In response to two Supreme Court decisions, the Equal Employment Opportunity Commission (EEOC) has issued a final rule amending its current Age Discrimination in Employment Act (ADEA) regulations. According to the EEOC, the rule does two things:

  1. It makes the existing regulations consistent with the Supreme Court’s holding that the defense to an ADEA disparate impact claim is “reasonable factor other than age” (RFOA), and not business necessity
  2. It explains the meaning of the RFOA defense to employees, employers and those who enforce and implement the ADEA. The new rule becomes effective on April 30. 

The two Supreme Court cases that prompted the new rule are Smith v. City of Jackson, 544 U.S. 228 (2005) and Meacham v. Knolls Atomic Power Laboratory, 554 U.S. 84 (2008). In Smith, the court held that individuals can pursue disparate impact claims under the ADEA. This decision confirmed the EEOC’s “longstanding position that the ADEA prohibits policies and practices that have the effect of harming older individuals more than younger individuals, even if the harm was not intentional.” 

In Meacham, the court held that, in order for an employer to defend against a disparate impact claim under the ADEA, it need only prove that the employment practice was based on a RFOA, rather than the business necessity defense generally available under Title VII claims. Prior to Meacham, the EEOC took the position that “if an employee proved in court that an employment practice disproportionately harmed older workers, the employer had to justify it as a ‘business necessity.’” The Meacham court noted that the RFOA defense is easier to prove than the business necessity defense, but it did not otherwise explain RFOA.

The EEOC’s new rule clarifies that, when asserting a RFOA, the employer bears both the burden of production and the burden of persuasion in showing that, when it established the challenged practice, it used a “non-age factor that is objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances.” 

According to the rule, determining whether a practice is based on reasonable factors other than age is a fact-specific inquiry. In order to successfully assert a RFOA defense, the employer must establish that the practice at issue “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 rule includes a non-exhaustive list of considerations that are relevant to assessing the reasonableness of an employer’s policy or practice:

  1. The extent to which the factor is related to the employer’s stated business purpose
  2. The extent to which the employer accurately defined the factor 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
  3. The extent to which the employer limited supervisors’ discretion to assess employees subjectively, particularly where the criteria that the supervisors were asked to evaluate are known to be subject to negative age-based stereotypes
  4. The extent to which the employer assessed the adverse impact of its employment practice on older workers
  5. The degree of the harm to individuals within the protected age group, in terms of both the extent of injury and the numbers of persons adversely affected, and the extent to which the employer took steps to reduce the harm, in light of the burden of undertaking such steps

When considering implementation of a practice or policy that may impact applicants or employees who are over the age of 40, employers are encouraged to keep these considerations in mind.

Because the EEOC’s analysis is fact-specific, employers’ success in defending against ADEA disparate impact claims will ultimately depend on their ability to produce evidence that they took steps to avoid any disparate impact based on age.