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.