Disparate Impact and Age Discrimination: Hidden Threat to Employers

Jeff Weintraub
September 13, 2005 — 3,801 views  
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Most employers and human resource managers assume that, as long as they do not intend to discriminate against current and potential employees, they will not be liable for claims of discrimination—unfortunately, this is not always correct! Under the “disparate impact” theory of liability, employers can be liable for discriminatory damages regardless of their good intentions.

A disparate impact claim arises when an employer’s policies and practices, seemingly neutral and non-discriminatory, result in harsher treatment for one group of protected employees than another. The scary part for employers is that liability under a disparate impact theory is determined by focusing on the effects of an employer’s actions on the employee rather than on the employer’s motivation for the policy or practice. Until recently, disparate impact liability was recognized only in claims alleging discrimination based on race, color, religion, or national origin (under Title VII). However, in the recent case of Smith v. City of Jackson, the Supreme Court held for the first time that an employee can assert a disparate impact claim when alleging age discrimination under the Age Discrimination in Employment Act (ADEA).

The ADEA prohibits employer actions that deprive an employee of employment opportunities or otherwise adversely affect the individual’s status as an employee because of the individual’s age.

For example, in Smith, the City of Jackson granted raises to all police department employees in order to bring their starting salaries up to the regional average. To accomplish this, the City adopted a plan in which officers with less than five years of service received proportionately greater raises than those officers with more than five years service. The result of this plan was that officers over the age of 40, almost all of whom had more than five years service, claimed they were adversely affected due to their age, because they had received a lesser raise in proportion to their salaries than the younger, less-experienced officers.

What does your Employee or Former Employee have to show to Win?

To begin with, employees face an up-hill battle to win an age-based disparate impact claim. An employee cannot merely point to a general employer practice and simply allege that a disparate impact on older workers exists. The employee must be much more specific.

In order to prevail on a disparate impact claim, an employee must be able to identify a specific test, requirement, or practice within the employer’s policies or practices that has an adverse impact on a group of workers because of their age. The employee must be able to isolate and identify the specific employment practice that is allegedly responsible for the statistically different treatment of the protected groups of employees in question. In other words, the employee must show that the difference in the number of employees affected in his/her protected group in relation to the workforce as a whole is a direct result of the employer’s policy or practice, not mere random chance. The employee must present statistical evidence that causally links the disparity to the policy or practice in question.

However, even if an employee can show a sufficient adverse impact, the employer can still escape liability for damages.

How can you Avoid Liability?

The best way to ensure your escape from liability is to constantly keep track of the numbers.

First, human resource managers should monitor their employment classifications, to try to avoid significant underutilization of protected groups. When implementing a new policy or practice, employers should carefully analyze the probable impact that this new policy or practice will have on each protected group of employees in relation to the workforce as a whole. Employers should also conduct audits to determine whether existing policies or practices have resulted in an adverse impact upon one or more of the protected classes.

A common guideline for determining whether an adverse impact exists is the 80% rule. Basically, an adverse impact exists if members of a protected class are selected at a rate less than four fifths (80 percent) of that of another group. For example, if 50 percent of white applicants receive a passing score on a test, but only 30 percent of African-Americans pass, the relevant ratio would be 30/50, or 60 percent, which would trigger the 80 percent rule. This is a good rule of thumb to follow for all protected classes, now also including age.

Second, if an employer finds that an adverse impact does exist, then the HR manager must determine whether that otherwise neutral policy or practice that brought about the adverse impact is reasonably necessary to the business. In considering the business necessity at hand, the employer must bear in mind that the business reason justifying this policy or practice should be one that can be articulated in clear, concise terms and is easy to understand and explain.

Finally, if the employer finds that the adverse impact is not justified by a reasonable business necessity, then the employer may be at risk for age discrimination damages under the ADEA.

However, it is important to note that the employer is not required by the ADEA to use only the practice or policy that results in the least disparate impact. All that is required is that employers use a reasonable practice or policy to reach its business goals. This standard is easier on employers than under Title VII, which requires the employer to consider other reasonable alternatives with lesser adverse impact.

What is the Practical Overall Affect on Employers?

Age-discrimination claims will continue to grow in popularity as the workforce continues to grow older. The Court’s decision in Smith likely will result in the filing of more age-discrimination lawsuits. These lawsuits can be costly to defend.
However, most employers will be able to avoid liability by establishing that their practices, even those having an adverse impact on older employees, have a reasonable business need. This defense will make it more difficult for employees to show a disparate impact due to age discrimination.

Nevertheless, employers should be alert to the impact that their policies and practices may have on the portion of their workforce that is 40 years of age or over. Employers should review all new practices and policies that might affect compensation, benefits, promotions, or workforce reductions, as well as existing ones, to determine the impact a given practice or policy could have on older members of the workforce. This will require the employer to conduct statistical analysis and research to determine if a practice or policy affects different employee age groups adversely.

If the employer should find that a policy or practice will have an adverse impact on older employee age groups, the employer must make sure that the policy or practice is rationally tied to some legitimate business goal. Finally, even though the ADEA does not require employers to use the policy or practice with the least adverse impact on protected groups, it would be wise for employers to also consider other methods of accomplishing their perceived goals.

Since this article is written in general terms and does not give specific legal advice, you should, as always, contact your employment/labor attorney to discuss such matters further.

Jeff Weintraub

Weintraub, Stock & Grisham, P.C.