It is undeniable that the American workforce is getting older or, shall we say, more mature. In The Aging U.S. Workforce, the Stanford Center on Longevity estimates that by 2020, workers 55 and older will make up a quarter of the U.S. labor force, up from 13% in 2000. As the Baby Boomer generation hits retirement age, employers face a host of legal issues. Some landmines are rather obvious. For example, employers cannot terminate an employee simply because of her age.
Other issues are more nuanced. What if an employee is performing poorly because of age-related reasons? Can an employer terminate an older employee whose benefits are expensive? This article provides guidance on some of the issues employers with an aging workforce face.
Age discrimination under the ADEA
The Age Discrimination in Employment Act (ADEA) prohibits age discrimination in employee benefits, working conditions, and hiring, promotion, and termination decisions. States also have their own specific laws prohibiting age discrimination. In Gross v. FBL Fin. Servs., Inc., the U.S. Supreme Court held that to establish a claim under the ADEA, an employee “must prove by a preponderance of the evidence (which may be direct or circumstantial) that age was the ‘but- for’ cause of the challenged employer decision.” In Wilkerson v. Shinseki, the U.S. 10th Circuit Court of Appeals ruled that “but-for” cause does not mean that age was the only factor in the employer’s decision. It simply means that age was the factor that made a difference.
The ADEA prohibits employers with 20 or more employees from discriminating against employees who are over 40. A court can find that an employer committed age discrimination if an employee is replaced by a younger worker who is over 40. However, a 41-year-old employee may not sue because she was passed over in favor of a 60-year-old worker.
In Tramp v. Associated Underwriters, Inc., the 8th Circuit recently took a new perspective on whether age was the “but-for” cause of an employment decision. The employer was accused of terminating an employee who was over 65 to decrease the cost of its group healthcare plan premiums. The employee was terminated as part of a reduction in force, and the employer claimed the termination was performance-related.
The district court dismissed the employee’s claim, reasoning that a termination that was motivated by healthcare costs was not based on age. The district court relied on previous cases that stated that firing employees based on factors “correlated with age” (e.g., years of service) is not age discrimination. For example, while years of service is often correlated with an employee’s age, a younger employee may have more years of service than an older employee who is new to the company.
The 8th Circuit disagreed. The court’s reasoning is important for all employers considering the cost of an employee’s benefits or his eligibility for benefits. While the law does not prohibit terminations based on factors correlated with age, it does prohibit terminations based on factors that are proxies for age. The appeals court noted that healthcare costs could be a proxy for age discrimination. The court stated, “Certain considerations, such as healthcare costs, could be a proxy for age in the sense that if the employer supposes a correlation between the two factors and acts accordingly, it engages in age discrimination.”
The court stated that a jury could find that the employer “supposed a correlation” based on a variety of facts. The employer’s request that its health insurer lower rates after it fired the employee was especially incriminatory. The employer wrote, “Since last year we have lost our oldest and sickest employees. . . . Please let me know if this is the best we can do.” Also, the employer suggested that two employees who were over 65 should use Medicare instead of the company’s healthcare plan. Both employees declined.
The Tramp decision is important because the court found that an employer that makes employment decisions based on healthcare costs may commit age discrimination if it thinks older employees are more expensive and costs are the factor that causes the employer to fire an employee. When terminating employees or engaging in a reduction in force, do not let healthcare costs or other age-related costs be the factor that causes the decision.
So what is an employer supposed to do if an older employee is costing significantly more in benefits? Employers aren’t wholly without remedy. They can reduce older employees’ benefits without committing age discrimination if certain conditions are met. Under the “equal benefit” or “equal cost” standard, an employer may reduce an employee’s benefits based on his age if (1) the cost of benefits increases with age and (2) the plan either provides equal benefits to or incurs equal costs for older employees compared to younger employees.
Note that if the costs for younger and older employees are the same, benefits need not be equal. In Erie Cnty. Retirees Ass’n v. Cnty. of Erie, Pa., the 3rd Circuit stated, “If the cost to [the] employer of providing [a] benefit is greater for older workers than younger workers, the employer may provide a smaller benefit to older workers, so long as the employer spends at least the same amount of money for all workers.” The employer has the burden of showing that the standard has been met.
Employee benefits are often tricky. Thus, it is important for employers to know their obligations under the ADEA. You may not terminate an employee who is over 40 solely to save on benefits. However, you may reduce an older employee’s benefits if you can satisfy the equal cost or equal benefit standard. If you are considering altering benefits, consult a lawyer to ensure that standard is met.
Disability discrimination under the ADA
Employers also must be mindful of disability discrimination under the Americans with Disabilities Act (ADA). Under the ADA, an employer with 15 or more employees is prohibited from discriminating against an employee if (1) the employee is disabled within the meaning of the Act or is perceived to be disabled by the employer and (2) the employee is qualified to perform the essential functions of her job with or without a reasonable accommodation. Older employees may have or develop conditions that constitute a disability under the ADA. Also, an employer may wrongfully “perceive” an older employee as having a disability.
Making an employment decision based on an employee’s actual or perceived disability is a violation of the ADA provided the employee can perform her job with or without a reasonable accommodation. A reasonable accommodation is an arrangement that enables an employee to perform the essential functions of her job without imposing an undue hardship on the employer. “Undue hardship” is defined as an action that requires significant difficulty or expense when considered in light of factors such as the employer’s size and financial resources and the nature and structure of its operations.
Be mindful of the ADA when dealing with older employees. You may not directly ask an employee whether he has a disability unless he has requested a reasonable accommodation. That said, if an older employee starts having performance problems, you may ask him if he is OK and if there is anything you can do to help.
You will not violate the ADA by disciplining an employee who is performing poorly and has not informed you that he has a disability, even if he later tells you he is disabled. Although you are not required to reverse the discipline if you did not know about the employee’s disability, you may have to provide the employee a reasonable accommodation. Of course, these guidelines apply to employees of all ages, but be sensitive to issues employees face as they age.
As the age of the American workforce continues to increase, employers that integrate aging workers will have an advantage. Here are some tips:
- Avoid making assumptions about an employee’s career trajectory. The Stanford Center on Longevity estimates that by 2020, 28% of women and 35% of men ages 65 to 74 will be working. A 55-year-old employee may not be gearing up to retire at 60. Instead, she may be preparing for the next 20 years of her career!
- Avoid making assumptions about the costs of older workers. Some employers believe older employees are less productive and more expensive. However, studies show that older employees are no less cost-effective than younger workers.
- Encourage employees of all ages to attend training. Some studies demonstrate that older employees are less likely to attend training sessions than younger employees. Encouraging or even requiring all employees to attend training sessions can prevent a training gap that creates another obstacle for older workers.
- Be aware of your legal obligations. You cannot discriminate because of an employee’s age or disability. However, the law ensures that employers are not unduly burdened in complying with their obligations.