Kentucky Retirement Systems v. EEOC

Does the KRS plan facially violate the ADEA?

The Sixth Circuit Court of Appeals, sitting en banc, found that the Kansas retirement statute facially violates the Age Discrimination in Employment Act, 29 U.S.C. ? 621 et seq ("ADEA"), as amended by the Older Workers Benefits Protection Act, 29 U.S.C. ? 621 ("OWPBA") under a disparate treatment theory of discrimination.  Discrimination may be proved by either one of two standards of proof.  Under a disparate treatment theory of discrimination, by contrast to the disparate impact theory, a plaintiff must prove that the employer treated the employee differently by virtue of his or her age, and that the age, itself, motivated that discrimination.  For example, an employer disparately treats an employee when the employee is denied a benefit because the employee is over the age of 40, and the employer made the distinction because it intended to disfavor older employees.  In this case, the en banc court held that because the retirement plan ("KRS plan") facially violated the ADEA, the requirement of intent was satisfied.  ?In other words, the en banc court reasoned that because Kentucky purposely structured the statute to favor employees ineligible for normal retirement, regardless of whether it chose to do so maliciously, it was clearly on notice that it was treating older employees less favorably. 

The defendants challenge this finding by emphasizing their intention in providing retirement-disability benefits  They assert that the Commonwealth of Kentucky meant only to provide a benefit to disabled employees yet ineligible to receive normal retirement benefits.  Similarly, they argue that the only purpose of adding years (of either age or service, whichever is lesser) to a disabled employee's calculation for determining benefits is not to disfavor older employees, but to provide younger employees a meaningful benefit that will actually mitigate the lifelong hardship of disability. 

The defendants rely on the U.S. Supreme Court case Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993).  In that case, the employer fired an employee, not because of his age, but because his right to receive retirement benefits was about to vest.  The retirement statute in that case granted retirement benefits when an employee worked for 10 years and did not consider age at all.  The Court ruled that the employer did not violate the ADEA because age and years of service are analytically distinct, and the ADEA prohibits conduct based only on age.  As the employer intended to avoid paying retirement benefits, and not to treat the employee unfavorably on the basis of his age, the Court ruled that the employer acted outside of the ADEA's prohibition.  In their brief, the defendants argue that the KRS plan, like Hazen Paper, provides for individuals to receive different levels of benefits on the basis of eligibility for normal retirement, and not age.  Accordingly, as the Court considered age and years of service analytically distinct in Hazen Paper, the Court here should treat age and eligibility for normal retirement as analytically distinct.  Thus, the defendants assert that because the significant factor is whether the employee is eligible for normal retirement the Court should find that here, as in Hazen Paper, their actions lay outside of the ADEA's prohibition. 

In turn, the Equal Employment Opportunity Commission ("EEOC") asks the U.S. Supreme Court to affirm the en banc courts' finding of facial discrimination.  In its brief, the EEOC summarizes the ADEA mandate: the Act generally forbids discriminatory preference for the younger over the old in providing benefits to employees 40 and older, and requires the employer to ignore an employee's age, absent a statutory exemption or defense.   The EEOC argues that as the KRS plan considers the employee's age in at least two ways, the retirement scheme falls within the ADEA prohibition by relying on age as a distinguishing factor.  The EEOC reasons that because age is a factor in determining whether one is eligible for normal retirement, the consideration of age directly affects whether an employee may receive disability-retirement benefits.  The EEOC also challenges the defendants' use of Hazen Paper.  Unlike the employer there, the EEOC argues the KRS program cannot ignore an employee's age as the ADEA requires.  Instead, when a disabled employee applies for retirement benefits, Kentucky law mandates consideration of the applicant's age to determine whether the employee is eligible for normal retirement benefits, and if not, whether, and to what extent, the employee will be credited with additional years of service for purposes of calculating his or her disability-retirement benefit. 

The EEOC relies on the Supreme Court case, City of Los Angeles Department of Water & Power v. Manhart, 435 U.S. 702 (1991).  In that case, the retirement plan at issue paid equal monthly retirement benefits to similarly situated men and women, but required female employees to make larger monthly contributions to the pension fund.  The Court acknowledged that, in setting a higher contribution rate for female employees, the employer had not relied on stereotyped impressions of men or women.  Rather, the employer had based its decision on a generalization the parties accepted as unquestionably true: women, as a class, do live longer than men.  The Court held that the retirement plan facially violated Title VII of the 1964 Civil Rights Act, 42 U.S.C. 2000e et seq, ("Title VII") and as such, the employer's motive was irrelevant.  In applying the ADEA to the facts of this case, the en banc court of appeals relied on Manhart and similar cases. 

The ADEA and Title VII of the Civil Rights Act of 1964

Discrimination against employees on the basis of age is prohibited by the ADEA, while discrimination against employees on the basis of other characteristics is governed by Title VII.  In instances of Title VII discrimination, a statute that facially violates the Act satisfies the plaintiff's burden of proof in establishing a prima facie case.  In applying the same rule to this case, the en banc court interpreted the ADEA as substantively identical to Title VII in this regard. 

Pointing to events leading to the inception of the ADEA, the defendants argue that the en banc court erred in interpreting the Act in accordance with Title VII.  Congress considered including age as a protected class in the Civil Rights Act of 1964, but declined to do so because of concerns that employers might sometimes have a legitimate basis for making age-related employment decisions.  In 1965 a study conducted by then-Secretary of Labor Willard Wirtz reported that, in contrast to discrimination based on race, ethnicity, or gender, discrimination against older employees arose not from dislike or intolerance, but from an unfounded assumption that they were less able to perform their job because of their age.  The Secretary of Labor described this type of discrimination as "arbitrary" discrimination. . At Congress' request, Secretary Wirtz drafted legislation to address age discrimination in the workplace, which was enacted as the ADEA.  The ADEA explicitly prohibits this sort of "arbitrary" discrimination. 

The defendants argue that Congress intended the ADEA to meet a need separate and distinct from that addressed by Title VII.  Whereas Congress explicitly intended Title VII to address an acknowledged dislike or intolerance of individuals because of their age or sex, here, the defendants argue that Congress intended only to protect older workers from unfair termination on the basis of unfounded stereotypes that they were no longer able to work effectively because of their age.  Further, the defendants assert the sequence of events suggests that the term "arbitrary," undefined in the ADEA, should be interpreted in accordance with Secretary Wirtz' report.  As such, the defendants argue that the KRS plan does not exhibit arbitrary discrimination, and instead uses age as only one factor in determining eligibility for normal retirement.  As a result, the KRS plan does not facially violate the ADEA, and the en banc court erred in its interpretation. 

In response, the EEOC explains that the ADEA incorporated the substantive meaning of Title VII in haec verba, or in verbatim.  The EEOC relies on the Supreme Court case TWA v. Thurston, 469 U.S. 111, 121 (1985).  In that case, the Supreme Court explained that because substantive provisions of the ADEA were derived exactly from the Civil Rights Act of 1964, an interpretation of Title VII that prohibits unequal provision of benefits applies with equal force in the context of age discrimination.  Thus, the EEOC claims, the en banc court correctly applied the ADEA to the facts before them. 

The Older Workers Benefit Plan and the ADEA

The EEOC also suggests that intervening events reflect that Congress expanded its understanding of the ADEA after its inception.  In particular, it points to the Supreme Court case Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158 (1989). . In that case, the Supreme Court found that a retirement plan materially indistinguishable from the KRS plan met a statutory exception to the ADEA. The EEOC asserts that the Supreme Court there found the retirement plan to facially violate the ADEA.  The Betts court acknowledged that the trial court found the retirement plan facially violated the ADEA, and wrote, "[o]n its face, the [retirement] statutory scheme renders covered employees ineligible for disability retirement once they have reached age 60." 

The defendants deny that this text means that the Supreme Court found a facial violation because the Court never explicitly states it.  The EEOC counters by pointing out that the Court resolved the Betts decision on the basis of an affirmative defense, which become relevant only if the plaintiff has proven a prima facie case.  Instead, the Court would simply have dismissed the case as the plaintiff has failed to prove that the defendant violated the ADEA. 

The Betts case sheds light as well on the congressional intent behind the ADEA.   Approximately 16 months after the Betts decision was handed down, Congress enacted the Older Workers Benefits Protection Act, amending the ADEA, 29 U.S.C. ?621 et seq.   Congress drafted the amendment because they found that as a result of the Betts decision, "legislative action [was] necessary to restore the original congressional intent in passing and amending" the ADEA, "which was to prohibit discrimination against older employees in all employee benefits except when age-based reductions in employee benefit plans are justified by significant cost considerations."  The EEOC characterizes this as evidence that Congress intended the ADEA to have a wider breadth than initially evidence by the Wirtz report.   In turn,the defendants argue that Congress did not intend to broaden the scope of the ADEA, but only intended to clarify its intent to protect against age discrimination in the provision of benefits. 

Concerns of Retirement Program Administrators

Several of the amicus curiae briefs demonstrate concern about the potential implications of the en banc court's ruling. See ; ; ;  One organization points out that 25 million people currently rely on existing retirement plans. See e.g.  at 4. Thus, a change in retirement eligibility or benefit amounts, or even damage awards for injured retirees, would result in exorbitantly large payments that may endanger the health of the retirement industry.  Moreover, they urge the Court to adopt a conservative approach that will tend to leave the existing plans as they are. 

A brief submitted on behalf of several states suggests that the en banc court's application of the ADEA upsets the appropriate balance of power between the federal and state governments.  at 10. The states are concerned that the en banc court's ruling will force them to change their statutory and constitutional framework to comply with the new interpretation of the ADEA.  Their concern appears largely influenced by a fear that they will not be able to consider age as a factor in providing retirement.  While the EEOC does not directly address these concerns in its brief, it does emphasize that it does not challenge the use of age in providing retirement benefits.  at 28. The EEOC argues only that Kentucky's provision of greater benefits to younger employees, and its' categorical exclusion of older employees from receiving disability-retirement benefits violates the ADEA. 

Some organizations, which administer retirement programs to thousands of people, argue that if the Supreme Court affirms the en banc court's ruling, many states will have to adjust their statutory framework to comply.  They suggest that some states may even have to alter their constitutions.  The National Association of Counties, et al, pointed out that disability-retirement programs such as the KRS plan performed an important role in staffing much-needed hazardous positions.  Thus, they explained, the en banc court's ruling frustrates the state in satisfying their legitimate interest in hiring such employees as firemen and police officers.  The EEOC explained in its brief to the Court that it did not challenge the provision of disability-retirement benefits.  Instead, it challenges only the provision of greater benefits to younger employees and the express exclusion of older employees from receiving disability-retirement benefits.