On March 29, the Equal Employment Opportunity Commission (EEOC) issued a final rule making it more difficult for employers to establish a “reasonable factor other than age” defense for disparate impact claims under the Age Discrimination in Employment Act (ADEA).

Under the ADEA, a plaintiff may bring an action against his or her employer for either 1) disparate treatment, where the plaintiff alleges that he or she was treated differently from other similarly situated employees because of his or her age; or 2) disparate impact, where the employer has a policy or procedure that on its face neutral but, in its application, adversely affects employees who are 40 or older.

Unlike claims for disparate treatment, disparate impact claims do not require intentional discrimination on the part of the employer. However, employers have historically defended policies or procedures with a disparate impact by showing that the policy or practice at issue was reasonable and based on factors other than age. The EEOC’s new rule, which took effect April 30, 2012, heightens the requirements for establishing this defense.

History of Reasonable Factor Other Than Age Defense

Disparate impact claims were first recognized under Title VII, where employers are entitled to a “business necessity” defense for those claims. The defense requires employers to produce evidence that the policy or practice that unfairly impacted members of protected classes was necessary and that there were no other alternative policies or practices through that could have accomplished the employer’s business objectives without having an adverse impact.

In Smith v. City of Jackson, 544 U.S. 228 (2005), the U.S. Supreme Court held that plaintiffs could bring disparate impact claims under the ADEA. Because the language in the ADEA differed from that of Title VII, the court held thatthe “business necessity” defense was not available to employers. Rather, the court introduced the “reasonable factor other than age” (RFOA) defense for challenging liability in disparate impact cases. Later in Meacham v. Knolls Atomic Power Laboratory, 554 U.S. 84 (2008), the Supreme Court reaffirmed an employer’s ability to use the affirmative RFOA defense in disparate impact actions, but also placed the burden of persuasion on employers with respect to the defense.

Thus, under the rulings in Smith and Meacham, employers do not need to demonstrate that the policy or practice at issue is justified by a “business necessity” or that it considered alternate policies to establish the RFOA defense; rather, employers only need to demonstrate that the policy was “reasonable.”

The EEOC’s New Rule

The EEOC’s new rule was established in response to Smith and Meacham. According the commission, the rule does two things:

• It makes the existing regulation consistent with the Supreme Court’s holding that the defense to an ADEA disparate impact claim is RFOA, and not business necessity; and
• It explains the meaning of the RFOA defense to employees, employers and those who enforce and implement the ADEA.

The new rule, however, appears to require a similar analysis to that of “business necessity.” Specifically, to prevail under the new rule using the RFOA defense, an employer must show that the practice was reasonably designed to further or achieve a legitimate business purpose and 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.

The rule also includes a non-exhaustive list of considerations relevant to assessing reasonableness:

• The extent to which the factor is related to the employer’s stated business purpose;
• The extent to which the employer defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance and training about how to apply the factor and avoid discrimination;
• The extent to which the employer limited supervisor discretion to assess employees subjectively;
• The extent to which the employer assessed the adverse impact of its employment practice on older worker: and
• The degree of harm to individuals within the protected age group and the extent to which the employer took steps to reduce the harm in light of the burden of undertaking such steps.

While the EEOC states that these considerations merely describe common characteristics of reasonable practices and the defense could be established absent one or more of them, these considerations unquestionably exceed the scope of the Supreme Court’s holdings in Smith and Meacham.

What the New Rules Means for Employers

The EEOC’s new rule now requires employers not only to prove the existence of a “reasonable factor other than age” when making employment decisions, but also to consider the administration, implementation and potential harmful effects these “reasonable factors” may have on older workers. Overall, the rule increases the level of scrutiny of the RFOA defense and makes it more difficult for employers to prevail using the defense.

In light of the new rule, employers should pay closer attention to employment policies or practices that may adversely affect older workers; train managers and supervisors to implement policies fairly across the workforce using objective criteria in making employment decisions; and reconsider policies and practices that may have an adverse impact on older workers in favor of policies that may reduce the effect on older employees.