Final rule discusses the regulation's RFOA defense and its impact on disparate treatment and disparate impact claims.
On March 30, the EEOC issued a final rule amending its Age Discrimination in Employment Act (ADEA) regulation, 29 C.F.R. § 1625.7, regarding the "reasonable factor other than age" (RFOA) defense and its application to disparate treatment and disparate impact claims under the ADEA. 62 Fed. Reg. 19,080 (Mar. 30, 2012). The amended regulation confirms that (1) the plaintiff bears the burden of "isolating and identifying the specific employment practice" that allegedly causes any observed statistical disparities, and (2) the employer bears the burdens of production and persuasion to demonstrate the RFOA defense. 29 C.F.R. § 1625.7(c), (d). The regulation also attempts to clarify what constitutes a "reasonable factor other than age," and provides a nonexhaustive list of considerations that are relevant in determining whether a practice is based on a reasonable factor other than age. 29 C.F.R. § 1625.7(e).
Although the regulation contains provisions that will assist employers in defending ADEA actions, the text of the regulation and its preamble contain ambiguities that may make the RFOA defense more difficult to prove and that are likely to increase the amount and cost of ADEA disparate treatment litigation. At a minimum, the preamble serves as forewarning that the EEOC interprets the statute in a manner that will likely significantly impact employers' policies and practices.
Potential Issues Raised by the Final Rule and Its Preamble
As an initial matter, consistent with Supreme Court precedent, the regulation confirms that the plaintiff bears the burden of "isolating and identifying the specific employment practice" that causes the alleged disparate impact. As the Supreme Court has stated, this "is not a trivial burden" and, if applied correctly, it should serve to limit disparate impact litigation. However, there is nothing in the regulation beyond this acknowledgement of binding caselaw that "clarifies" the RFOA defense. Rather, there are a number of ambiguities in the regulation and its preamble that plaintiffs' lawyers may attempt to exploit in an effort to reach a jury on whether factors are "reasonable."
First, the regulation defines a "reasonable factor" as one that is "objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances." On the one hand, read properly, this recognizes that the Supreme Court's reasonableness standard is an objective standard that focuses on the actions of prudent employers, including what other employers do in similar circumstances. Applying this standard should lead courts to decide many or most disparate impact claims on summary judgment, as the Supreme Court did in Smith v. City of Jackson, 544 U.S. 228 (2005). On the other hand, the EEOC's definition creates an apparent (and potentially problematic) incongruity by stating that a prudent employer is one that is "mindful of its responsibilities under the ADEA." without clarifying how the "mindful of its responsibilities under the ADEA" language modifies the objective test. At a minimum, the phrasing is circular, since, according to the Supreme Court, the only responsibility an employer has under the ADEA is to base its decisions on a reasonable factor other than age. Nonetheless, plaintiffs are sure to argue that even if a policy would otherwise be reasonable to achieve the goal of the employer, it may be unreasonable for the employer to use that policy if it has a disparate impact on older workers. Such a standard, of course, would turn the entire disparate impact framework on its head.
Second, the regulation also suggests that in assessing whether a policy is reasonable, courts should consider the extent to which the employer took steps to reduce harm to older workers caused by its non-age factor. This will give plaintiffs the opportunity to argue that an employer must choose less-burdensome alternatives, even though the Supreme Court has stated employers have no such duty. See Meacham v. Knolls Atomic Power Lab., 554 U.S. 84, 97 (2008) ("the business necessity defense should have no place in ADEA disparate-impact cases"). While rejecting any inference that "the employer must search for and select the least discriminatory alternative," the EEOC still suggests that the existence of such alternatives is relevant to determine whether an employer's policy is reasonable. See 77 Fed. Reg. at 19,086 ("[t]here may be circumstances in which the availability of a measure that would noticeably reduce harm was or should have been so readily apparent that it would be manifestly unreasonable for the employer to fail to use it"), 19,089 ("a failure to have taken reasonable steps to avoid or mitigate the impact is relevant to whether the employer's actions were based on reasonable factors other than age"), 19,090 n.76 ("the failure to adopt a less discriminatory alternative may be evidence of pretext under certain circumstances").
Third, the EEOC's presentation of a "non-exhaustive" list of factors for consideration is problematic, even though the EEOC made it clear that the failure to satisfy one or more factors is not dispositive. The regulation directs courts to evaluate the extent to which the employer policy at issue limits managerial discretion. Since the plaintiffs' bar has long argued that policies allowing excessive subjectivity lead to discriminatory decision making that can be challenged on a class basis, it will certainly use this factor to attack policies that permit decisions based on criteria that, even if arguably subjective, are clearly reasonable (e.g., performance).
Fourth, the regulation suggests that courts should evaluate the extent to which employers give managers guidance or training on how to implement the employers' policies and expressly requires an evaluation of the implementation of those policies in judging reasonableness. While consideration of these factors is discretionary, the regulation's existence should incentivize employers to create more formalized processes in order to defend against potential disparate impact claims.
The EEOC's Final Rule regarding disparate impact claims and the RFOA defense under the ADEA will have complex impacts on employers' decision making when implementing decisions that may have a disparate impact on older workers. Employers should carefully evaluate the Final Rule as they implement new policies to minimize the costs and risks associated with potential disparate impact litigation under the ADEA.