APRIL 2005
Employment Law
Supreme Court Permits “Disparate Impact” Discrimination
Claims Based On Age
On March 30, 2005, the United States Supreme Court in
a 5-3 ruling held that older employees may bring
“disparate-impact” claims of age discrimination under
the Age Discrimination in Employment Act of 1967
(“ADEA”).1 This decision ended a significant split
among Federal appeals courts on whether the
disparate-impact theory of recovery, which has long
been available for race, sex and national origin claims
under Title VII, can also be applied to age claims under
the ADEA. As a result of Smith, an employer may be
held liable for employment actions that have a
disproportionately negative impact on ADEAprotected older workers, even if the employer did not
have any intent to discriminate against those older
workers.
Most discrimination lawsuits filed by employees are
based on claims of “disparate treatment,” which allege
that the employer acted with discriminatory intent
directed specifically at the employee and based on an
unlawful motivation, such as race. Under this theory,
an employer is liable if the employees show that they
were treated less favorably because of their race or
other protected characteristic.
In contrast, under a disparate-impact theory of
recovery, employees do not have to prove that the
employer intended to discriminate against them.
Rather, they need only show that an employer’s
seemingly neutral action or policy has a
disproportionately negative impact on protected class
members.
1
2
In 1971, the Supreme Court held that disparate impact
claims could be brought under Title VII of the Civil
Rights Act of 1964, which prohibits discrimination in
employment based on race, color, religion, sex, or
national origin.2 However, prior to Smith, some Federal
appeals courts had held that only disparate treatment
claims, and not disparate-impact claims, could be
brought under the ADEA.
THE DECISION
In Smith, the city of Jackson, Mississippi, adopted a
pay plan granting raises to all police officers and
dispatchers in an effort to attract and retain qualified
employees by bringing their starting salaries up to the
regional average. Employees with less than five years
of service received greater raises in proportion to their
former pay than employees with more seniority.
Because most officers age 40 and older had more than 5
years of service, most officers age 40 and older
received proportionately smaller raises than their
younger colleagues. Consequently, a group of officers
age 40 and over filed suit under the ADEA, claiming
that the city’s pay plan had a disparate impact on
ADEA-protected officers.
In what the EEOC is touting as “one of the most
significant EEO rulings in recent years,” the Supreme
Court held an employee can bring disparate-impact
claims under the ADEA. The Supreme Court based its
decision on the nearly identical language of Title VII
Smith, et al. v. City of Jackson, et al., 544 U.S. ____ (2005) Opinion No. 03-1160.
Griggs v. Duke Power Co., 401 U.S. 424 (1971).
and the ADEA, which was patterned after Title VII. In
reaching its holding, the Court also pointed out that the
Department of Labor and Equal Employment
Opportunity Commission had both interpreted the
ADEA to allow disparate-impact claims.
However, the Supreme Court ultimately dismissed the
older employees’ disparate-impact claim on two
grounds. First, the Court held that the older employees
had failed to identify “a specific test, requirement, or
practice within the plan that has an adverse impact on
older workers.” Second, the city’s pay plan was based
on reasonable factors other than age: using seniority
and position as a basis for pay adjustments to make
salaries consistent with those in surrounding
communities. The Court held that, in accordance with
the language of the ADEA, once an employer asserts
that its decision was based on a reasonable factor other
than age, the employee must disprove that assertion or
else the age claim must fail even if the employer’s action
did have a disparate impact.
Significantly, the Court held that “the scope of
disparate-impact liability under ADEA is narrower than
under Title VII” because under the ADEA, the
employer can defend itself by showing that reasonable
factors other than age led to the disparate impact. The
Court reached this conclusion based on “textual
differences between the ADEA and Title VII.”
Justice Sandra Day O’Connor, joined by Justices
Clarence Thomas and Anthony Kennedy, strongly
disagreed with the Court’s decision (although they
agreed that the officers’ claims should have been
dismissed) and concluded that Congress never
intended for the ADEA to “impose liability upon an
employer without proof of discriminatory intent.”
HOW TO SPOT A POTENTIAL DISPARATE
IMPACT CLAIM
Disparate impact is shown using statistical analysis. If
the number of employees affected by the employer’s
action or policy is small, the small data pool may render
statistical analysis ineffective and may preclude a
disparate-impact claim.
protected group (e.g., younger employees) is at least
4/5, or 80% of the impact on the protected group (e.g.,
older employees). Under the statistical significance
approach, the employer’s action may be deemed nondiscriminatory if the difference between the impact on
the protected group and the impact on the nonprotected group is not statistically significant.
However, these analyses are only rules of thumb and
are not by themselves determinative.
IMPACT ON EMPLOYERS
As a result of this decision, employers should be aware
of the increased risk of claims of age discrimination
where their actions disproportionately impact
employees age 40 and older. For example, employers
engaged in significant restructuring and downsizing
should be careful to ensure that any disparate adverse
impact on employees age 40 and older is based on
reasonable non-age factors. Reasonable non-age
factors under federal law may include cost reduction
or, as in the Smith case, attracting and retaining
qualified workers.
Some steps employers may take in order to minimize
legal risks associated with actions that may have a
disparate impact on older workers include performing a
statistical analysis of the possible effects of the
contemplated action, setting forth a written business
justification for the action, and developing and
adhering to a written process for implementing the
action.
It is too early to predict whether this decision will result
in a significant increase in lawsuits being filed alleging
disparate impact age discrimination. Nearly half of the
Federal appeals courts already permitted such claims,
and some states, such as California, permitted such
claims under state law. However, with the increased
publicity generated by the Smith decision, these claims
will likely increase. Employers will therefore need to be
extra careful in order to avoid potential liability.
Myra B. Villamor
310.552.5068
There are two statistical methods often used to help
assess whether there is disparate impact: the “4/5 Rule”
and the statistical significance of disparities. Under the
4/5 Rule approach, the employer’s action may be
deemed non-discriminatory if the impact on the non2 APRIL 2005
mvillamor@klng.com
Thomas H. Petrides
310.552.5077
tpetrides@klng.com
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