Act Now Advisory: EEOC’s Amended ADEA Regulation Raises the Bar for Employers’ RFOA DefenseApril 20, 2012
The U.S. Equal Employment Opportunity Commission ("EEOC") has issued a long-awaited final rule ("Final Rule"), which amends the regulation on the "reasonable factors other than age" ("RFOA") defense available under the Age Discrimination in Employment Act ("ADEA"). The Final Rule is available at 29 C.F.R. Part 1625. The EEOC previously published proposed rules regarding the RFOA defense on March 31, 2008, and then on February 18, 2010. The Final Rule takes into account public comments received on those proposals.
Unfortunately for employers, the Final Rule was not worth the wait. The revised regulation, which takes effect on April 29, 2012, imposes rigorous procedural and factual requirements for employers when attempting to establish the reasonableness of a policy or practice that causes an age-based adverse impact.
The RFOA Is an Affirmative Defense to Certain Disparate Impact Claims Under the ADEA
By way of background, the RFOA defense applies only to disparate impact (as opposed to more straightforward disparate treatment) cases alleging age discrimination under the ADEA. In contrast to a disparate treatment case, where an employee alleges that the employer intentionally discriminated on the basis of his or her age (of 40 years or older), a disparate impact case challenges a rule or procedure that merely disproportionately affects older workers, without regard to the employer's intent.
The Final Rule states that "[a]ny employment practice that adversely affects individuals within the protected age group on the basis of older age is discriminatory" unless the employer justifies the practice as a RFOA.
Employers Will Now Have a Harder Time Defending Against ADEA Disparate Impact Claims
The revised regulation imposes stringent standards on employers seeking to raise the RFOA defense. To qualify as a RFOA, a factor must be "objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances." Thus, ignorance is not bliss; the reasonableness of an employer's offered explanation will be evaluated in light of the employer's presumed knowledge of the ADEA's requirements. Further, an employer must show that the challenged employment policy or practice was both: (i) reasonably designed to further or achieve a legitimate business purpose; and (ii) 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 Final Rule calls for a fact-intensive analysis, which must take into account "all the particular facts and circumstances surrounding each individual situation." 29 C.F.R. § 1625.7(e)(1). These facts and circumstances appear to include the extent to which an employer has considered less discriminatory alternatives.
To assist in gauging the reasonableness of a non-age factor, the Final Rule lists five relevant non-exclusive "considerations," which underscore the exacting nature of the RFOA analysis and the EEOC's elevated expectations for employers seeking to avail themselves of this defense. Relevant factors include:
- the precision that the employer used in achieving its business goals;
- any anti-discrimination training that the employer provided to its managers;
- the extent that the employer limited supervisors' discretion to assess employees subjectively (particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes);
- the extent that the employer prospectively gauged any adverse impact of its practice; and
- the extent that the employer sought to ameliorate any foreseen adverse impact.
Thus, the EEOC clearly expects a "reasonable" employer to be fully cognizant of the potential that its various policies and practices might cause an adverse impact based on age, and to attempt to minimize such adverse effects, if feasible. Only time will tell whether courts will defer to the EEOC's interpretation of the applicability of the RFOA defense.
What Employers Should Do Now
Now more than ever, employers should take steps to guard against disparate impact based on age, resulting from the adoption or application of facially neutral policies and practices. This not only will increase the likelihood that an employer can successfully raise the RFOA defense but also will reduce the likelihood that employers are sued in the first instance.
In order to decrease the chance of a successful disparate impact claim, employers should:
- train managers involved in designing and implementing human resources policies and practices to ensure their familiarity with the employers' requirements under the ADEA;
- take steps to minimize the exercise of unfettered discretion by decision makers;
- ensure that such decision makers do not base employment decisions solely on factors such as "flexibility, willingness to learn, and technological skills," which the EEOC suggests may be susceptible to age-based stereotyping;
- provide decision makers with an objective way of evaluating traits necessary for a particular position, and train managers on how to gauge the quality fairly;
- consider conducting statistical analyses with respect to any employment policy or practice that could have a disparate impact on older workers, such as those related to hiring, pay, and reductions in force ("RIFs");
- perform statistical analyses in connection with RIFs to gauge whether employees 40 years and older will be adversely impacted by the employer's selection criteria; and
- continue to monitor the administration of policies or practices after their implementation to assess whether they are being carried out fairly.
All of the above actions should be carefully documented, including any alternatives that the employer may have considered to reduce any foreseen or observed adverse impacts. With respect to any policies or practices that could result in a disparate impact claim, but that cannot be changed or eliminated, in order to minimize the risk of successful disparate impact claims, employers should:
- clearly define the business goals behind the policy or practice;
- be able to demonstrate how the policy or practice at issue accomplishes those goals; and
- be able to justify why they chose that policy or practice over other potential alternative policies or practices that were considered.
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