Supreme Court Gives Employers Significant Win in Age Discrimination Case

On June 18, 2009, the United States Supreme Court issued its opinion in Gross v. FBL Financial Serv., Inc., No. 08-441, giving a significant victory to employers facing claims under the Age Discrimination in Employment Act (“ADEA”).

Jack Gross, an employee of FBL Financial Services, Inc. (“FBL”), claimed that he was demoted because of his age, in violation of the ADEA. The jury ruled in Gross’s favor after being instructed by the judge that FBL was liable if age was “a motivating factor” in its demotion decision. In other words, the jury was told that if age played any part in that decision, FBL had violated the ADEA.

In an opinion by Justice Clarence Thomas, the Supreme Court held that the trial judge had misstated the standard for liability under the ADEA. Specifically, the Court held that the plaintiff in an ADEA suit must prove that age was the determinative, or “but-for,” cause of the adverse employment decision, not merely that it was “a motivating factor.” In other words, a plaintiff must demonstrate that, if it were not for his or her age, the adverse employment decision would not have been made.

Gross means that a plaintiff’s burden of proof under the ADEA is now higher than it is under Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment on the basis of race, sex, color, religion or national origin. In Title VII cases, a plaintiff must prove only that a protected characteristic was “a motivating factor” for the adverse employment decision, not that is was determinative.

While Gross provides a substantial win for employers, the victory may be short-lived. In the past, Congress has shown little hesitation in amending employment laws that it believes have been misinterpreted by the Supreme Court. Examples include the Civil Rights Act of 1991, which overruled a Supreme Court decision by amending Title VII to, among other things, substantially increase the difficulty of proving the employer’s affirmative defenses; and the Lilly Ledbetter Fair Pay Act of 2009, which overruled a Supreme Court opinion by amending several laws to provide greater protection for employees complaining of pay disparities. Given the current political composition of Congress, there is a substantial possibility that the House and Senate will overrule Gross by amending the ADEA to conform it to Title VII, so that it requires plaintiffs to prove only that age was a motivating factor in an employer’s decision. Until that happens, however, Gross will make it easier for employers to defend age discrimination claims.

A copy of the Gross opinion can be found on Cornell University Law School’s Legal Information Institute website.

For more information, please contact the author of this Client Alert, or the Reed Smith attorney with whom you regularly work.

U.S. Supreme Court Holds That Union Contracts Can Require Employees To Arbitrate Discrimination Claims

The Supreme Court has ruled that employees represented by a union cannot sue for age discrimination when their union and employer have agreed that any such claims should go to arbitration rather than court. In a 5-4 split, the Court held that so long as the collective bargaining agreement (“CBA”) between an employer and a union “clearly and unmistakably” includes discrimination claims among those disputes that must be arbitrated, union members subject to the CBA must pursue such claims before an arbitrator rather than a judge or jury. 14 Penn Plaza LLC v. Pyett, No. 07-581 (Apr. 1, 2009).

Background

The CBA in this case prohibited discrimination based on “race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law,” including claims made under several federal laws listed by name, among them the Age Discrimination in Employment Act (“ADEA”). The contract said all such claims were subject to the CBA’s grievance and arbitration procedures “as the sole and exclusive remedy for violations.”

After the employer reassigned several union employees to other positions, they asked their union to file a grievance claiming that the reassignments violated that clause by discriminating against them because of their age, as well as running afoul of seniority and overtime provisions in the CBA. The union did so, but withdrew the age discrimination portion of the grievance before the arbitration was complete. The employees then filed an ADEA claim in federal court, but their employer moved to dismiss the suit based on the CBA provision requiring such claims to be arbitrated. The lower courts sided with the employees, holding that under a 1974 Supreme Court case, Alexander v. Gardner-Denver Co., a CBA could not effectively waive employees’ right to bring statutory discrimination claims in court. Although the lower courts recognized that the Supreme Court had since enforced an agreement to arbitrate ADEA claims in Gilmer v. Interstate/Johnson Lane Corp.(1991), they distinguished that case on the grounds that it had involved an individual agreement by an employee rather than a collective agreement by a union.

The Supreme Court’s Decision

The Supreme Court reversed the lower courts, holding that a CBA provision that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law. It first held that an employer and the union representing its employees are free to negotiate whatever lawful terms they believe appropriate to govern the employees’ terms and conditions of employment, and that under federal labor law such agreements should generally be upheld. The Court found that, as it had held in Gilmer, nothing in the ADEA precluded the arbitration of age discrimination claims so long as the relevant agreement clearly requires employees to arbitrate rather than litigate.

The Court rejected the employees’ argument that agreements to arbitrate statutory claims are suspect when found in CBAs instead of individual employee contracts, finding that the ADEA makes no such distinction. The Court distinguished its decision in Gardner-Denver as involving a CBA that covered only contractual disputes, not statutory claims. Here, where the CBA expressly covered statutory claims, and in light of Gilmer and other more recent cases favoring arbitration of such claims, the Court held that Gardner-Denver did not affect its conclusion.

The Court also dismissed the concern that a union and its members might have a conflict of interest over the union’s decision whether or not to pursue arbitration of a discrimination claim on behalf of certain employees. Writing for the majority, Justice Thomas said that the ADEA did not reflect any such concern, and that it was best left to Congress to decide how to resolve any such possible conflict. The Court also noted that if employees believed their union had improperly refused to pursue a discrimination claim in arbitration, they could always sue the union for breaching its duty to fairly represent all of its members or for itself having violated the ADEA. Finally, the Court held that it would not decide whether a CBA provision that allowed a union to block any arbitration of discrimination claims by refusing to act on the employees’ behalf amounted to an unenforceable waiver of the employees’ substantive rights. The Court noted that the parties disagreed over whether the union, after it stopped pursuing the age discrimination claim in arbitration, had offered to allow the employees to do so themselves, and that the parties had not briefed that issue.

Practical Effects

This decision gives employers the opportunity to avoid lawsuits and jury trials in discrimination cases by including provisions in their CBAs like that upheld by the Court, just as many employers have done through arbitration agreements with individual non-union employees since Gilmer was decided. But the decision leaves open many important questions that may limit its scope:

  • Many if not most CBAs allow only the union, not individual employees, to invoke the grievance and arbitration procedure. In such cases, if a union decided not to take a discrimination claim to arbitration, it seems likely that the courts would allow the employees to pursue their claims in court lest they be left with no way to enforce their rights.
  • Unions may be reluctant to add language to their CBAs like that in Pyett, fearing that if they do so, and then fail to pursue a discrimination claim through arbitration, the employee may sue the union for violating its duty of fair representation or discriminating against the employee.
  • Congress may accept the Court’s invitation to address the issue. The Arbitration Fairness Act of 2009 (H.R. 1020), recently introduced in the House of Representatives, would ban all predispute agreements that require arbitrating any employment dispute, thus overturning Gilmer. Although the current version of the bill exempts CBAs from its scope, that provision will surely be revised to ensure that Pyett is reversed as well. If Congress passes such legislation, Pyett may prove to be a Pyrrhic victory for employers.

President Obama Signs Ledbetter Fair Pay Act, Placing New Burdens on Employers

Acting swiftly on one of his campaign promises, President Obama today signed the Lilly Ledbetter Fair Pay Act (S. 181). The new law will increase the number of pay discrimination claims, make them much more difficult to defend, and force employers to retain records relating to compensation decisions far longer than they have in the past. In addition, the Act creates a strong incentive for management to review any current disparities in pay or benefits between two employees who hold similar jobs, to be confident that such differences were and are based on legitimate factors rather than a discriminatory decision that may have occurred years ago.

Federal discrimination laws generally require employees to file charges of discrimination with the Equal Employment Opportunity Commission (“EEOC”) within 180 or 300 days after the alleged discrimination occurs. That deadline allows such claims to be resolved relatively quickly, while the evidence is fresh and witnesses are available. In Ledbetter v. Goodyear Tire & Rubber Co. (2007), the U.S. Supreme Court, emphasizing the importance of the deadline, held that the period for challenging pay discrimination starts to run when an employer first makes the allegedly discriminatory decision, not each and every time that the employee later feels the effect of such a decision by receiving a paycheck.

The Ledbetter Act overturns that approach. The period for filing a charge now starts to run not only when an allegedly discriminatory compensation decision or practice is first adopted, but also each time that an individual becomes subject to or affected by application of such a decision or practice, “including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or practice.” The new law, which takes effect today and retroactively applies to any claim filed since the Ledbetter case was decided, amends Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Rehabilitation Act of 1973, and thus applies to compensation discrimination based on sex, race, national origin, color, religion, age, and disability.

The new law creates substantial challenges for employers, in that they will now be forced to reconstruct and defend compensation decisions made years ago by persons likely to have forgotten what happened – even assuming that such witnesses are still alive and can be found. For that reason, employers now have a strong incentive to document any and all decisions that may affect compensation – such as why they paid a new employee more than an existing one, or why a supervisor gave one employee a better review than another – and to retain all such records much longer than is legally required. Finally, employers may want to evaluate any current disparities in pay and compensation between employees who hold the same job in order to be able to defend such differences as legitimate.

Congress is soon expected to place even greater emphasis on pay discrimination by passing the Paycheck Fairness Act, which was approved by the House of Representatives earlier this month but has not yet been voted on in the Senate. That law would allow plaintiffs bringing Equal Pay Act claims to recover unlimited compensatory and punitive damages, make it far easier for them to bring class actions, and prohibit employers from taking action against most employees because they have asked about, discussed, or disclosed any employee’s wages.

Supreme Court Issues Three Decisions Affecting the ADEA and ERISA

This post was written by John T. McDonald and E. David Krulewicz.

Adding to a series of recent employment law cases decided by the United States Supreme Court, the Court issued three more opinions affecting employment law on June 19, 2008: two interpreting the Age Discrimination in Employment Act of 1967 (“ADEA”) and one concerning the Employee Retirement Income Security Act of 1974 (“ERISA”). 

In Kentucky Retirement Systems v. EEOC, 554 U.S. ___ (2008), a 5-4 decision, the Supreme Court held that “differential treatment based on pension status, where pension status…itself turns, in part, on age” does not violate the ADEA. Specifically, Kentucky’s state retirement plan (the “Plan”) for employees in “hazardous positions” provided that an employee could obtain “normal” retirement benefits in two ways: (1) after 20 years of service; or (2) after 5 years of service provided the employee had attained the age of 55. If an employee became disabled prior to satisfying either avenue, however, the Plan would “impute” the number of years necessary to meet either the years of service or age requirement, whichever was less. The amount of benefits a retiree received depended upon the number of years of service (either actual or imputed). 

The EEOC challenged the Plan on behalf of an employee who retired after becoming disabled at age 61. As the employee was already eligible for “normal” retirement benefits (having achieved 18 years of service and age 55), the Plan did not “impute” any additional years of service to him. The EEOC claimed that the Plan discriminated on the basis of age because had the employee become disabled before reaching age 55, he would have been credited with additional years of service and, therefore, received increased benefits. In rejecting the EEOC’s argument, the Supreme Court explained: “[w]here an employer adopts a pension plan that includes age as a factor, and that employer then treats employees differently based on pension status, a plaintiff, to state a disparate treatment claim under the ADEA, must adduce sufficient evidence to show that the differential treatment was ‘actually motivated’ by age, not pension status.” Because the EEOC had failed to produce such evidence, the Supreme Court found no violation of the ADEA. 

Second, in Meacham v. Knolls Atomic Power Laboratory, 554 U.S. __ (2008), the Supreme Court resolved a split among Circuit Courts of Appeal concerning the burden of proof applicable to the statutory “reasonable factors other than age” defense (“RFOA”) in ADEA disparate impact cases. In Meacham, former employees of a government contractor terminated as part of a company-wide reduction in force, brought disparate treatment and disparate impact claims under the ADEA and state law. The employer relied on a statutory defense set forth in the ADEA, which provides: “[i]t shall not be unlawful for an employer…to take any action otherwise prohibited …where the differentiation is based on reasonable factors other than age…” § 623(f)(1). The Court of Appeals for the Second Circuit held in favor the employer, finding that the employer had articulated reasonable factors other than age supporting its decision and that the plaintiffs had failed to prove that the non-age factors were “unreasonable.” Thus, the Second Circuit held that the employees had the burden of persuasion as to the reasonableness of the non-age factors. 

On appeals, the employees argued that, in a similar case, the Ninth Circuit Court of Appeals placed the burden of persuasion as to the reasonableness of the non-age factors on the employer. The Supreme Court agreed and reversed the Second Circuit’s decision, holding that the RFOA is an affirmative defense and, therefore, the burden of persuasion lies with the defendant. Accordingly, where employees produce statistical evidence supporting a disparate impact case under the ADEA, employers wishing to take advantage of the RFOA defense must convince the fact-finder that its non-age factors were reasonable. 

Finally, the Supreme Court held in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. ___ (2008), there is a “conflict of interest” that courts should consider when reviewing decisions under ERISA where the administrator of a benefits plan determines eligibility and is also responsible for payment of the benefits. In Glenn, an employee filed for disability benefits after being diagnosed with a heart condition. The plan administrator, MetLife, was also the insurer and, therefore, responsible for payment of the benefits as well as the eligibility determination. MetLife found the employee eligible for the first level of benefits, which lasted for 24 months, but denied permanent disability benefits finding that the employee could perform “sedentary work.” MetLife’s decision was contrary to a Social Security Administration decision finding that the employee’s condition prohibited her “from performing any jobs [for which she could qualify] existing in significant numbers in the national economy.” 

The employee challenged MetLife’s decision and the Sixth Circuit Court of Appeals ruled in favor of the employee. The Sixth Circuit employed a deferential review standard because the Plan provided MetLife, as administrator, with discretion. Despite the deferential standard, the Sixth Circuit determined that MetLife had abused its discretion based on several factors, including the conflict of interest inherent in MetLife’s dual role as administrator and insurer. Met Life took the last issue to the Supreme Court, asking the Supreme Court “to determine whether a plan administrator that both evaluates and pays the claim operates under a conflict of interest.” The Solicitor General also asked the Supreme Court to consider “how any such conflict should be taken into account on judicial review.” The Supreme Court held that the Sixth Circuit appropriately determined MetLife’s dual role to create a conflict of interest. As to the weight afforded to this factor, the Supreme Court held that “the significance of the factor will depend upon the circumstances of the particular case.” In dicta, the Supreme Court volunteered some ideas on how employers and insurers that may employ this dual role might attempt to eliminate or reduce the weight of the resulting conflict of interest. Specifically, the Court suggested “walling off claims administrators from those interested in firm finances, or…imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.” The decisions of employers and insurers who heed this advice should receive greater deference when challenged in the courts.