The Third Circuit Court of Appeals recently issued a precedential decision, Karlo, et al. v. Pittsburgh Glass Works, LLC, that likely will make it easier for subgroups of older workers to bring lawsuits under the Age Discrimination in Employment Act (“ADEA”), on a “disparate impact” theory of liability.  It also creates a split with the Second, Sixth and Eighth circuits, paving the way for greater uncertainty for national employers.

The Karlo Decision – Comparison of Subgroups Permitted For Disparate Impact Analysis  

The defendant Pittsburgh Glass Works, LLC instituted reductions in force that resulted in the termination of approximately 100 employees.  The plaintiffs, a group of workers all over the age of 50, brought a putative ADEA collective action, asserting, among other things, disparate impact claims.  To establish a prima facie case for disparate impact under the ADEA, a plaintiff must (1) identify a specific, facially neutral policy, and (2) proffer statistical evidence that the policy caused a significant age-based disparity. The plaintiffs alleged that they had identified a policy that disproportionately impacted a subgroup of employees older than 50.  However, because the policy favored younger members of the protected class (i.e., employees older than 40 but younger than 50), adding them into the comparison group did not show any statistical evidence of disparity.  The district court initially certified a collective action, but subsequently granted a motion to decertify and then granted summary judgment to the employer.

On appeal, the Court characterized the central question as, “whether so-called ‘subgroup’ disparate-impact claims are cognizable under the ADEA.”  It answered in the affirmative and vacated the district court’s dismissal orders.  The Court concluded that ADEA disparate-impact claims are not limited to forty-and-older comparisons.  A comparison of “subgroups” of older workers within a particular age band (e.g., over 50) is permissible to show a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age.  Relying on the “plain text” of the ADEA as interpreted by the Supreme Court and the ADEA’s “remedial purpose,” the Third Circuit explained that various forms of evidence can establish disparate impact based on age, including “forty-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as that evidence meets the usual standards for admissibility.”  It rejected the notion that the risk of “gerrymandered evidence is so great that it can override” the ADEA’s statutory language prohibiting discrimination based on age.

Circuit Split

The Court in Karlo expressly acknowledged that its decision is “at odds” with rulings from other circuits, including the Second Circuit, Lowe v. Commack Union Free School District (1989), the Sixth Circuit, Smith v. Tenn. Valley Authority (1991), and the Eighth Circuit, EEOC v. McConnell Douglas Corporation (1999).  While it was reluctant to create a circuit split, the Court cited three “compelling” grounds on which to diverge: (1) those decisions pre-date and contradict Supreme Court precedent, (2) they confuse “evidentiary concerns with statutory interpretation,” and (3) they “incorrectly assume that recognizing subgroups will proliferate liability for reasonable employment practices.”

Takeaways

The Karlo decision hits upon a number of complex issues when dealing with reductions in force, particularly the use and analysis of statistical evidence to establish disparate impact claims.  The decision could have a significant impact on any employer that has a facially neutral policy that in practice favors workers over the age of 40, but disfavors one or more “subgroups” of those workers, e.g., workers over the age of 50 or 60, etc.  It is unclear from Karlo, for example, to what extent a court would limit the age parameters of the subgroups or the number of subgroups in the comparison set.  Employers in the Third Circuit that are planning to conduct reductions in force must consider carefully the statistical impact to different age “subgroups” within the larger group of forty-and-older workers.  As Karlo highlights, “[m]ore exacting analysis may be needed in certain cases, and subgroups may answer that need.”

In addition, one unique challenge that national employers could now encounter is a reduction in force that impacts workers across state lines with conflicting statistical analysis and evidentiary rules, e.g., New York in the Second Circuit versus New Jersey in the Third Circuit.

Finally, it is noteworthy that at the beginning of its opinion, the Karlo court commented that the employer had not trained its decision makers on how to implement the RIF, did not have any written guidelines or policies related to the RIF, did not conduct any disparate-impact analysis, did not review prospective RIF terminees with counsel, and did not document why any particular employee was selected for inclusion in the RIF.  Employers should document the decision-making process, conduct a disparate-impact analysis, and consult with counsel regarding the scope and impact of the RIF on prospective terminees.