Employment Law Commentary, August 2012

On March 30, 2012, the U.S. Equal Employment Opportunity Commission (EEOC) issued its Final Rule on Disparate Impact and Reasonable Factors Other than Age (RFOA). This rule became effective on April 30, 2012. The Final Rule explained the affirmative defense that employers have to disparate impact claims under the Age Discrimination in Employment Act (ADEA), and amended the Commission's prior RFOA regulation, 29 C.F.R. § 1625.7.

The EEOC's Final Rule sought to clarify the Supreme Court's seminal rulings in Smith v. Jackson, 544 U.S. 228, (2005) and Meacham v. Knolls Atomic Power Lab, 554 U.S. 84 (2008). These cases broadly interpreted the ADEA, affirming the ability of employees to bring disparate-impact claims under the ADEA and placing the burden on employers to prove that a policy or practice that adversely impacts older workers is based on an RFOA. The Final Rule updates the EEOC's regulations on these issues. While the full effect of the rule has yet to be seen, it will impose new obligations on employers seeking to avoid ADEA claims.

The Impact of Smith and Meacham

The ADEA covers private employers with 20 or more employees. The ADEA covers all employers within the public sector, regardless of the number of employees within the public entity. Individuals who are 40 years old or older fall within the ADEA's protected class. Section 623(f)(1) of the ADEA states that "it shall not be unlawful for an employer, employment agency, or labor organization [ ] to take any action otherwise prohibited under [the Act] . . . where the differentiation is based on reasonable factors other than age." It is this language that the new rule interprets.

In 2005, the Supreme Court in Smith v. City of Jackson, 544 U.S. 228, (2005) ruled that under the ADEA, it was unlawful for any employer to engage in practices that have the effect of harming older workers, despite the fact that these practices are facially neutral and not directed towards any individual worker.

This was the first time that the Supreme Court had recognized disparate-impact liability for employers under the ADEA. Three years after issuing its seminal decision in Smith, the Supreme Court ruled that an employer provides a valid affirmative defense to a disparate-impact claim under the ADEA when it can demonstrate that its decision is based on an RFOA. See Meacham v. Knolls Atomic Power Lab, 554 U.S. 84 (2008). Furthermore, Meacham explained that the business necessity defense "has no place in ADEA disparate-impact cases." Id. at 85. Accordingly, after Meacham, employers' only affirmative defense to an ADEA disparate-impact case is that an employer's policy or practice constituted an...