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In a watershed decision on March 30, 2005, the United States Supreme Court held an employer may be held liable for age discrimination based on a facially neutral employment policy that has a disproportionate effect, or “disparate impact,” on older workers. In Smith v. City of Jackson, Mississippi, the Supreme Court resolved an issue of longstanding uncertainty among the lower courts, finding that disparate impact claims are cognizable under the Age Discrimination In Employment Act (“ADEA”). Thus, an employer may now be liable for unintentional age discrimination where it has an employment policy that adversely impacts workers who are 40 years of age or older.

The Court determined the threshold issue – whether disparate impact claims are available under the ADEA – by focusing on the similarity in language between the ADEA and Title VII of the Civil Rights Act OF 1964 (“Title VII”), which prohibits discrimination based on race, color, religion, sex, and national origin. Using fundamental statutory interpretation, the Court reasoned that since the ADEA and Title VII use identical language to define unlawful discrimination (except for the ADEA’s substitution of “age” for Title VII’s protected classes), the disparate impact theory available under Title VII must also be recognized for ADEA claims. The Court emphasized that the same language found in both the ADEA and Title VII “focuses on the effects of the action on the employee rather than the motivation for the action of the employer.” Thus, like under Title VII, an employer may be liable under the ADEA for an employment policy that disproportionately impacts workers protected by the statute, even absent a showing of intentional discrimination.

In Smith, the City implemented a policy granting raises to its police officers and dispatchers in an effort to make the City’s pay competitive with neighboring communities. The City provided proportionately higher raises to workers with less than five years of service. Not surprisingly, the statistics bore out that younger workers, on average, received a more generous pay raise under the policy than workers at least 40 years of age. A group of older officers sued the City under the ADEA for intentional discrimination (“disparate treatment”) and under a disparate impact theory. Addressing only the latter claim, the Court held, for the first time, that disparate impact is a viable claim under the ADEA, but it determined the claim failed in this particular case for two reasons. First, the claimants failed to isolate and identify a specific employment practice responsible for the statistical disparities they identified – merely pointing out the disproportionate impact of a policy is not enough. Second, the City’s reliance on seniority and job rank in implementing the policy were “reasonable factors other than age.”

The Court’s decision is ultimately a victory for employees because it paves the way for disparate impact claims under the ADEA. Nevertheless, there is one significant caveat that bodes well for employers: ADEA disparate impact claims are subject to a tougher standard than disparate impact claims under Title VII. Namely, an employer may defeat a disparate impact claim under the ADEA by merely establishing an alleged discriminatory policy is based on “a reasonable factor other than age”; whereas, under Title VII, an employer may only escape liability by showing that an alleged discriminatory policy is consistent with business necessity and that the purpose of the policy cannot be achieved by a less restrictive policy. As indicated above, the City in Smith was not liable for the disproportionate impact of its policy because the factors of seniority and job rank, upon which the policy was based, were “unquestionably reasonable” in light of the City’s legitimate goal of retaining officers by paying competitive salaries.

It is uncertain whether the Supreme Court’s decision in Smith will lead to an onslaught of ADEA disparate impact claims. However, out of an abundance of caution, employers should carefully scrutinize existing employment policies (e.g., retirement plans, hiring criteria, pay and benefit plans, and reduction-in-force practices), to ensure there is a reasonable, non-discriminatory basis for any policy that may have a disproportionate impact on employees who are at least 40 years of age. At the end of the day, an employer should sleep well if its employment policies are based on reasonable factors related to legitimate business goals.

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