Magazine article HRMagazine

Defending Your Reduction in Force

Magazine article HRMagazine

Defending Your Reduction in Force

Article excerpt

A defense of the Age Discrimination in Employment Act comes of age.

In Smith v. City of Jackson (544 U.S. 228 (2005)), the U.S. Supreme Court held that adverse impact claims are available under the Age Discrimination in Employment Act (ADEA).

However, the Supreme Court also held that, when a plaintiffestablishes adverse impact, the employer's defense differs from that under Title VII of the Civil Rights Act of 1964. For years, it has been unclear exactly what this means.

Under Title VII, an employer must establish "business necessity," a difficult burden to meet. In contrast, under the ADEA, the Supreme Court said a different defense may apply: "a reasonable factor other than age." While the Supreme Court said that the reasonable factor other than age defense was a lesser burden to satisfy than business necessity, it leftundefined what the employer must establish to meet the defense.

This spring, the U.S. Equal Employment Opportunity Commission (EEOC) issued final regulations setting forth what an employer must establish to meet the defense. While these regulations apply only to the reasonable factor other than age defense, they are also instructive in avoiding both disparate treatment and adverse impact claims in the first instance.

This article discusses the defense in the context where it is most likely to apply: reductions in force.

Commission Regulations

Under the final EEOC regulations to establish the reasonable factor other than age defense, "an employer must show that the 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 EEOC enumerates five factors that should be considered. However, it also makes clear that no one factor is determinative.

Moreover, the commission states that additional undefined factors may be relevant.

The Known Factors

Here are the factors as stated in the regulations, and some suggestions on how to apply them:

* Business purpose. "The extent to which the factor is related to the employer's stated business purpose."

Sometimes, the business purpose for an employer's reduction in force is so obvious that the employer forgets to document it. Forget no more.

Before beginning a reduction in force, an employer must document its business purpose.

Simply saying you are trying to cut costs may not be enough because that is the goal of virtually every reduction in force. Employers should be more specific. For example, note that "The demand for product X has dropped by Y percent. Therefore, we need to cut our sales force by Z percent."

The employer also needs to define how it will achieve its business goal. As the EEOC has made clear in the preamble to the regulations, a cost-cutting goal, without more, will not be sufficient to establish the reasonable factor other than age defense.

* Fair application. "The extent to which the employer has defined the factor accurately and applied the factor fairly and accurately, including the extent to which managers and supervisors were given guidance or training about how to apply the factor and avoid discrimination."

Based on this general factor, which includes multiple components, a number of recommendations follow.

First, the employer should define and document the selection criteria. Obviously, seniority is the least risky rationale because it is the most objective. However, in a reduction in force, when you need to rely on fewer people to get the work done, you want to retain your best employees.

While it may make good business sense to lay offpoor performers, doing so poses greater risk from a legal standpoint. Performance is often inherently subjective.

That does not mean that employers should not consider performance as the sole criterion or one of the criteria. …

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