Wednesday, October 22, 2008

Cost cutting does not necessarily equate to age discrimination


Layoffs have become all the rage. Just yesterday, one of Cleveland’s larger employers, National City Bank, announced that it will be cutting 4,000 employees nationwide. Often, when companies look to cut costs, they will shed more senior employees in favor of hiring less costly employees, who are often, but not necessarily, younger. This strategy is exactly what Highlands Hospital Corp. employed that resulted in an age discrimination claim by two terminated employees. In Allen v. Highlands Hosp. (6th Cir. 10/21/08), the 6th Circuit reaffirmed that a plaintiff cannot support an age discrimination disparate impact claim by simply relying upon a general policy or practice, but must isolate and identify a specific employment practice that disproportionately impacts employees who are at least 40 years old.

Jo Ann Allen (age 63) and Debra Slone (age 53) were both employees of Highlands Hospital. The hospital’s CEO, Harold Warman, decided to terminate both of them for violating its patient privacy policy. Specifically, Allen and Slone removed the x-rays of Allen’s granddaughter without the patient’s written permission and signed a backdated documents to try to cover their tracks.

Allen and Slone sued the hospital for age discrimination. Among other claims, they alleged that Warman’s cost-cutting measures had a disparate impact on their age. Warman had been systematically terminating employees based on seniority to facilitate the hiring of new, less costly employees.

Contrary to the disparate impact claim, the statistics showed that Warman’s program did not necessarily disproportionately affect older employees at the hospital:

Date

Total # of Employees

Employees Age 40 and Older

Employees Younger than Age 40

July 1998

672

273

399

Dec. 2002

488

253

235

Dec. 2004

530

267

263

 

In July 1998, 40% of the hospital’s total employees, including Allen and Slone, were age 40 or older. By December 2002, that ratio increased to 52%, which also included Allen and Slone. Two years later, that number had slightly decreased to just over 50%.

A disparate impact claim involves employment practices that are neutral on their face but in application fall more harshly on one group over another. Plaintiffs that allege disparate impact discrimination under the ADEA must isolate and identify a specific employment practice that is allegedly responsible for the statistical disparities. it is not sufficient for a plaintiff to simply point to a generalized policy that leads to a perceived impact.

Allen and Slone argued on that the effect of the policy demanding the termination of the highest paid employees had a illegal impact based on age. The Court found, however, that the plaintiffs failed to isolate and identify “a specific employment practice that disproportionately impacts employees who are at least 40 years old”:

As we have already explained, the plaintiffs have at best alleged that HHC desired to reduce costs associated with its highly paid workforce, including those costs associated with employees with greater seniority. But the plaintiffs have not established that this corporate desire evolved into an identifiable practice that disproportionately harms workers who are at least 40 years old. Because Allen and Slone have simply “point[ed] to a generalized policy,” as opposed to specific practice, they have therefore failed to raise a genuine question of material fact with respect to their disparate impact claim.

Coupled with the compelling statistical evidence, the appellate court affirmed the district court’s dismissal of the age discrimination claim.

Disparate impact claims are much more seldom litigated than disparate treatment claims. Because it is likely that mass layoffs will increase as the health of the economy decreases, it is also likely that these types of claims will pick up in frequency. Because of the possibility of a disparate impact claim with a mass layoff, companies should consider conducting pre and post-layoff statistical analyses to ensure that otherwise neutral selection criteria do not unfair impact one group over another. A little planning can go a long way to preventing the type of lawsuit that plagued Highlands Hospital in this case.

[Thanks to Steve Sutton for sending this decision to me]

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