (19) the Court held that a disparate-impact theory of recovery is available to workers suing their employers under the Age Discrimination in Employment Act of 1967 (ADEA). (20) As a result, older workers may challenge employer practices that have an adverse impact on employees over the age of forty without having to prove that their employer intended to discriminate against them. (21)

   Conventional wisdom might suggest that the Court has now provided protected workers with a potent new weapon in the fight against employment discrimination and, indeed, initial reactions lauded the Smith decision as a significant victory for the rights of older workers. For example, one commentator warned that "[t]he decision is likely to have profound implications on a wide range of corporate decision-making regarding layoffs, reductions in force and employee benefit plans. It also significantly increases liability risks for age discrimination claims." (22)

   The potency of Smith is doubtful, however. Although the Court did not speak in one voice regarding whether or why disparate-impact claims are cognizable under the Act, it unanimously agreed that the case before it failed to present facts entitling the plaintiff employees to relief under such a theory. (23) The Court's decision stands in direct opposition to the position taken by the appellate court, which had ruled that disparate-impact claims are categorically unavailable under the ADEA, while assuming that the facts alleged would present a valid disparate-impact claim if such claims were cognizable. (24) This dichotomy highlights what is sure to remain troublesome for lower courts grappling with disparate impact claims in the future as well as employers that find that certain business practices have an unintentionally harsher effect on employees over age forty.

   Before Smith, lower federal courts and commentators were at odds over whether the ADEA authorized disparate-impact claims. In fact, only the Second, Eighth, and Ninth Circuits recognized such claims, (25) while the remainder either disallowed them or were undecided. (26) The debate focused largely on legislative history, Equal Employment Opportunity Commission (EEOC) guidelines, Supreme Court analysis in other cases, and certain similarities and differences in the texts of the ADEA and Title VII of the Civil Rights Act of 1964 (Title VII). (27)

   In this Article, the author does not intend to rehash the arguments made by the courts or other commentators regarding whether the ADEA authorizes disparate-impact claims. Nor does the author intend to challenge the wisdom of the Supreme Court's decision in Smith. Instead, the author seeks to analyze the extent to which employee rights have expanded as a result of the Court's analysis of the ADEA in Smith. This Article begins by briefly reviewing the evolution of the disparate-impact theory of recovery under Title VII and the ADEA. It then explores the confusion generated by the Court's decision in Hazen Paper Co. v. Biggins. (28) The Court's decision in Smith will then be examined. Finally, this Article analyzes the impact of Smith on the rights of older workers who may lose their employment or be otherwise affected by employer cost-cutting practices.

2. DISPARATE IMPACT: A BRIEF HISTORY

   In 1964, Congress enacted Title VII of the Civil Rights Act of 1964, (29) which prohibits employment discrimination on the basis of race, color, religion sex, or national origin. (30) Since that time, Congress passed several laws prohibiting discrimination in the workplace, the most significant of which were the ADEA in 1967 and the Americans with Disabilities Act (ADA) in 1990. (31) Because Title VII predates these laws, many of the operative principles developed by the courts when analyzing Title VII discrimination claims were adopted by the courts addressing such claims under the ADA and ADEA.

   The disparate-impact theory of discrimination must be distinguished from the disparate-treatment theory, pursuant to which most employment discrimination actions are brought. In the latter case, the employer's intent is the key to recovery; that is, the plaintiff must show, through either direct or circumstantial evidence, that the employer intended to discriminate against the plaintiff because of her race, color, sex, religion, or other protected characteristic. (32) Because few employees have the proverbial smoking gun that would directly demonstrate an employer's discriminatory intent--an e-mail ordering an employee's termination because older men are incapable of word processing, for example--most disparate-treatment claims are analyzed on the basis of circumstantial evidence. (33) These cases are analyzed pursuant to the "burden-shifting evidentiary paradigm first enunciated by the Court in McDonnell Douglas Corp. v. Green in 1973. (34)

   In a nutshell, a circumstantial case requires a plaintiff to state a prima facie case sufficient to raise a rebuttable inference of discrimination. (35) To rebut the inference, the defendant must articulate a "legitimate business reason" for the challenged action or omission. (36) Finally, the burden shifts back to the plaintiff to prove that the defendant's stated reason is a pretext for discrimination. (37)

   Though proof of pretext will naturally vary with the facts of every case, plaintiffs must show "more than just a decision made in error or in bad judgment; [pretext] means a lie or a phony reason for the action." (38) Thus, for example, "It]he issue is not whether the employer's evaluation of the employee was correct but whether it was honestly believed." (39) Moreover, "[t]he employer's explanation can be 'foolish or trivial or even baseless' so long as the employer honestly believed in the reasons it offered for the adverse employment action." (40) Whatever the form the evidence takes, however, "circumstantial evidence must 'point directly to a discriminatory reason for the employer's action.'" (41)

   1. Disparate Impact Under Title VII

      While disparate-treatment analysis focuses on the deliberately discriminatory...