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September 25, 2012 Articles

EEOC Issues Final Rule on Disparate Impact and RFOAs

The rule codifies Supreme Court holdings and offers guidance on applying the defense.

By James C. Bailey

On April 30, 2012, a final rule on “Disparate Impact and Reasonable Factors Other Than Age Under the Age Discrimination in Employment Act” promulgated by the Equal Employment Opportunity Commission (EEOC) became effective. 29 C.F.R. § 1625.7. This rule does not set new standards for asserting a “reasonable factors other than age” (RFOA) defense, but codifies the holdings of Supreme Court decisions, including Smith v. City of Jackson, 544 U.S. 228 (2005) and Meacham v. Knolls Atomic Power Lab., 554 U.S. 84 (2008). The rule also provides guidance on the application of the RFOA defense, offering a list of factors that can be considered relevant to whether an employment practice is based on RFOA.

An employer’s reliance on RFOA is an affirmative defense to liability for disparate-impact discrimination claims under the Age Discrimination in Employment Act (ADEA). Cases of “disparate impact” discrimination are claims that an employer’s use of a facially neutral policy has a greater negative impact on a protected classification—as relevant here, older workers; proof of an age-related motivation is not required to prevail under the statute. The RFOA defense asserts that the negative impact on older workers stems from reasonable factors other than age.

In contrast, allegations of disparate treatment—claims of intentional discrimination based on age—are often countered by a defense of “bona fide occupational qualification” (BFOQ), which acknowledges that age was a factor in the employer’s decision, but that the decision was lawful under the circumstances. The BFOQ defense is not available to disparate-impact claims.

Disparate-impact claims had not always been recognized under the ADEA. But the Supreme Court, in Smith, resolved a longstanding circuit split by ruling that disparate-impact claims are cognizable under the ADEA. For an employer to prevail under the ADEA, Smith also ruled, it need only show that its practices are based on reasonable factors other than age, a lower standard than the “business necessity test” used in as a defense to Title VII claims.

In Meacham, a related case, the Supreme Court confirmed that the burden of proving an RFOA defense is on the employer and reiterated that the “business necessity test has no place in ADEA disparate-impact cases.” 554 U.S. at 84. As the Court explained, the RFOA defense is the appropriate defense to a disparate-impact ADEA claim because the age-neutral employment practice causing the unlawful impact is “other than age” and “otherwise prohibited.”

The recent final rule incorporates the holdings of both cases and clarifies that:

  • The RFOA defense is only available to claims of disparate impact, not disparate treatment.
  • It is not available if age is used as a limiting factor.
  • The individual challenging the employment practice has the burden of identifying the specific employment practice responsible for the adverse impact.
  • There is a presumption that an employment practice that adversely impacts individuals in the protected class is discriminatory unless justified by a reasonable factor other than age.
  • The employer bears the burden of proof 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.

The “reasonableness” of a factor other than age is evaluated from the perspective of a “prudent employer mindful of its ADEA responsibilities”; it is assumed that a prudent employer “should know that the law prohibits the use of neutral practices that disproportionately affect older workers” and will use reasonable care “to avoid limiting the opportunities of older workers, in light of all the surrounding facts and circumstances.” Final Rule, 77 Fed. Reg. 19083 (March 30, 2012).

The rule provides a non-exhaustive list of considerations considered relevant to the evaluation of whether a practice is based on a reasonable factor other than age:

(i) The extent to which the factor is related to the employer's stated business purpose;
(ii) The extent to which the employer defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance or training about how to apply the factor and avoid discrimination;
(iii) The extent to which the employer limited supervisors’ discretion to assess employees subjectively, particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes;
(iv) The extent to which the employer assessed the adverse impact of its employment practice on older workers; and
(v) The degree of the harm to individuals within the protected age group, in terms of both the extent of injury and the numbers of persons adversely affected, and the extent to which the employer took steps to reduce the harm, in light of the burden of undertaking such steps.

29 C.F.R. § 1625.7(e)(2). However, “[n]o specific consideration or combination of considerations need be present for a differentiation to be based on reasonable factors other than age. Nor does the presence of one of these considerations automatically establish the defense.” 29 C.F.R. § 1625.7(e)(3).

The commission acknowledged concerns expressed by some commentators during the rule-making process that the rule would “lead to unwarranted scrutiny of business decisions, permit second-guessing of routine decisions, and make it harder for employers to defend against frivolous litigation.” Final Rule, 77 Fed. Reg. at 19081. The ADEA and disparate-impact analysis do demand scrutiny of some employment practices that disproportionately harm older workers; however “[i]n holding that the RFOA is an affirmative defense, the Supreme Court recognized that scrutiny of employer decisions that cause an adverse impact is warranted, as employers must persuade ‘factfinders that their choices are reasonable’ and that ‘this will sometimes affect the way employers do business with their employees.’” Id.

The EEOC noted that, as the extent to which an employer assessed the impact of a practice on older workers is a consideration under section 1625.7(e)(2)(iv), some employers might feel compelled to perform additional and possibly costly disparate-impact analysis. However, the EEOC believes such an effect would be minimal, because (1) large employers already perform such analysis; and (2) formal analysis will not be required in cases where the number of affected employees is small, or where the employer already has reason to believe that the practice will not negatively impact older workers. The EEOC also noted that small, cost-sensitive employers may easily find helpful tools by searching the Internet for an “online disparate-impact analysis calculator” and that the EEOC plans to offer free materials to assist small businesses in implementing this rule.

 

Keywords: litigation, employment and labor relations law, Equal Employment Opportunity Commission, age discrimination

 

James C. Bailey is a partner with Bailey & Ehrenberg in Washington, D.C.


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