On Jan. 10, 2017, the 3rd U.S. Circuit Court of Appeals held in Karlo v. Pittsburgh Glass Works, LLC, that the federal Age Discrimination in Employment Act (ADEA) permits “disparate impact” claims by subgroups of older workers even when younger (but still over the age of 40) workers are not negatively impacted. The ruling creates a split with the 2nd, 6th and 8th Circuits, raising the potential for Supreme Court review.

In Karlo, the plaintiffs brought a putative ADEA collective action against their former employer, asserting claims for, inter alia, disparate treatment and disparate impact, after their employment was terminated pursuant to a reduction in force (RIF). The plaintiffs were over the age of 50 at the time their employment was terminated and could show a disparate impact against that age group, but younger workers over the age of 40 (i.e., between 40 and 50 years old) were not negatively impacted by the RIF.

The district court ruled that this “subgroup” theory is valid under the ADEA, and conditionally certified a collective action of employees who were at least 50 years old at the time their employment was terminated in the RIF. Subsequently, the case was transferred to another district judge, who decertified the collective action and ultimately granted summary judgment in favor of the defendant on plaintiffs’ disparate impact claims, on grounds that, inter alia, their “fifty-and-older” claim is not cognizable under the ADEA.

On appeal, the 3rd Circuit reversed the judgment and reinstated the claim. In doing so, the court relied on two Supreme Court rulings, namely: (1) O’Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308 (1996), in which the court held that a 56-year old ADEA plaintiff could maintain a disparate-treatment claim even though he was replaced by a worker who was over the age of 40; and (2) Connecticut v. Teal, 457 U.S. 440 (1982), a Title VII case in which the court held that, even under a disparate-impact theory, the statute is designed to protect the rights of individual employees rather than the rights of a class.

The essence of the 3rd Circuit’s ruling in Karlo is that the ADEA prohibits disparate impact based on age, not merely membership in a protected class of individuals who are over the age of 40. It remains to be seen whether other circuits will adopt the rationale in Karlo in adjudicating similar ADEA claims in the future.

This ruling, if correct, has significant impact for employers evaluating the potential disparate impact of reductions in force and other job actions, as well as policies, testing and job qualifications that may have a disparate impact. Rather than merely statistically comparing employees over 40 to employees under 40, an employer now potentially must also compare various subgroups within the over-40 group. Furthermore, it is unclear how narrow an ADEA “subgroup” can be — for instance, could a “subgroup” consist of workers between the ages of 55 and 58 who claim that they were impacted differently than other older workers?