On April 30, 2012, the Equal Employment Opportunity Commission (EEOC)’s final rule amending its Age Discrimination in Employment Act (ADEA) regulations regarding disparate impact claims and the reasonable factors other than age (RFOA) defense took effect. The stated intent is to bring EEOC regulations regarding the RFOA in line with the recent Supreme Court cases, Smith v. City of Jackson and Meacham v. Knolls Atomic Power Laboratory. However, employers should be aware that the new rule appears to define RFOA more narrowly than under existing law and in a manner that will require employers to redefine their approach to creating new policies and practices in the workforce. 

The ADEA was enacted in 1967 to protect individuals over the age of 40 from employment discrimination. The ADEA prohibits both intentional discrimination (disparate treatment) as well as the application of neutral policies that adversely affect older workers (disparate impact). Smith v. City of Jackson, 544 U.S. 228, recognized that disparate impact claims could be brought under the ADEA. Smith, however, made clear that the scope of an employer’s disparate impact liability for ADEA disparate impact claims was more limited than under Title VII. While employers under Title VII must show a “business necessity” in defending against disparate impact claims, the employer bears a much lighter burden under the ADEA. To defend against a disparate impact claim under ADEA, an employer must show that an adverse impact can be attributed to a reasonable factor that is not related to age. “Unlike the business necessity test, which asks whether there are other ways for the employer to achieve its goals that do not result in a disparate impact on a protected class, the reasonableness inquiry includes no such requirement.” Id. at 243. In other words, even though a policy or practice may disproportionately affect older workers, the RFOA defense shelters an employer if it can point to a non-age factor that is reasonable, not requiring an employer to mitigate the effects of the practice nor to consider alternative policies that would have less of an effect on older workers. Meacham v. Knolls Atomic Power Laboratory, 554 U.S. 84, reiterated Smith’s holding and further held that RFOA was an affirmative defense and thus that the employer held the burden of proving reasonableness. 

The new EEOC regulations, however, appear to move far beyond existing Supreme Court law in actually limiting the scope of the RFOA defense. For example, section 1625.7(d) requires the employer to show that its practice was “objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances.” The Commission also clarifies that the prudent employer standard is based in tort law, which imposes the obligation to “avoid harm.” Therefore, the Commission’s current stance is that a reasonable factor other than age is “one that an employer exercising reasonable care would use to avoid limiting the opportunities of older workers, in light of all the surrounding facts and circumstances.” Section 1627.7(e)(2) provides several considerations that are relevant to determining whether practice or policy is based on a reasonable factor other than age:

1. The extent to which the employer defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance or training about how to apply the factor and avoid discrimination; 
2. The extent to which 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; 
3. The extent to which the employer assessed the adverse impact of its employment practice on older workers; and 
4. The dress of the harm to individuals within the protected age group, in terms of both the extent of injury and the numbers of persons adversely affected, the extent to which the employer took steps to reduce the harm, in light of the burden of undertaking such steps.

By applying a “prudent employer” standard to determine if an employer relied on a reasonable non-age factor, the EEOC seems to link RFOA more closely with the business necessity defense by requiring employers to consider the potential impact that policies and practices may have on older workers prior implementing them. Ultimately, the EEOC’s revised rule on the ADEA appears to limit the force that Smith and Meacham afforded to the RFOA defense. 

While these new regulations have not been tested by the courts, employers need to be cognizant of the EEOC’s revised rule and the potential impact it could have on their business. When implementing new procedures or policies that could disproportionately affect older workers, employers should follow certain best practices to avoid potential litigation. When implementing new practices or policies, employers should discuss and document the business purpose behind each decision as this is the type of information that the EEOC is likely to ask for during an investigation. Employers also should ensure that managers and supervisors are apprised of the potential adverse impact certain practices and policies can have on older workers, and managers and supervisors should be trained on how to avoid discrimination. Most importantly, employers should take the time to analyze how certain business decisions disproportionately impact older workers and consider alternatives that avoid such impact.