ALERT: EEOC's Proposed Rule Seeks to Clarify the "Reasonable Factor Other Than Age" Defense to Disparate Impact Claims Under the ADEA

On February 18, 2010, the Equal Employment Opportunity Commission ("EEOC") published a Notice of Proposed Rulemaking ("NPRM"), which, if implemented, would revise its regulations relating to its position on the meaning and scope of the "reasonable factor other than age" ("RFOA") defense in disparate impact cases under the Age Discrimination in Employment Act ("ADEA"). Disparate impact cases involve claims that an age-neutral employment practice (such as a hiring standard requiring a high school diploma) disproportionately affects individuals who are age 40 or older.

The NPRM comes in response to two recent Supreme Court decisions, Smith v. City of Jackson, 544 U.S. 228 (2005), and Meacham v. Knolls Atomic Power Lab., 128 S.Ct. 2395 (2008). In Smith, the Court recognized disparate impact claims under the ADEA, and the RFOA as a statutory defense to them. In Meacham, the Court held that the RFOA is an affirmative defense for which the employer bears both the burdens of production and persuasion. In a prior NPRM, published on March 31, 2008, the EEOC had proposed to amend its regulations consistent with the Smith decision to recognize disparate impact claims and the RFOA defense. After considering public comment and the 2008 Meacham decision, however, the EEOC decided to issue the February 18, 2010 NPRM before finalizing its regulations.

The proposed regulation seeks to establish an individualized, case-by-case approach to determining whether the RFOA defense applies to a particular employment practice. To establish the RFOA defense under the proposed rule, the employer would be required to show that its employment practice "was both reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known, to the employer."

The reasonableness of the challenged employment practice under the proposed rule would be paramount to the inquiry. The proposed regulation provides a nonexclusive list of factors for determining whether an employment practice is "reasonable," including: (1) whether the practice and its manner of implementation are common business practices; (2) its relatedness to the employer's stated business goal; (3) the extent to which the employer took steps to accurately define and fairly and accurately apply it; (4) the extent to which the employer took steps to assess the adverse impact of the practice on older workers; and (5) the severity of the harm to individuals within the protected age group and the extent to which the employer took steps to minimize such severity. Although the availability of alternatives and the employer's reasons for selecting a particular option would also be considered in determining reasonableness under the proposed rule, the employer would not be required to use the option with the least disparate impact.

The proposed rule clarifies that the challenged employment practice must be based on a non-age factor for the RFOA defense to apply. As the proposed rule acknowledges, in typical disparate impact cases, the challenged employment practice is based on an objectively measurable factor "other than age," such as salary or seniority. In such cases, the only question for purposes of the RFOA defense would be whether the employment practice is reasonable. The proposed rule recognizes, however, that when disparate impact results from giving supervisors "unchecked discretion to engage in subjective decision making, . . . the impact may, in fact, be based on age because the supervisors to whom decision making was delegated may have acted on the bases of conscious or unconscious age-based stereotypes." Under such circumstances, the proposed rule would require an analysis as to whether or not the factor is "other than age" based on considering the following nonexhaustive list of factors: (1) the extent to which the employer gave supervisors unchecked discretion to conduct subjective assessments; (2) the extent to which the employer asked supervisors to evaluate employees based on factors known to be subject to age-based stereotypes; and (3) the extent to which employers gave guidance or training to supervisors regarding applying the factors and avoiding discrimination.

Although there is uncertainty associated with the individualized, case-by-case analysis that the proposed rule would establish, the rule lays out what the EEOC proposes an employer must typically prove to establish an RFOA defense and provides a nonexclusive list of factors to consider in determining whether the challenged employment practice was reasonable.

The EEOC invites public comment on the proposed regulation through April 19, 2010. Following this period, the EEOC will consider such comments and thereafter adopt final regulations.

This alert is intended to provide a brief synopsis of recent developments in the law and should not be construed as legal advice. For more information, please contact your Jones Day contact, Lawrence DiNardo at 1.312.782.3939, Mark Temple at 1.832.239.3939, or Jacqueline Holmes or Sarah McClure, at 1.202.879.3939.