In two recent decisions, the United States Supreme Court established that an employer may avoid liability under the Age Discrimination in Employment Act (ADEA) for an employment practice that had a disparate impact on older workers by proving that the practice was based on a “reasonable factor other than age” (RFOA). See Meacham v. Knolls Atomic Power Lab., 128 S. Ct. 2395 (2008) and Smith v. City of Jackson, 544 U.S. 228 (2005).1 On February 18, 2010, the Equal Employment Opportunity Commission (EEOC) published a proposed rule to modify its regulations based on those two decisions. 75 Fed. Reg. 7212-7218 (Feb. 18, 2010) (to be codified at 29 C.F.R. Part 1625.7). The proposed rule describes when and how an employer may invoke the RFOA defense.

Below we consider in some detail the specifics of the proposed rule, as well as its background. Notably, as the EEOC recognizes and the Supreme Court decisions announce, the RFOA defense occupies a mid point — in terms of burden to prove — between the Title VII and Equal Pay Act defenses with which employers have dealt for a number of years. Before turning to the technical contours of the proposed rule, however, it is important to emphasize the implications for employers of the Supreme Court’s RFOA jurisprudence, which the EEOC’s proposed rule reflects.

Smith, Meacham and the EEOC’s new proposed rule highlight the importance of ensuring that employment decisions are based on job-related factors and the risks inherent in application of subjective factors. Based on them, employers may want to establish criteria and guidelines at a policy making level, rather than allowing managers to establish them on an ad hoc basis. When developing guidelines, employers may want to consider the benefits of reliance on objective criteria and, where subjective factors are used, to provide guidance to assist decision makers in evaluating those factors. Employers also may want to update policies for documenting employment decisions, giving due consideration to the EEOC’s evident concern with ensuring that subjective decisions are based on identifiable criteria.

Employers also may want to monitor employment decisions, being particularly cautious where an employment practice adversely affects older workers — or any other protected class — to a greater extent than other employees. Because of the substantial risks associated with employment actions that adversely affect members of protected classes, employers may want to consult their labor and employment counsel before implementing any such action, especially where it affects a large number of employees.

The proposed regulation focuses on the definitions of “reasonable” and “factors other than age.” According to the EEOC, “a reasonable factor is one that is objectively reasonable when viewed from the position of a reasonable employer under like circumstances. . . . [Because] a prudent employer knows or should know that the ADEA was designed in part to avoid the application of neutral employment standards that disproportionately affect the employment opportunities of older individuals . . . a reasonable factor is one that an employer exercising reasonable care to avoid limiting the employment opportunities of older persons would use.” 75 Fed. Reg. at 7215 (footnotes omitted). The EEOC continues, “[t]he determination of reasonableness also requires consideration of what the employer knew or should have known about the practice’s impact when it took the challenged action. . . . A reasonable employer implementing practices that harm significant numbers of employees will evaluate the process to determine whether its practice has a disproportionate impact based on age.” Id.2

The proposed rule provides the following non-exclusive list of factors that should be considered when determining whether an employment practice was based on a “reasonable” factor:

  1. Whether the employment practice and the manner of its implementation are common business practices;
  2. The extent to which the factor is related to the employer’s stated business goal;
  3. The extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately (e.g., training, guidance, instruction of managers);
  4. The extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;
  5. The severity of the harm to individuals within the protected age group, in terms of both the degree of injury and the numbers of persons adversely affected, and the extent to which the employer took preventive or corrective steps to minimize the severity of the harm, in light of the burden of undertaking such steps; and
  6. Whether other options were available and the reasons the employer selected the option it did.

75 Fed. Reg. at 7218.

Significantly, the proposed rule requires not only that the challenged practice was “reasonably designed to further or achieve a legitimate business purpose,” but also that it was “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.” Id. (emphasis added). This requirement appears to be rooted in the EEOC’s belief that decision makers, if not given sufficient guidance, are more inclined to make decisions based on stereotypes. The EEOC comments that managers may apply criteria in a manner that results in or increases disparate impact on older workers even though the criteria themselves are reasonable. According to the EEOC, this result is more likely with subjective criteria, and particularly with “criteria known to be susceptible to age-based stereotyping, such as flexibility, willingness to learn, or technological skills.” 75 Fed. Reg. at 7217.

The EEOC suggests that one measure of whether the challenged practice was administered in a reasonable manner is “the extent to which the employer provided decision makers with training or other guidance on how to implement the practice.” 75 Fed. Reg. at 7216. According to the EEOC, an employer might define a factor more fairly and accurately by providing decision makers with concrete examples of behaviors relevant to that factor, such as instructing decision makers to assess “flexibility” through behaviors “such as accepting or resisting new assignments, seeking or refusing training, and being open or opposed to new ways of doing things.” Id.  

The EEOC’s comments make it clear that the employer is not required to adopt an employment practice that has the least severe impact on members of the protected age group.3 “Unlike Title VII’s business necessity defense, which requires an employer to use the least discriminatory alternative, “the reasonableness inquiry includes no such requirement.” Id. (footnotes omitted). “Thus, the availability of a less discriminatory practice does not by itself make a challenged practice unreasonable.” Id.4

However, while the employer is not required to “entirely eliminate the impact,” according to the EEOC, the employer must “investigate the reason for [adverse impact] and attempt to reduce the impact to the extent appropriate to the given facts.” Id. “‘If the [employer] can advance or protect his interest as adequately by other conduct which involves less risk of harm to [older workers], the risk contained in his conduct is clearly unreasonable.’” 75 Fed. Reg. at 7218 n. 1 (citation omitted).

The proposed rule provides the following non-exclusive list of factors to consider when determining whether the criterion upon which the employer relied was a “factor other than age”:

  1. The extent to which the employer gave supervisors unchecked discretion to assess employees subjectively;
  2. The extent to which supervisors were asked to evaluate employees based on factors known to be subject to age-based stereotypes; and
  3. The extent to which supervisors were given guidance or training about how to apply the factors and avoid discrimination.

75 Fed. Reg. at 7218.

As with the factors relating to reasonableness, these factors reflect the EEOC’s concern about use of subjective criteria. The EEOC’s comments concerning “factors other than age,” suggest that “evaluation criteria should be objectified to the extent feasible.” 75 Fed. Reg. at 7217. “Objectively measurable factors such as salary and seniority are non-age factors. . . . On the other hand, the unchecked use of subjective criteria that are subject to age-based stereotypes may not be distinct from age.” 75 Fed. Reg. at 7216-17.

These factors also closely mirror the steps the EEOC suggests an employer should take to ameliorate harm. Specifically, the EEOC explains that “steps to ameliorate unnecessary and avoidable harm” include training managers to avoid age-based stereotyping, limiting the risk that subjective decisions will cause unwarranted adverse impact by providing specificity concerning knowledge or skills relevant to the selection decisions at issue, and providing guidance on how to measure traits. 75 Fed. Reg. at 7215.

Those wishing to comment on the proposed rule may do so within 60 days of the date of publication of the proposed rule in the Federal Register, i.e., on or before April 19, 2010. Procedures for commenting are described at 75 Fed. Reg. at 7212.