EEOC Proposes Rules Interpreting “Reasonable Factor Other than Age” Defense

By Ted Olsen

In mid-February 2010, the U.S. Equal Employment Opportunity Commission issued its proposed rules on the "reasonable factor other than age" defense for employers in federal Age Discrimination in Employment Act ("ADEA") cases.  75 Fed. Register 7212 (Feb. 18, 2010).  The public now has until April 19, 2010, to provide its comments in reaction to the proposed rule.

The "reasonable factor other than age" ("RFOA") defense was first recognized by the U.S. Supreme Court in Smith v. City of Jackson, 544 U.S. 228 (2005), when it ruled that the disparate impact theory of employment discrimination is available to claimants under the ADEA.  In that case, the Supreme Court held that an employer may be liable for age discrimination if it implements a facially neutral policy or practice that has a disparate impact on persons in the protected age group.  In support of this conclusion, the Supreme Court reasoned that the availability of the RFOA language in the ADEA, 29 U.S.C. § 623(f)(1), implied that the disparate impact approach was available.  Three years later, the Supreme Court ruled that an employer has the burden of persuasion on the RFOA defense.

The EEOC's proposed rule, if adopted, and if followed by the courts, would substantially limit the availability of the RFOA defense to employers.  For instance, to be "reasonable," a factor would have to be "objectively reasonable when viewed from the position of a reasonable employer (i.e., a prudent employer mindful of its responsibilities under the ADEA) under like circumstances."  According to the EEOC, to establish the RFOA defense, an employer would be required to show "that the employment practice was both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known, to the employer."  In other words, among other things, the employer would be required to prove that it used the factor to achieve a reasonable objective, and logically and fairly administered the factor so as to accomplish that objective and avoid age discrimination.  The proposed rule would give the EEOC, plaintiffs and the courts numerous opportunities to pick at and second-guess an employer's stated basis for using a particular factor. 

The proposed rule provides that relevant factors when assessing such reasonableness will include:

(i) Whether the employment practice and the manner of its implementation are common business practices;

(ii) The extent to which the factor is related to the employer's stated business goal;

(iii) The extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately (e.g., training, guidance, instruction of managers);

(iv) The extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;

(v) The severity of the harm to individuals within the protected age group, in terms of both the degree of injury and the numbers of persons adversely affected, and the extent to which the employer took preventive or corrective steps to minimize the severity of the harm, in light of the burden of undertaking such steps; and

(vi) Whether other options were available and the reasons the employer selected the option it did.

The EEOC's proposed rule also specifies that factors relevant to determining whether a factor is for a reason "other than age" include:

(i) The extent to which the employer gave supervisors unchecked discretion to assess employees subjectively;

(ii) The extent to which supervisors were asked to evaluate employees based on factors known to be subject to age-based stereotypes; and

(iii) The extent to which supervisors were given guidance or training about how to apply the factors and avoid discrimination.

There are at least two significant features of this proposed rule.  First, it conflicts with binding legal precedent from the Supreme Court.  For example, the EEOC's proposed rule provides that - if an employer whose practices have a discriminatory impact on the protected age group had other less discriminatory options available - the availability of such alternatives would be a factor weighing against the "reasonableness" of the employer's practices.  However, the Supreme Court, in City of Jackson, rejected this thinking:

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.

Second, in disparate treatment discrimination cases, employers' highly subjective and discretionary judgments about employees (such as "a personality conflict," "a bad fit," "she's better with people," etc.) have often been found legal.  Moreover, in age discrimination cases, even employer decisions based on factors that correlate with age (laying off the employees with the highest pay, for instance) have been upheld.  As the EEOC's proposed rule suggests, however, in order to defend themselves against disparate impact claims, employers should be using policies and practices that are objectively-proven to 1) be best-suited for their desired business objectives and 2) have the least discriminatory impact on protected groups.

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©2010 Sherman & Howard L.L.C.                                                       March 5, 2010