Whenever you discharge an employee over age 40, you leave yourself open to a potential age discrimination lawsuit. And a new federal appeals court ruling demonstrates that your risk is higher—and the potential damages even greater—if the employee is a long-term worker close to retirement.
Employee Fired Just Shy Of Retirement
Robert Greene began a long career with Northern California-based Safeway Stores, Inc., when he was 17. He worked his way up and was eventually appointed manager of Safeway’s Denver, Colo., division. When Greene was 52 and just two years away from retirement, Safeway President Steven Burd abruptly terminated him. Burd announced he was assembling a new management team and Greene didn’t fit in with the new management style. He justified the discharge on the grounds that Greene was a poor merchandiser, sales had declined in his region and Greene intimidated his employees. However, none of these concerns had been mentioned to Greene before the termination. What’s more, three internal memos written in the six months prior to the discharge praised Greene’s performance.
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Employer Slapped With Lawsuit
Greene sued, charging he was fired because of his age. As evidence that he was discriminated against, he cited the timing of the discharge just before his retirement and the statements by Burd. He also contended the company had a pattern of age bias. Although Greene was replaced by someone older, the jobs of eight other executives in their 50s and 60s who were terminated around the same time were given to younger workers.
Employee Lost Out On Stock Option Value
Greene also claimed he lost out on 250,000 stock options that were about to vest. And in an interesting twist, he said that because he needed money to live on after he was fired, he was forced to exercise his already vested options and then sell the stock to raise cash. He claimed that had he waited until his planned retirement two years later, he would have made significantly more money because of the rise in the stock price. He contended that Safeway should reimburse him for this lost gain. Safeway denied its actions were illegal and argued that Greene wasn’t entitled to the unrealized stock option appreciation.
Huge Award For Employee
A jury sided with Greene, ordering Safeway to pay him a total of $6.7 million, including $4.4 million for the lost value of his stock options and $2.3 million for salary, bonuses and benefits he didn’t receive. Plus, the trial judge tacked on $810,786 for damages under the federal age bias law. A federal Court of Appeal recently upheld the award.
3 Ways To Avoid Litigation
Extreme caution is required before terminating a long-term employee, especially if the person is approaching retirement age and is close to receiving valuable retirement benefits. Here are three strategies:
- Offer severance. In sensitive cases, offer a severance package and obtain a signed release of age discrimination and other claims. Be sure to follow the special rules that apply to such waivers for workers age 40 or older. (See CEA October 1996 for details.)
- Address performance issues early. Before taking adverse action, provide the employee with counseling about performance problems along with a reasonable opportunity to improve—and document your efforts.
- Watch termination patterns. Even if you replace a worker with someone older, you could still get sued. Therefore, before taking action, it’s important to look closely at other recent or planned terminations to make sure there isn’t a pattern that a jury might believe suggests age bias.