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What Is and Isn’t Age Discrimination

With a troubled economy and continuingly soaring healthcare costs, employers are always on the lookout for ways to limit expenses. Much as they might not want to, they often look at personnel costs, including those for healthcare. Personnel moves, however, can be a minefield for the unwary. Handled incorrectly, they can land a well-meaning employer in court, especially if they smack of possible discrimination against older workers or retirees. Several court and regulatory decisions over the past few years have weighed in on what employers can and cannot do regarding their older employees.

In February 2008, a unanimous U.S. Supreme Court declined to rule on the question of whether a court must, in an age discrimination case, accept testimony from former employees who are not parties to the lawsuit and whose accusations are against supervisors not accused in the lawsuit. Rather, they ruled that a federal appellate court was incorrect in overruling the trial court on the question. The court said that the appellate court should have sent the case back to the trial court with orders to clarify its decision. The ruling left the question about testimony from non-party employees unsettled.

In March 2005, a divided Supreme Court ruled that the Age Discrimination in Employment Act authorizes older employees to recover damages from an employer when the employer’s decision adversely impacted them because of their age. The court found that the law’s language was virtually identical to that in the Civil Rights Act of 1964, which prohibits limiting, segregating or classifying employees in a way that adversely affects their status because of race, color, religion, or other protected characteristics. While noting that the ADEA’s scope is narrower than that of the Civil Rights Act, the court nonetheless ruled that the ADEA, in principle, provides for recovery in so-called disparate impact cases.

The Supreme Court also ruled in 2004 that employers may make employment decisions that favor older employees over younger ones. In 2007, the EEOC announced an amendment to its rules implementing the court’s decision. The prior rules had forbidden such practices.

In August 2007, a federal appellate court held that defined benefit plans employing a cash balance formula do not violate the Employee Retirement Income Security Act. Older employees argued that the cash balance formula discriminated against them because younger workers who received the same employer contributions would be entitled to a retirement benefit greater than that due the older workers. The court rejected this contention, saying that the employer’s plan was legal so long as the contribution rates did not discriminate on the basis of age.

Lastly, in June 2007 a federal appellate court ruled that the Equal Employment Opportunity Commission acted within its authority when it issued rules permitting employers to reduce or eliminate employer-sponsored retiree health benefits when retirees become eligible for Medicare or comparable state-sponsored programs. The American Association of Retired People had sued the EEOC on the grounds that the ADEA prohibits these practices. The court said the rules were consistent with the law’s purposes and intent; it also said that the rules actually encourage employers to provide all retirees with the best possible health benefits.

As these decisions show, employers must be very careful when they make employment decisions that will impact groups of employees in different ways. A qualified human resources consultant can advise an employer on the legal implications of a decision. Also, employers should consider purchasing an employment practices liability insurance policy. Such a policy will cover the employer for defense of age discrimination lawsuits and for the cost of judgments against the employer. An insurance agent can give advice on the availability and cost of the most appropriate coverage.