The Third Circuit recently held that the Age Discrimination in Employment Act (ADEA) permits disparate impact claims by older "subgroups" of workers within the law's protected 40-and-over class. Under the court's ruling, workers in their 50s can sue their employer under the ADEA when a facially neutral policy, such as the selection process for a reduction in force (RIF), disfavors employees over 50 years old, even if the policy at issue favors younger co-workers in their 40s.

The decision creates a split among federal courts of appeals as the Second, Sixth, and Eighth Circuits all have held that such disparate impact subgroup claims are impermissible under the ADEA. In rejecting the holding of its sister circuits, the Third Circuit stated that "their reasoning relies primarily on policy arguments that we do not find persuasive." This ruling likely will have several implications for employers, particularly in the context of conducting RIFs.

The case, Karlo v. Pittsburgh Glass Works, LLC, involved an automotive glass manufacturer and its workforce downsizing practices. In 2008, after the automobile industry began to falter, the manufacturing company engaged in several RIFs to offset deteriorating sales. The company granted broad discretion to unit directors in selecting whom to terminate. However, the company did not train the unit directors nor did it employ any written guidelines or policies stating why any particular employee was selected for inclusion in the RIF. This practice allegedly resulted in the termination of a disproportionate number of employees over the age of 50.

In reaching its decision, the Third Circuit relied on O'Connor v. Consolidated Coin Caterers Corp., where the U.S. Supreme Court held that an ADEA plaintiff can maintain a disparate treatment claim even if his replacement is also more than 40 years old since the statute prohibits discrimination because of an employee's age. As explained in O'Connor, the ADEA "does not ban discrimination against employees because they are aged 40 or older; it bans discrimination against employees because of their age, but limits the protected class to those who are 40 or older."

Applying that reasoning in Karlo, Chief Judge D. Brooks Smith explained that "[t]he fact that one person in the protected class has lost out to another person in the protected class is thus irrelevant, so long as he has lost out because of his age."

Employers should be cognizant of the Third Circuit's decision because they now should consider the statistical impact that certain policies and practices have on subsets of employees aged over 40. Instead of limiting the statistical analysis to employees over vs. under 40, the employer should assess whether RIF selection criteria or other facially neutral policies and practices have a potential adverse impact on other age-protected strata, such as those over 50, those over 60, etc.

Employers also should consider:

• training supervisors for appropriate selection criteria for a RIF;

• providing written guidelines for the RIF;

• creating a business plan for the RIF that includes documentation of the reason(s) for the reduction and the selection criteria used; and

• conducting a disparate impact analysis (with or without a lawyer's review) before implementing a RIF.