On August 20, 2018, the 7th Circuit affirmed an order of summary judgment in favor of the defendant-employer in a disparate impact age discrimination lawsuit filed under the Age Discrimination in Employment Act (“ADEA”). O’Brien, et al. v. Caterpillar, Inc., No. 17-2956 (7th Cir. 8/20/2018). This age discrimination lawsuit was filed by a group of retirement-eligible employees who refused to retire under a “liquidation plan,” through which employees who agreed to retire would receive a pro rata share of funds that resulted from the company’s elimination of certain unemployment benefits for laid-off employees. The plaintiffs alleged that the liquidation plan violates the ADEA because it has a disparate impact on older employees. The 7th Circuit held that although the liquidation plan has a disparate impact on older workers, it was justified by several reasonable factors other than age.

The plan achieved one of the company’s long-standing financial objectives–the elimination of costly unemployment benefits. It also saved money for the company by incentivizing early retirement and reducing administrative expenses. The U.S. Supreme Court has held that the ADEA encompasses disparate-impact liability. Section 623(a)(2) of the ADEA makes it unlawful for an employer to limit, segregate, or classify its employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise aversely affect their status as an employee, because of their age. Unlike claims of disparate treatment, a disparate-impact claim does not require proof of discriminatory intent. To state a prima facie disparate-impact claim, the plaintiffs must: (1) identify a specific employment practice; and (2) offer statistical evidence demonstrating that the identified practice caused a significant age-based disparity. If the plaintiffs establish a prima facie case, the defendant may affirmatively defend by demonstrating that the challenged employment practice or policy is based on a reasonable factor other than age.

The plaintiffs must identify and isolate on the specific employment practice or policy that is allegedly responsible for any age-based statistical disparities. They did so since the liquidation plan applies the same rules to hundreds of employees and causes significant age-based disparities between employees. The liquidation plan is an actionable employment policy. A disparate-impact claim involves employment practices that are facially neutral in their treatment of different groups, but that in fact fall more harshly on one group than another. The plaintiffs must demonstrate a significant age-based disparity to establish a prima facie case. The plaintiffs must show that the liquidation plan has a disparate impact on them because of their membership in the protected age group. Under the ADEA, the protected age group includes individuals who are at least 40 years of age.

The plaintiffs were successful in establishing a prima facie case of disparate-impact age discrimination. However, the company successfully raised the affirmative defense that the liquidation plan is based on a reasonable factor other than age. To prevail on its affirmative defense, the company must show that its less favorable treatment of retirement-eligible employees was reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been know, to the employer. The company met its burden. The liquidation plan was justified by several reasonable factors other than age, including but not limited to reducing costs.

It should be noted that in its decision, the 7th Circuit stated that voluntary retirement incentives are permissible under the ADEA; and that in conducting the reasonableness inquiry, courts do not consider whether there are other ways for an employer to achieve its goals that do not result in a disparate impact on a protected class. In finding that the company’s policy was reasonably designed to achieve its cost-cutting measures, the 7th Circuit cited a 6th Circuit decision which held that an employer’s termination of employees based on seniority to facilitate the hiring of new, less costly employees qualified as a reasonable factor other than age. Thus, the 7th Circuit held that the plaintiffs established a prima facie case of disparate-impact age discrimination–the liquidation plan constitutes a specific policy and creates a substantial age-based disparity between employees; however, because the employment policy was based on several reasonable factors other than age, the company established its affirmative defense to ADEA disparate-impact liability.