Downsizing Risk Management: RFOA as an Affirmative Defense

Historical Analysis of Disparate Impact Age Claims

To understand the significance of Meacham, we must first consider the disparate impact analysis set forth by the Supreme Court in 2005 in Smith v. City of Jackson (see "Supreme Court Allows Age Discrimination Claims Based on Disparate Impact"). Typically, in a Title VII disparate impact case, a plaintiff first must identify a specific policy or practice with a statistically significant adverse impact on a protected group; a plaintiff need not allege discriminatory intent. Once a plaintiff has made this showing, the burden shifts to the employer to produce evidence that its policy (and the resultant impact) is supported by a legitimate business justification.

In City of Jackson, the Supreme Court ruled that an employer need not prove "business necessity" to rebut a plaintiff's prima facie case of age discrimination, but instead needs to demonstrate that the employer's decision was based on "reasonable factors other than age." However, the burden of proof as to this issue was left open.

The Supreme Court's Decision in Meacham

In 1996, Knolls Atomic Power Laboratory discharged 31 employees during an involuntary reduction in force (RIF). To effectuate the RIF, the Laboratory instructed its managers to rate employees from 0 to 10 on "performance, flexibility, and criticality of … skills," and to add up to 10 points for "company service." The Laboratory also asked managers to identify employees with the lowest scores for layoff. The Laboratory first conducted a disparate impact analysis to determine whether the proposed layoffs would have an adverse impact on protected groups and reviewed the managers' selections to "assure adherence to downsizing principles." Nevertheless, of the 31 employees selected for layoff, 30 were over the age of 40, and therefore were protected by the Age Discrimination in Employment Act (ADEA) and the New York Human Rights Law. Ultimately, many of the terminated employees sued the Laboratory, alleging that the RIF had a disparate impact on older workers and therefore violated the ADEA and New York Human Rights Law.

A jury found against the Laboratory, awarding over $6 million in damages. The federal district court upheld the award. After the U.S. Court of Appeals for the Second Circuit affirmed, the Laboratory appealed to the U.S. Supreme Court. In 2005, the Supreme Court vacated and remanded the case back to the Second Circuit for further consideration in light of the analysis set forth in City of Jackson, which it had decided that term. The Second Circuit then vacated the judgment of the District Court and remanded the case with instructions to enter judgment for the employer. In what was the perceived as a victory for employers, the Second Circuit (by 2-1 vote) held that it is the plaintiffs' ultimate burden to prove that the employer's justification is unreasonable. This time, it was the employees who appealed to the Supreme Court, asserting that principles of statutory construction require the RFOA to be considered an affirmative defense for which the employer bears the burden of proof.

Reversing the Second Circuit, the Supreme Court ultimately ruled that an employer must produce evidence supporting the RFOA defense and also must persuade the fact-finder of its merit. In other words, the RFOA is to be treated as an affirmative defense on which the employer bears the burden of persuasion.

Practical Advice for Employers

Since the "RFOA" defense now is an affirmative defense on which the employer bears the burden of proof, it will be far more difficult for employers to dispose of cases through summary judgment. Following Meacham, an employer now must prove its RFOA and establish that, as a matter of law, a reasonable jury could not enter a verdict for plaintiff. While we will have to wait and see how lower federal courts implement Meacham, the Supreme Court acknowledged that "putting employers to the work of persuading fact-finders that their choices are reasonable makes it harder and costlier to defend than if employers merely bore the burden of production" and recognized that this will sometimes affect the way employers make employment decisions.

Still, the Supreme Court recognized that plaintiff's initial burden is not "trivial" and that it "ought to allay some of the concern that recognizing an employer's burden of persuasion on an RFOA defense will encourage strike suits or nudge plaintiffs with marginal case into court…." Perhaps lower courts, based on this Supreme Court dicta, will impose a further burden on plaintiffs.

To reduce risks attendant to layoffs, including, but not limited to, disparate impact age discrimination claims, employers can:

• Identify criteria for layoff selection. To do so, a layoff committee could take responsibility for overseeing the reduction.
• Develop a layoff plan outlining how individuals will be selected for layoff to add consistency to the process.
• Consider such common criteria for evaluating and selecting employees for reduction in force as: (a) a length of service or seniority; (b) status of worker (e.g., first eliminate all temporary, part-time, or contract employees); (c) preexisting job performance data; and (d) work functions remaining after a layoff.
• Review layoff decisions to assess the risk of adverse impact on members of protected classes, as well as the justification for each selection decision.
• Review prior written policies governing reductions in force to avoid legal challenges based on the failure to follow policies which defined the criteria for layoff selections.
• Decide whether to obtain waivers of claims and releases. ¹
• Determine whether statutory notices of layoff are required under the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. Sections 2101-2109 (or possibly a state plant closing statute). If WARN applies, timetables for advance notification of employees must be followed.

Ana C. Shields is a senior associate in the Long Island office of Jackson Lewis. Since joining Jackson Lewis, Ms. Shields has practiced exclusively in the area of employment litigation and has been involved in proceedings before federal and state courts, the American Arbitration Association, and administrative agencies. She has advised employers on compliance with various state and federal laws affecting the workplace. Ms. Shields can be reached at [email protected].