In this troubled economy, many employers have been forced to implement reductions in force (“RIF”). These RIFs are coming at a time when much of the nation’s workforce has aged into a protected status (age 40 and above), which increases the chances that more of the workers losing their jobs will be protected under the federal and state age discrimination laws. In a recent case, the U.S. Supreme Court provided additional protections to these older workers who are included in a RIF. Meacham v. Knolls Atomic Power Laboratory, Case No. 06-1505 (June 19, 2008).
In the Meacham case, the defendant, Knolls Atomic Power Laboratory, was a government contractor directed by the United States Navy and Department of Energy to reduce its workforce. Following this directive, Knolls offered buyout packages to many of its employees, and 100 employees accepted the package. Nonetheless, Knolls was still required to cut additional jobs. In order to select the remaining employees who would be a part of the RIF, Knolls instructed its managers to score their subordinates based on three non-age related factors: performance, flexibility, and critical skills. The employer used these scores, along with points for years of service, to determine which remaining employees would be included in the RIF.
Of the 31 additional employees chosen for the RIF, 30 were at least 40 years old, even though only 60% of the workforce was 40 years or older. Not surprisingly, some of the laid off employees sued Knolls for age discrimination under the federal Age Discrimination In Employment Act (“ADEA”). Under a “disparate impact” theory, the employees claimed that Knolls’ decision-making process disproportionately affected older workers. Specifically, the employees claimed that Knolls “designed and implemented its workforce reduction process to eliminate older employees and that, regardless of intent, the process had a discriminatory impact” on older workers. Knolls defended the action by arguing that it used objective and non-age-related factors in implementing the RIF. Relying on statistical evidence, the jury found in favor of the employees.
After the trial court entered judgment in the employees’ favor, the Second Circuit Court of Appeals reversed. The Second Circuit held that the employees did not satisfy their burden of proving that the factors Knolls used for selecting them for the RIF were unreasonable. The employees sought review by the United States Supreme Court, arguing that the Second Circuit improperly put the burden on them to prove that Knolls’ factors were unreasonable, when the burden should be on Knolls to prove the reasonableness of the factors it chose. By a 7-1 vote, the United States Supreme Court reversed the Second Circuit, agreeing with the employees.
The Supreme Court concluded that an employer defending a disparate impact case bears the burden of proving that the factors it considered in deciding which workers would be subject to the RIF were reasonable factors to consider, even if the chosen factors were not age-related. Under the Supreme Court’s decision, an employee must still identify a specific policy or practice that disproportionately affects older workers, at which point the employer bears the burden of proving that the policy or practice was not age-related, and that it was “reasonable” under the circumstances. The Supreme Court expressed no view whether the three factors Knolls considered were reasonable, but instead sent the case back to the Second Circuit for further consideration.
Clearly, the Supreme Court’s decision will affect the way that employers implement RIFs and make it harder and costlier to defend age discrimination cases following a RIF. Therefore, employers considering a RIF should contact legal counsel to minimize legal risks.