In response to two U.S. Supreme Court decisions, the U.S. Equal Employment Opportunity Commission (EEOC) has released for public comment a proposed rule construing the “reasonable factor other than age” (RFOA) defense under the Age Discrimination in Employment Act (ADEA).

In Smith v. City of Jackson and Meacham v. Knolls Atomic Power Company, the Supreme Court held that the RFOA defense acts as a complete bar to disparate impact liability where an employer demonstrates that its facially neutral policy or practice, which had a disparate impact on older workers, was based on a reasonable factor other than the plaintiff’s age. Although the RFOA defense operates similarly to Title VII’s business necessity defense, this defense under the ADEA has traditionally been more “employer-friendly” because it preserves an employer’s right to make reasonable business decisions while protecting older workers from facially neutral employment criteria that arbitrarily limit their employment opportunities without requiring a showing of business necessity.

In what it describes as an effort to provide a more objective standard for determining whether an RFOA exists and clarify the scope of the defense, the EEOC seeks to revise paragraph 1625.7(b) of the existing regulations addressing the RFOA defense. Although the standard remains lower than Title VII’s business necessity defense, 1625.7(b)(1) makes it clear that the RFOA is not to be viewed under a “rational-basis” standard. Employers will be required to show that the challenged practice was reasonably designed to further or achieve a legitimate business purpose and was reasonably administered to achieve that purpose.

The EEOC proposes a “prudent employer” standard to determine whether or not an employer relied upon reasonable factors in making the challenged employment decision and included a list of non-exhaustive factors to consider, including:

  1. the commonality of the business practice used by the employer;
  2. the manner in which the practice was administered;
  3. the employer’s awareness of a possible age-adverse impact before making their decision;
  4. steps taken by the employer to “accurately and fairly” assess the impact of their decision upon older persons as well as steps taken to mitigate unnecessary harm to older workers;
  5. the existence of a lesser discriminatory alternative;
  6. the extent to which the employer or supervisors engaged in age-based stereotyping; and
  7. the extent to which employers gave supervisors guidance or training about how to avoid discrimination.

While no single factor would be dispositive of reasonableness under the EEOC’s proposed rule, the EEOC suggests that an employer is more likely to succeed on the RFOA defense if the bulk of these factors weigh in the employer’s favor.

For the RFOA defense to apply, the EEOC makes clear in its proposed rule that the challenged practice in fact must be based on a non-age factor. Recognizing that the courts have held that objectively measurable factors such as salary and seniority are non-age factors even though they sometimes correlate with age, the EEOC’s rule instead focuses on the unchecked use of subjective criteria that can often be based on age-based stereotypes about older workers’ flexibility, willingness to learn or technological skills.

Therefore, the proposed regulations set forth a non-exhaustive list of factors to help employers determine whether an employment practice is based on a non-age factor, including:

  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.

The EEOC is accepting public comment until April 19, 2010. The agency will consider the public comments received and will make appropriate changes based on those comments. A proposed final rule covering this and the March 2008 proposed rules will then be coordinated with other federal agencies and reviewed by the Office of Management and Budget before becoming effective.