The Third Circuit Goes Its Own Way on ADEA Disparate Impact Claims

The Age Discrimination in Employment Act (ADEA) protects from discrimination of employees who are at least 40 years of age. Recently, in Karlo v. Pittsburgh Glass Works, the United States Court of Appeals for the Third Circuit departed company with three of its sister Circuits by holding that plaintiffs asserting a claim of “disparate impact” under the ADEA may establish a disparate impact with comparisons between subgroups of employees and need not show that a challenged employment practice has had an adverse impact on employees 40 years of age or older compared to its impact on employees under 40. Thus, the Court permitted to go forward with a disparate impact claim based on a comparison between employees at least 50 years of age with employees under 50. The decision will have a profound impact on employers’ assessments of their potential ADEA liability for disparate impact claims and on the way ADEA disparate impact claims are litigated in the Third Circuit.

To establish a claim of disparate impact discrimination under the ADEA, a plaintiff must show, through statistical evidence, that the employers implemented a facially age-neutral employment practice that fell more harshly on the protected group. If this showing is made, the employer can defeat the claim by demonstrating that the practice in question is justified by reasonable factors other than age.

In Karlo, the plaintiffs were terminated by a reduction-in-force (RIF). The plaintiffs were all over 50 years old. They brought a disparate impact claim based on their assertion that the RIF adversely impact employees at least 50 years old when compared to employees under 50.

Prior to the Third Circuit’s decision in Karlo, the Second, Sixth, and Eighth Circuits held that an ADEA disparate impact claim required a comparison between the group of employees protected by the statute, (employees at least 40 years old) and employees outside the protected group. These courts expressed concern that to permit ADEA disparate impact claims based on subgroups might force employers to establish quotas or permit plaintiffs to “gerrymander” arbitrary age groups to manufacture a claim.

Relying on this precedent, the district court in Karlo granted the defendant’s motion for summary judgment on the disparate impact claim, ruling that plaintiffs’ 50-and-older disparate impact claim was not cognizable under the ADEA.

The Third Circuit’s Decision
The Third Circuit rejected the precedent from other Circuits relied on by the district court and held that ADEA disparate impact claims may be premised on subgroups. The Court drew primary support for its conclusion from the U.S. Supreme Court’s decision in O’Connor v. Consolidated Coin Caterers Corp., which held that an employee, age 56, could establish an ADEA claim of “disparate treatment” (which requires evidence of intentional discrimination) with evidence that he was replaced by an employee, age 40, although the latter was within the group of employees protected by the ADEA. The Supreme Court ruled that the statute simply prohibits discrimination “because of such individual’s age” and does not require proof of replacement by someone under 40. Applying this rational to the case before it, and finding no material distinction between disparate treatment and disparate impact claims in terms of the ADEA’s purpose, the Third Circuit reasoned that an employer’s practice that adversely impacted, for example, employees 50 and older could be analyzed under a disparate impact analysis even though some of the employees who were advantaged by the employer’s practice fell within the group protected by the statute.

The Third Circuit acknowledged the concern about plaintiffs who might “gerrymander” age groups to manufacture a disparate impact claim, but addressed that concern by holding that only subgroups with a lower age boundary would be permitted for disparate impact analysis. In other words, while a subgroup of employees at least 55 years old would be permitted, a subgroup of employees between the ages of 55 and 60 would not. Thus, a plaintiff will be able to pick any age of 40 or older as the lower boundary for a disparate impact claim but cannot “cut off” the analysis with an upper age boundary.

The Court did not make any other changes to the well-settled disparate impact analysis. To establish a disparate impact claim, a plaintiff must still tie the adverse impact on older employees to a specific practice or policy of the employer, and the impact must be “significant.” The employer can defeat the claim by satisfying its “relatively light burden” of showing that the practice or policy is based on reasonable factors other than age.

Employers who review their tentative RIF decisions or other employment decisions prior to implementation to determine potential exposure to an ADEA disparate impact claim have generally employed an analysis that compares the impact of their decisions on employees at least 40 years old with the impact on employees under 40. In light of Karlo, at least within the Third Circuit, that relatively simple analysis will not be sufficient in the future. Employers who believe it is prudent to assess their potential exposure to disparate impact claims will have to undertake a much more sophisticated analysis, and would do well to consult with counsel and professional statisticians to assist in the evaluation.

For answers to any questions regarding this blog, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.

Richard S. Zackin is a Director in the Gibbons Employment & Labor Law Department.