Jeffrey S. Klein and Nicholas J. Pappas
Jeffrey S. Klein and Nicholas J. Pappas ()

According to the U.S. Census Bureau, by 2020, 25 million Baby Boomers, who make up more than 40 percent of the U.S. labor force, will be exiting the work force in large numbers. http://www.dol.gov/odep/pdf/NTAR_Employer_Strategies_Report.pdf. With many of the most experienced employees poised to leave the work force in the coming years, many employers are, or soon will be, facing the need to plan for this seismic demographic shift.

Courts have long recognized that employers have a legitimate interest in planning their future work force, and identifying and grooming successors for the current leadership is a necessary exercise that does not, by itself, violate the law. However, because the successors typically are younger than the senior leaders they replace, succession planning should be undertaken with an eye toward the potential legal issues that may arise, particularly age discrimination claims.

In this article, we discuss some of the legal issues employers should consider as part of their succession planning, and we offer suggestions for how employers may engage in this exercise while minimizing the legal risk.

The Age Discrimination in Employment Act (ADEA) prohibits employers from discriminating against employees or potential employees who are age 40 or older because of their age. 29 U.S.C. §§623(a)(1), 633. There is a popular misconception that if an employer replaces one worker who is at least age 40 with another worker who is also at least age 40, there is no risk of legal exposure. But ADEA liability may exist even where the new employee is also in the class protected by ADEA if the employee who was replaced was replaced “because of” his age. See, e.g., O’Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308, 312 (1996).

Avoid Incorrect Assumptions

While older workers may assert claims under the ADEA after they are replaced by younger workers, courts nevertheless have recognized the legitimacy of an employer’s interest in planning for its future work force. For example, when making a hiring or promotion decision, an employer may have a legitimate interest in ensuring that the candidate selected is committed to remaining in the position for a minimum period of time, to ensure a return on the employer’s training investment or to avoid the disruption of frequent turnover.1 See, e.g., Lee v. Rheem Mfg. Co., 432 F.3d 849, 853-54 (8th Cir. 2005) (question to applicant about how long he planned to work reflected “legitimate business concerns” and was not direct evidence of age discrimination); Raskin v. Wyatt Co., 125 F.3d 55, 63 (2d Cir. 1997) (company “had a legitimate reason to confirm the plaintiff’s interest in a career change notwithstanding the possibility that [the plaintiff] would have the option of taking early retirement”).

Likewise, if current management is approaching retirement, the company may need to take steps to ensure continuity and a smooth transition at the retirement date. Courts generally recognize that employers have legitimate business reasons to be concerned about employees’ expected tenure, even though expected tenure may correlate with age.2 See Lee, 432 F.3d at 853 (although applicant’s “expected years of work is related to his age, ‘factors other than age, but which may be correlative with age, do not implicate the prohibited stereotype, and are thus not prohibited considerations’”).

For example, in Misner v. Potter, 2009 WL 1872598 (D. Utah June 26, 2009), the court declined to infer that the employer was “concern[ed] that [its] executives [were] ‘greying’” simply because the employer was concerned “about losing executives to retirement” and had implemented a succession plan to address those concerns. The employer’s succession plan involved establishing “pools” of candidates to be considered for upper management positions when they became vacant.

When a 56-year-old employee was not selected for any of the pools, he sued, alleging that he had not been selected because of his age. The employee pointed to the employer’s “oft-stated concern that a high percentage of its executives were at or approaching retirement eligibility” as evidence that the employer was engaged in an “organizational-wide push to identify younger potential successors.” But absent evidence that the employer “believed that potential replacements for retiring executives should be of any particular age,” the court held that “observing that a high percentage of management could retire and seeking to have ready replacements to ensure business continuity is not the same as trying to push out older executives because of stereotypes about age.”

However, because “[a]ge, unlike sex or race, is frequently correlated with legitimate employer concerns such as the impact on an organization of an aging workforce,” employers must “walk [a] fine line between legitimate employer concerns and age discrimination.” Johnson v. Harvey, 2007 WL 201225, at *2 (E.D. Ark. Jan. 24, 2007). In particular, employers must be careful not to conflate expected tenure and age by, for example, making assumptions about expected tenure based on age.

For example, in Sharp v. Aker Plant Services Group, 726 F.3d 789 (6th Cir. 2013), a 52-year-old former employee of a manufacturer of technology parts alleged that he was selected for inclusion in a reduction in force (RIF) because of his age. He alleged that when he asked why he was chosen for the RIF over a younger employee, his manager said that he had been grooming the younger employee to replace another employee in the plaintiff’s age range who, according to the manager, likely would be retiring around the same time as the plaintiff. The manager allegedly explained that staggering retirements by about 10 years was important to ensure business continuity. Although the plaintiff said that he planned to work for another 15 years before retiring, the manager allegedly responded that the company needed “to bring in younger people [and] train them.”

While the court recognized that an employer may have legitimate business concerns that are correlated with age, it explained that “the proposed age-correlated factor cannot be a proxy for age, else it is unlawful.” Because the manager had “in essence stated that [the company's] succession plan was to hire or retain younger workers at the expense of older workers” based on the assumption that “the former would stay with the company longer than the latter,” the court found that the otherwise legitimate business concern for “potential longevity with the company” was, in this case, really just “a proxy for age.”

The lesson from Misner and Sharp is that employers may legitimately be concerned about “potential longevity with the company” and may take steps to plan for anticipated retirements, but that employers may not assume an expected tenure based on stereotypes about age. Indeed, younger workers may leave “relatively soon after being hired,” so “favoring applicants because of their youth” does not effectively address concerns about “brain drain” resulting from retirements. Johnson, 2007 WL 201225, at *4.

Asking About Retirement

If employers should refrain from assuming that employees will retire at a certain time based on their ages, are employers entitled to ask their employees when they plan to retire? In short, yes, but employers should exercise care as to how they broach the topic.

Many courts have recognized that employers must be permitted to ask employees about their retirement plans. See, e.g., Moore v. Eli Lilly & Co., 990 F.2d 812, 818 (5th Cir. 1993). The U.S. Court of Appeals for the Seventh Circuit has declared that “a company has a legitimate interest in learning its employees’ plans for the future, and it would be absurd to deter such inquiries by treating them as evidence of unlawful conduct.” Colosi v. Electri-Flex Co., 965 F.2d 500, 502 (7th Cir. 1992).3

But the key is that any inquiries about retirement plans must be “reasonable.” Moore, 990 F.2d at 818. Employers should refrain from referencing the employee’s age when asking about future plans.4 Also, courts have noted that “repeated and/or coercive inquiries” may be impermissible. See Greenberg v. Union Camp Corp., 48 F.3d 22, 28 (1st Cir. 1995).5

If an employee indicates that he or she may be retiring soon, courts have held that an employer has a right to receive a clear answer about the employee’s plans. For example, in Woythal v. Tex-Tenn Corp., 112 F.3d 243 (6th Cir. 1997), rumors were circulating that a particular engineer at the company “was considering retirement,” and some employees testified that the employee told them that he planned to retire. The employee’s supervisor asked him “several times” what his plans for the future were, but found the employee’s “answers evasive.” The employee alleged that the repeated inquires about his future plans were designed to pressure him to retire, but the U.S. Court of Appeals for the Sixth Circuit rejected this contention, holding that the employer had a “legitimate concern” in making sure that the company had proper coverage, and that the inquiries were repeated simply because the supervisor never “got a straight answer.”

When employees answer inquiries about their retirement plans, employers must be careful about how they respond. Expressing disapproval may be deemed to have a coercive effect. Lightfoot v. Union Carbide Corp., 110 F.3d 898, 913 (2d Cir. 1997) (decision maker “expressed surprise and disbelief when Lightfoot said he wanted to work until he was seventy years old”).

Suggestions for Employers

When engaging in succession planning, employers should take several points into consideration:

• Do not presume an employee’s retirement plans based on age.

• Ensure that candidates of all ages are considered in the succession plan.

• Ask employees at all levels of seniority what their short and long-term goals are.

• Refrain from targeted inquiries to individual employees about “retirement plans” unless there is an indication that the employee may be retiring soon, and the employer needs a particular amount of advance notice for business reasons.

• When asking about employees’ future plans, be careful not to cross the line into pressuring any employees to retire. Do not reference the employee’s age. If an employee says that he or she has no plans of retiring soon, do not express surprise or disapproval and do not revisit the issue frequently within the same time frame.

• Consider whether any particular employment practices driven by succession planning may have a disparate impact on the basis of age.

• Consider additional requirements that may be imposed by state and city law that may be more restrictive than federal law.

Endnotes:

1. If an employer is going to ask any candidate selected to commit to remain in the position for a minimum period of time, the employer may wish to make that period of time no longer than needed to achieve a legitimate business interest. Employees may argue that the employer’s seeking a commitment from candidates to remain in the position for a minimum period of time may have a disparate impact on older workers. Accordingly, employers should be prepared to justify the length of the time period with a legitimate business reason that could not be accomplished with an alternative process that does not have a disparate impact. Furthermore, even on a disparate treatment claim, if the employer is unable to justify the length of the time period by a legitimate business reason, a plaintiff may seek to establish that the employer’s request for a minimum time period commitment is merely a pretext for ageist stereotypes.

2. While ADEA generally prohibits the imposition of mandatory retirement ages, 29 U.S.C. §623(f)(2), it allows employers to impose a mandatory retirement age on certain executives and employees in high-level policymaking positions under certain narrowly specified circumstances. 29 U.S.C. §631(c).

3. See also Lefevers v. GAF Fiberglass, 667 F.2d 721 (6th Cir. 2012) (finding that no evidence that employer suggested that the plaintiff should retire, “but that they merely inquired generally about his, and others’, plans regarding retirement”).

4. See Woythal v. Tex-Tenn Corp., 112 F.3d 243, 247 (6th Cir. 1997) (noting that employer did not reference employee’s age).

5. See also Jones v. Oklahoma City Public Schools, 617 F.3d 1273, 1281 n. 6 (10th Cir. 2010) (questioned three times about retirement plans).