Suppose an employee in their 50s or 60s wants to take advantage of your employee educational assistance program. You may be reluctant to shell out thousands of dollars to educate a worker who’s close to retirement. One employer that faced this situation recently got slapped with an age discrimination lawsuit when an older worker’s request for educational assistance was turned down.
Employer Rejects Older Worker’s Financial Aid Request
Union Oil Company of California (UNOCAL) had a voluntary educational assistance program that encouraged employees to obtain undergraduate and postgraduate degrees. Employee Dan Esberg, a telecommunications specialist, earned a bachelor’s degree compliments of the company. But when Esberg, nearing age 60, told supervisor Walter Aldrich that he wanted to obtain a master’s degree, Aldrich commented, “You are too old to invest in.”
Nevertheless, Esberg submitted the necessary documents to enter an MBA program and asked his supervisors to approve financial assistance. Esberg’s request was denied at the same time that three younger UNOCAL employees received financial aid for a master’s program.
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Employee Goes After Employer
Esberg sued, claiming the denial amounted to age discrimination in violation of California’s Fair Employment and Housing Act. He also argued that the company’s policies and actions created an implied contract to pay employee education benefits without regard to age. UNOCAL countered that the FEHA doesn’t prohibit age-based benefits discrimination and that there wasn’t enough evidence to prove UNOCAL denied Esberg benefits because of his age.
The trial court threw out the FEHA claim. But the contract issue went to a jury, which ordered UNOCAL to pay Esberg damages of $51,000. Both Esberg and UNOCAL appealed.
State Law Doesn’t Cover Age-Based Benefits Discrimination
A California Court of Appeal denied Esberg’s request to reinstate his age bias claim. It’s illegal under the FEHA to discriminate against older workers when hiring, firing, suspending or demoting employees—but not in offering benefits. The court noted that federal anti-bias law prohibits age-based discrimination in employment terms, conditions and privileges, including employee benefits. But Esberg only sued under state law.
Implied Contract Claim Upheld
The court, however, upheld the jury verdict on the contract claim. The evidence was sufficient to find that UNOCAL had tacitly agreed to pay education costs for all employees regardless of age. This was because UNOCAL had a financial assistance program, urged employees, including Esberg, to pursue undergraduate and advanced degrees, and led employees to believe that age was irrelevant to aid requests. What’s more, supervisor Aldrich’s comment that Esberg was too old to invest in, while three younger workers received aid, suggested that UNOCAL breached the implied agreement by denying Esberg benefits based on his age.
Preventive Measures
Although the employer prevailed on the FEHA claim, you still must avoid age-based discrimination in fringe benefits because it’s illegal under federal law. Plus, this new ruling could spur the state Legislature to amend the FEHA to conform to the more protective federal age bias provisions.
This case is also a reminder that your policies and practices can create binding obligations you wouldn’t otherwise have. To avoid problems, be sure your employee handbook contains language stating that the handbook is not a contract and that you have the right to make changes, additions and deletions to your policies at any time. And eliminate rigid commitments that you might not intend to make or be able to keep.