HR Management & Compliance

Age Discrimination: Court Says You Can Terminate Highly Paid Workers And Retain Cheaper, Younger Employees; Caution Still Required

A California court of appeal has ruled that when making personnel decisions, you can give preference to employees with lower salaries over those with higher ones as long as you do so for financial reasons. This is true even though it may result in your older workers being more negatively impacted. Despite the new ruling, you still need to approach terminations involving workers age 40 and over with extreme caution. Here’s what happened in the new case and some tips on how to avoid age bias claims.

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Older Employee Laid Off, Younger Co-Workers Transferred

Michael Marks worked in Ford Aerospace’s corporate finance department in Michigan. Ford eventually moved the entire finance staff to Newport Beach. Then, while a sale of the Newport Beach unit to Loral Corp. was pending, Marks asked Ford to relocate him back to Michigan to be closer to his children. Marks never got his transfer, but Ford did return a number of younger employees to Michigan. Two years later, after Loral had taken over the operation, it eliminated the Newport Beach office. Almost all of the employees found new positions at other company offices, but Marks, who was 49, did not.

Marks sued, claiming that the decision to transfer only younger employees to Michigan was age discrimination. The company, however, argued that its decisions were based solely on economics and had nothing to do with the workers’ age.

Economic Justification For Layoffs OK

The jury found in favor of Loral, and the court of appeal upheld the verdict. It declared that you have the right to retain employees with lower salaries even though this could result in your laying off greater numbers of older workers. But the reason for your decision must be to save money-not to create a younger workforce.

The court explained that the age discrimination laws were not intended to interfere with employers’ legitimate financial business decisions. But the court also added that its ruling would not shield employers who try to use economic concerns as a subterfuge for illegal age bias.

It’s important to note that this new decision isn’t limited to layoffs. It applies to any type of personnel action, including promotions or transfers, which are made for cost-cutting reasons unrelated to age.

Useful Strategies

Even though the employer won in this case, you still need to be very cautious before replacing older employees with cheaper, younger workers who have equal or inferior qualifications. First, the Supreme Court could overturn this decision. Second, although some federal courts have recently tended to interpret federal law the same way, they still haven’t reached a clear consensus on whether it’s illegal to fire older, highly paid employees and replace them with younger, lower-paid workers.

Nevertheless, the following strategies can help you avoid age bias claims:

  1. Stick to seniority or performance-based layoffs. Until the courts resolve these issues, the most conservative approach is to base layoffs or terminations on seniority or performance rather than salary. But if you do make layoffs based on salary, you should scrupulously document that the grounds for your actions are purely fiscal, such as cutting payroll costs. And, whenever laying off workers 40 or older, it’s always best to get expert advice first.
  2. Consider layoff alternatives. If you are going to base the layoff on salary, instead of terminating older workers, you can lower your risk if you offer employees the opportunity to stay on at a lower salary. This strengthens your position that money is your only motivation. However, you might run into trouble if the tables are turned and an older worker volunteers to take a pay cut instead of being laid off, but you go ahead with the termination while retaining cheaper, younger and less-experienced employees. This could suggest that age, not economics, was behind the discharge.
  3. Avoid age-based comments. Statements like wanting to bring “young blood” or “fresh dynamic innovators” into the company are bound to cause trouble. Supervisors and anyone else involved in the layoff process should be told the legitimate business reasons for your actions and cautioned never to make such age-related comments.
  4. Get signed releases. Consider offering a severance package to workers 40 and over and obtain a signed release of potential age discrimination claims. Be sure to follow the special rules that apply to such waivers. 

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