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PHILADELPHIA � Employers are free to modify health care benefits for retirees as soon as they become eligible for Medicare now that a federal appeals court has rejected a challenge to a regulation passed by the Equal Employment Opportunity Commission that approved the practice. In AARP v. EEOC, the Third Circuit U.S. Court of Appeals held that the EEOC has broad powers to create “exemptions” for practices that would otherwise violate federal age discrimination laws. The ruling upholds a decision by U.S. District Judge Anita Brody in which she reversed herself and upheld the regulation in light of a recent decision from the U.S. Supreme Court. Initially Brody had ruled in favor of AARP, issuing an injunction that barred the EEOC from enforcing the regulation because it directly conflicted with an existing Third Circuit precedent, Erie County Retiree Association v. County of Erie. Brody explained that, while courts ordinarily owe “deference” to an agency’s decisions under Chevron USA Inc. v. Natural Resources Defense Council, no such deference was owed to an agency decision that conflicts with existing case law. But Brody later reversed herself, finding that she was forced to reconsider her original Chevron analysis in light of a then-new decision from the U.S. Supreme Court in National Cable and Telecommunications Association v. Brand X Internet Services. In Brand X, the justices reversed a Ninth Circuit decision, saying the appellate court had erred by relying on one of its own rulings when concluding that its prior interpretation of the statute foreclosed a later, contrary construction by an administrative agency. Brody found that the Brand X decision “clarified the Chevron standard” by holding that a federal agency’s interpretation of a statute is entitled to deference � even if it conflicts with a judicial precedent � unless that precedent held that the statute “unambiguously forecloses the agency’s interpretation.” Looking at the case anew, Brody decided that the Third Circuit’s Erie County decision was not the only possible reading of the law, but merely the court’s “best” interpretation of the statute, and that the EEOC should therefore be given the “flexibility” to offer its own best answer. Now the Third Circuit has upheld Brody’s decision, but on different grounds.
‘[T]he regulation is consistent with the purposes and intent of the ADEA, and is a reasonable exercise by the EEOC of authority delegated to it by Congress.’


Instead of focusing on Chevron, the appellate court looked to a section of the Age Discrimination in Employment Act that gives the EEOC the power to create exemptions that are “reasonable” and “necessary and proper in the public interest.” Writing for the court, visiting Judge Jane Restani, the chief judge of the U.S. Court of International Trade, found that the EEOC crafted the regulation in response to the negative consequences it saw in response to the Third Circuit’s Erie County decision. When employers were prohibited from coordinating retirement benefits with Medicare benefits, many employers simply eliminated all health benefits for retirees. “The EEOC issued the proposed regulation in response to its finding that employer-sponsored retiree health benefits were decreasing,” Restani wrote in an opinion joined by Third Circuit Judges Theodore McKee Jr. and Ruggero Aldisert. While Brody had applied Brand X in her decision that upheld the regulation, Restani said the appellate court did not reach that issue because the regulation “presents a narrow exemption expressly authorized by the statute.” As a result, Restani said, the Chevron analysis was unnecessary. “It is clear that the proposed regulation is expressly authorized by the terms of Section 9 of the ADEA,” Restani wrote. “The proposed exemption permits the narrow practice of coordinating employer-sponsored retiree health benefits with eligibility for Medicare and state-sponsored health programs for the necessary and proper purpose of encouraging employers to provide the greatest possible health benefits for all retirees,” Restani wrote. Therefore, Restani concluded, “the regulation is consistent with the purposes and intent of the ADEA, and is a reasonable exercise by the EEOC of authority delegated to it by Congress.” The AARP was represented in the appeal by attorney Christopher Mackaronis of Brickfield Burchette Ritts & Stone in Washington, D.C. Justice Department civil division attorney Anthony Yang argued the case on behalf of the EEOC. Shannon P. Duffy is a reporter with The Legal Intelligencer, a Recorder affiliate based in Philadelphia.

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