Age Discrimination: ADEA/OWBPA

Under the Age Discrimination in Employment Act (ADEA) of 1967, employers with 20 or more workers can’t engage in personnel practices that discriminate against individuals age 40 and older. (Many states have laws that apply to employers with fewer than 20 workers.)

Although age discrimination suits have traditionally been brought when a worker over 40 loses his or her job, a recent Supreme Court decision allows older workers to challenge any policy that has a disparate impact on older workers. Smith v. City of Jackson, 125 S. Ct. 1536 (2005)

In 2009, the Supreme Court ruled that employees may not bring “mixed-motive” age discrimination cases against employers. In effect, employees must prove that “but for their age” the employer would not have taken the adverse action. Gross v. FBL Financial Services, 129 S. Ct. 2343 (2009)

Workers over age 40 who are terminated have two ways to prove age discrimination under the ADEA: the direct method and the indirect. To be successful under the direct method, a plaintiff must produce direct evidence of discrimination. The evidence may consist of deposition testimony containing discriminatory statements or other evidence revealing an anti-older-worker bias on the part of management.

First, under the indirect method, a plaintiff must establish a prima facie case of discrimination by showing that he or she:

1. Is within the protected class (age 40 or older).
2. Was performing the job satisfactorily.
3. Was discharged.
4. Was treated less favorably than similarly situated, substantially younger employees.

Second, if the plaintiff is able to establish a prima facie case, the burden shifts to the employer to produce evidence of a legitimate, nondiscriminatory reason for the termination.

Third, the plaintiff must then show that the employer’s reason was a pretext for discrimination. However, at this third stage, the plaintiff is not required to produce any new or additional evidence, according to a U.S. Supreme Court ruling in an ADEA case. The high court said if evidence in the record contradicts the employer’s reason, the case can proceed to a jury, which could infer that the employer was attempting to cover up a discriminatory motive. Reeves v. Sanderson Plumbing Products, 530 U.S. 133 (2000)

Most age discrimination cases grow out of wrongful discharge and mandatory retirement policies, but they can involve any adverse change in working conditions, including denial of a promotion or training.

An employer may defend itself on several grounds:

• The employee’s age represented a bona fide occupational qualification (BFOQ): that is, an older worker could not perform the job by virtue of his age. For example, age qualifies as a BFOQ for pilots, who can’t receive FAA certification if they’re over age 65.
• The employee was terminated for just cause, which may be based on his or her misconduct, performance or incompetence.
• The employee was discharged for business necessity. In this defense the employer must prove the existence of valid business reasons, unrelated to age, that required the termination of the employee. These might include a major company reorganization because of financial difficulties.

An employer will often defend an ADEA case on the ground that the disputed employment decision was not based on age, but rather on “reasonable factors other than age. . . .” [29 U.S.C. §623(f)(1)] In general, the higher cost of salary, overqualification and lesser years of remaining service are not considered “reasonable factors other than age” because they are so closely related to age. These reasons are frequently called “proxies” for age, and a defense based on one of these grounds will probably not be successful.

In 1986 Congress amended the ADEA, banning mandatory retirement at any age, regardless of early retirement provisions in an employee benefits plan or seniority system. This amendment doesn’t preclude provisions permitting employees to elect early retirement at a specified age or at their option.

Observation: The prohibition against mandatory retirement does not apply to employees who are at least 65 and who, for the two years immediately preceding retirement, are employed in a high policy-making or bona fide executive position and are entitled to receive employer-financed pensions or other retirements benefits of at least $44,000 annually.

Note that in a 1996 case the U.S. Supreme Court held that employees alleging that their employer violated the ADEA don’t have to show that a person under the age of 40 replaced them. Rather, they simply have to show that they are 40 or more years of age and substantially older than their replacement. The court stated, “The fact that a replacement is substantially younger than the plaintiff is a far more reliable indicator of age discrimination than is the fact that the plaintiff was replaced by someone outside of the protected class.” In this case the plaintiff was a 56-year-old regional manager who was discharged after his employer reorganized its geographic sales territories. The man’s territory was taken into another, and a 40-year-old was named manager of the new region. O’Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308 (1996) 

Waivers/OWBPA

If you have to terminate workers, it’s a smart move to ask them to sign an agreement waiving their right to sue for discrimination or wrongful discharge. But that’s not enough if the worker is over 40 years old because he or she could also sue you for age discrimination under the ADEA.

To protect yourself, you must put an additional provision in your waiver agreement that specifically deals with ADEA claims. What’s more, it won’t be legally binding unless you also give the worker some extra benefit in return—such as extra severance pay or additional health care coverage.

But you’re still not done yet. To be valid, ADEA waiver agreements must comply with all the requirements spelled out in a 1990 amendment to the ADEA, the Older Workers Benefit Protection Act (OWBPA). The amendment states that ADEA waivers are legal only when workers sign them in a “knowing and voluntary” manner. A waiver applying to an individual worker will meet OWBPA’s requirements as long as it:

• Is written so that the employee can clearly understand it and refers specifically to age-discrimination rights and claims.
• Does not ask the worker to waive rights or claims that might come up after the waiver is executed.
• Offers the worker money or something else of value to which he otherwise would not be entitled.
• Advises the worker—in writing—to consult an attorney before signing the agreement.
• Allows the worker at least 21 days to consider signing the agreement. However, the agreement can be withdrawn prior to acceptance. Ellison v. Premier Salons International, 164 F.3d 1111 (8th Cir. 1999)
• Gives the worker at least seven days to revoke the agreement after it is signed.

You face additional waiver hurdles whenever you fire, lay off or offer early retirement or severance packages to more than one employee. In these group situations, your waiver also must:

• Allow workers at least 45 days, instead of 21, to consider the waiver agreement.
• Provide the job titles and ages of all individuals being laid off or being offered the same early retirement plan. Plus, you must provide the ages of workers in the same job classification or organizational unit who are not eligible or selected for the plan. 

Caution: Make sure your age-bias waiver procedure is airtight. Workers still retain the right to sue if your waiver policy strays at all from the OWBPA, according to the Supreme Court’s ruling in Oubre v. Entergy Operations, 522 U.S. 422 (1998). In the case a 41-year-old worker was asked to resign after receiving a poor review. She signed a release waiving her rights to sue the company and then received (and spent) her severance pay. She later filed suit, claiming she was pressured into quitting because of her age. Lower courts agreed to dismiss the case, but the Supreme Court said the case could proceed because the company’s waiver procedure didn’t follow OWBPA’s requirements.

The EEOC says the burden is on you—not the fired employee—to prove that a waiver complies with federal law. To obtain a copy of the EEOC’s regulations, “Waivers of Rights and Claims Under the ADEA,” call the EEOC’s headquarters at (800) 669-4000 or go online.