I. Introduction.
Workforce reductions, whether in the form of hours reductions, furloughs, or layoffs, are often a last resort for employers experiencing financial pressures.1 Nevertheless, when these actions are necessary, time typically is of the essence, because when shedding payroll is the objective, the more drawn out the process, the smaller will be any financial savings. But quick decisions need not be careless decisions. The key is to thoroughly understand the risks before making decisions that later may result in potential liability. If these risks are too great, employers may seek to mitigate these risks by considering a voluntary exit incentive program, in which employees may be offered severance and/or other benefits in exchange for releasing claims they otherwise may assert.
In our experience, employers are more vigilant regarding the duties and risks posed by laws that deal directly with job losses, such as WARN and the OWBPA, than with how discrimination laws, and particularly statistical proof under those laws, present litigation risks. The purpose of this white paper is to provide readers an overview of how statistical analysis intersects with these discrimination laws, so they may better assess the risks posed by their RIF decisions and proactively manage their exposure.
The discrimination laws prohibit employers from taking adverse actions against employees because of membership in certain protected groups. Employees who sue for discrimination may utilize two theories of unlawful discrimination. Disparate Treatment requires proof that the plaintiff's membership in a protected class (i.e., age, race, sex, religion, national origin, disability) motivated the employer's adverse employment action. Disparate Impact does not require proof of such unlawful intent. This theory of liability under the discrimination laws is based on evidence that the employer's facially neutral policy or practice has an adverse impact on a protected class. Disparate impact cases typically involve employer actions affecting a large number of individuals, such as reductions-in-force (RIFs) or hiring practices, and therefore are often brought as class actions. Most individual plaintiff cases are disparate treatment cases, but class actions can also be based on the theory of disparate treatment.
Although employees whose jobs have been terminated often claim that they were selected for termination in a RIF based on a protected category such as age or race, or in retaliation for a prior complaint, we assume that most companies do not overtly use a protected category such as age or race when making RIF selection decisions. An employee whose job has been terminated, however, could also claim that a facially neutral selection procedure adversely affected a protected group of employees, which included the employee. Such claims are asserted less frequently, and therefore tend to receive little or late attention in the RIF planning process. However, they carry enormous potential liability, and arise frequently enough that the possibility of such claims merits earlier and more focused attention.
Indeed, over the past 15 years, the Equal Employment Opportunity Commission has pursued multiple class actions alleging disparate impact in relation to reductions-in-force. Several settlements were in the $3 million to $4 million range. When they settled for less, the EEOC insisted on a consent decree requiring EEOC oversight of separation agreements for reductions-inforce for a period of time. In class actions filed by private litigants, the plaintiffs also pursued claims based on disparate impact, and the published settlements reveal multi-million dollar amounts.
To demonstrate unlawful disparate impact under Title VII of the Civil Rights Act of 1964 (Title VII), a plaintiff would seek to present an analysis of a particular selection procedure used in a RIF that shows a statistically significant impact on a protected group. The employer has a defense to the necessary statistical analysis that the selection procedure used was job-related and consistent with business necessity.2 The plaintiff might then offer evidence that there were less discriminatory alternatives to the selection procedure used.3 The procedure under the Age Discrimination in Employment Act (ADEA) is slightly different. That statute requires the plaintiff challenging a facially neutral employment practice to show that the practice has a statistically significant impact on the protected age group much like under Title VII, but the employer's defense is a reasonable-factor-otherthan-age rather than the more difficult business necessity standard.4
The EEOC specifically referred to a RIF as the example of adverse impact based on age in its comments on the revised regulations on disparate impact claims under the ADEA.5 The EEOC indicated that considerations relevant to whether the employer used an employment practice that was a reasonable factor other than age include the extent to which the employer assessed the adverse impact of its employment practice on older workers.6 The comments to the revised ADEA regulations indicate that employers would be prudent to assess the adverse impact of a selection procedure but state that the extent of the assessment depends on the circumstances.7 The Q&A on Final Rule summarized this concept:
Where an assessment of impact is warranted, the appropriate method will depend on the circumstances, including the employer's resources and the number of employees affected by the practice. For example, a large employer that routinely uses sophisticated software to monitor its practices for race- and sex-based disparate impact may be acting unreasonably if it does not similarly monitor for age-based impact. Other employers, lacking the resources or expertise to perform sophisticated monitoring, may show that they acted reasonably by using informal methods of assessing impact.8
We anticipate that courts will construe this language to require most employers to conduct adverse impact analyses when conducting a RIF unless the RIF involves very few selections or the employer is very small with limited resources. Moreover, the comments on the revised ADEA regulations referenced above specifically refer to the employer monitoring practices for raceand sex-based disparate impact indicating that such monitoring also should apply to other types of unlawful discrimination besides age.9
The careful employer routinely analyzes RIF selections for adverse impact—the idea being to "nip in the bud," so to speak, a pattern of selections that might support a statistical case of discrimination. Yet, there are pitfalls to performing this analysis mechanistically and the results of even a well-planned statistical study may raise questions to which there are no easy answers.
The simplest case occurs if the statistical report card contains only passing grades (i.e., no statistically significant disparities appear that are adverse to any protected group). In that happy case, an employer may proceed in the knowledge that it has in hand powerful evidence of a nondiscriminatory motive. That fortunate employer can testify that it recognized that even neutral decision-making can adversely affect one or more protected groups, that it has carefully considered that issue—perhaps with the assistance of a highly qualified expert—and implemented the RIF only after it determined there was no adverse impact against any protected group.
Footnotes
1 For ease of exposition, these various workforce adjustments may be labeled reductions-in-force, or "RIFs," because the legal risks they pose are so similar.
2 Note the difference between the defense in a disparate impact case as compared to the defenses in a disparate treatment case. In some instances, employers evaluating possible defenses to a potential disparate impact case focus on the defensibility of individual selections, rather than on the selection criteria and processes themselves, which lie at the heart of a disparate impact case.
3 See 42 U.S.C. § 2000e-2(k); Griggs v. Duke Power Co., 401 U.S. 424 (1971).
4 29 C.F.R. §1625.7; Questions and Answers on EEOC Final Rule on Disparate Impact and "Reasonable Factor Other Than Age" under the Age Discrimination in Employment Act, EEOC (2012) (Q & A on Final Rule).
5 77 Fed. Reg. 19080, 19089 (Mar. 30, 2012).
6 29 C.F.R. §1625.7(e)(2)(iv).
7 77 Fed. Reg. at 19089.
8 Q & A on Final Rule, Q. 15 (emphasis added).
9 Referencing protected categories also may be warranted based on other legal obligations such as affirmative action compliance under Executive Order 11246, Fuller v. Edward B. Stimpson Co., Inc., 971 F.Supp.2d 1146 (S.D. Fla. 2013).
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