As originally published in SHRM’s HR Magazine.
Defending Your Reduction in Force
Vol. 57 No. 9
A defense of the Age Discrimination in Employment Act comes of age.
9/1/2012 By Jonathan A. Segal
In Smith v. City of Jackson (544 U.S. 228 (2005)), the U.S. Supreme Court held that adverse impact claims are available under the Age Discrimination in Employment Act (ADEA).
However, the Supreme Court also held that, when a plaintiff establishes adverse impact, the employer’s defense differs from that under Title VII of the Civil Rights Act of 1964. For years, it has been unclear exactly what this means.
Under Title VII, an employer must establish “business necessity,” a difficult burden to meet. In contrast, under the ADEA, the Supreme Court said a different defense may apply: “a reasonable factor other than age.” While the Supreme Court said that the reasonable factor other than age defense was a lesser burden to satisfy than business necessity, it left undefined what the employer must establish to meet the defense.
This spring, the U.S. Equal Employment Opportunity Commission (EEOC) issued final regulations setting forth what an employer must establish to meet the defense. While these regulations apply only to the reasonable factor other than age defense, they are also instructive in avoiding both disparate treatment and adverse impact claims in the first instance.
This article discusses the defense in the context where it is most likely to apply: reductions in force.
Under the final EEOC regulations to establish the reasonable factor other than age defense, “an employer must 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 EEOC enumerates five factors that should be considered. However, it also makes clear that no one factor is determinative.
Moreover, the commission states that additional undefined factors may be relevant.
The Known Factors
Here are the factors as stated in the regulations, and some suggestions on how to apply them:
Business purpose. “The extent to which the factor is related to the employer’s stated business purpose.”
Sometimes, the business purpose for an employer’s reduction in force is so obvious that the employer forgets to document it. Forget no more.
Before beginning a reduction in force, an employer must document its business purpose.
Simply saying you are trying to cut costs may not be enough because that is the goal of virtually every reduction in force. Employers should be more specific. For example, note that “The demand for product X has dropped by Y percent. Therefore, we need to cut our sales force by Z percent.”
The employer also needs to define how it will achieve its business goal. As the EEOC has made clear in the preamble to the regulations, a cost-cutting goal, without more, will not be sufficient to establish the reasonable factor other than age defense.
Fair application. “The extent to which the employer has 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.”
Based on this general factor, which includes multiple components, a number of recommendations follow.
First, the employer should define and document the selection criteria. Obviously, seniority is the least risky rationale because it is the most objective. However, in a reduction in force, when you need to rely on fewer people to get the work done, you want to retain your best employees.
While it may make good business sense to lay off poor performers, doing so poses greater risk from a legal standpoint. Performance is often inherently subjective.
That does not mean that employers should not consider performance as the sole criterion or one of the criteria. However, employers need to be aware of, and mitigate, the risk involved in doing so.
One way employers can mitigate the risk is to make sure that there are behavioral bases to measure subjective competencies. For example, if an employer is going to consider initiative, there should be specific behavioral factors to measure initiative.
The employer also needs to determine whether the decision-making will be based on prior evaluations. To the extent that decisions differ from prior evaluations, the employer needs to document the reasons for the difference—for example, a decline in performance.
Alternatively, employers may wish to conduct new evaluations for those subject to consideration. But, again, to the extent that the new evaluations differ from the most recent evaluations, the employer should document the reasons for the differences.
Second, the employer should document how the selected criteria were applied to each individual. Often, that explanation is conspicuously, and fatally, absent.
Third, to minimize the risk that bias will infect the decision-making process, decision-makers should be provided with training on age discrimination and other forms of unlawful bias. The training should focus on blatant animosity and stereotypes—for example, that older employees are less productive and more resistant to change.
Fourth, when the decision-making is based on input provided by third parties, if there is any question about their input, the reduction-in-force committee should interview them to make sure there is a nonbiased reason and behavioral support for the input. Otherwise, if there is bias, such bias may be attributed to the reduction-in-force committee—that is, cat’s paw discrimination.
Finally, the committee ideally should be diverse. Diversity in the committee ensures diversity in perspective and makes it more difficult for someone to argue credibly that the committee favored its “mirror image.”
Objective assessments. “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.”
As mentioned above, training is critical. So is a review process. During a review, the reduction-in-force committee should focus on “proxy adjectives” that may be codes for age bias.
For example, assume that an employee is selected for reduction because she is “resistant to change.” The reduction-in-force committee should probe to determine whether there is a behavioral basis for the conclusion or whether it appears to be a proxy for age bias.
In one case I handled, a similar label was used. When the committee asked for examples of this characterization, none could be given. So, the decision to include the employee in the group to be terminated was revisited.
In another case, upon further inquiry, it became clear that the employee was not resistant to change but rather insubordinate when change was required. In this case, the explanation was noted and the employee was appropriately included among those subject to the reduction.
Adverse impact. “The extent to which the employer assessed the adverse impact of the employment practice on older workers.”
Virtually every employer knows the importance of conducting an adverse impact analysis.
However, some employers make the mistake of including equal employment opportunity demographic data when making initial decisions to assess the potential risk. This practice is dangerous because a finder of fact may believe that the employer included the data not to assess the risk but rather to make the decision.
No equal employment opportunity demographic data should be discussed or included in any documentation reflecting the initial decision-making. Rather, only after the preliminary decisions have been made should an adverse impact analysis be performed. In the context of such analysis, demographic data obviously will be essential.
With regard to age, employers should not focus only on “age 40 and over” vs. “under age 40” groups. Employers, as plaintiffs and courts do, should also focus on subgroups—for example, “age 55 and over” vs. “under age 55.”
In one case, when we looked only at under and over age 40 groups, there was no adverse impact. However, when we looked at under and over age 55 groups, the numbers were startling: Individuals age 55 and over were twice as likely to be let go as those under age?
Employers should look at subgroups in terms of age and then slice the data based on other factors, such as decision-maker, department and location. Again, while there may not be adverse impact if you look at the entire workforce subject to the reduction in force, there could be in the case of a particular decision-maker, department or location. This multidimensional adverse impact analysis should be conducted with regard to age and other factors, such as gender and race.
Degree of harm. “The degree of harm to individuals within the protected age group, in terms of both the extent of injury and the number 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.”
Under Title VII, even if the defendant establishes business necessity, the plaintiff still can prevail by establishing that there was a less discriminatory alternative to achieve the employer’s business goals. While the EEOC states that the less discriminating alternative analysis is not part of the reasonable factor other than age defense, it is in fact embedded in this factor.
There are steps, in the context of a reduction in force, that an employer may wish to consider to help avoid disparate treatment claims and to meet the less discriminatory alternative analysis implicitly embedded in this factor.
When there are multiple incumbents and salary is a factor, consider reducing the maximum salary that will be paid and offering an employee with the highest salary the option of remaining but at the lower pay, if he or she is a good performer.
When an individual is the sole incumbent, an employer may wish to consider offering the individual the option to transfer to another position, if he or she has high seniority and good performance.
THIS BLOG SHOULD NOT BE CONSTRUED AS LEGAL ADVICE, PERTAINING TO SPECIFIC FACTUAL SITUATION OR ESTABLISHING AN ATTORNEY-CLIENT RELATIONSHIP.
- Affirmative Action
- Equal Employment Opportunity
- Human Resources Practices
- In the News
- Lean In Dialogues
- Mad About Mad Men
- New Jersey
- New York
- Performance Management
- Same-Sex Legislation
- Social Media
- Substance Abuse
- Wage and Hour