I'll (Never) Be Your Beast of Burden?
Supreme Court Puts Yoke on Employers in Layoff Cases

No business wants to lay off employees. But, in tough economic times the belt occasionally tightens. When that happens, how do you decide who is laid off? If you are smart, you use some facially-neutral criteria based on your business needs, like performance or seniority. Is that good enough? Maybe, but only if you are able to carry the burden of proving that your criteria do not have an unfair impact on the basis of age.

On June 19, 2008, the Supreme Court of the United States held in a case of employee layoffs that had a disparate impact on older employees that the employer has the burden of both producing evidence and also the burden of persuading the court/jury that its reasons for selecting employees for layoff were based on reasonable factors other than the age, even when the employer has used even otherwise facially neutral criteria for deciding who stayed and who went in a layoff.

In Meacham v. Knolls Atomic Power Laboratory, the employer was a government contractor maintaining nuclear warships that was required by the government to reduce its workforce. Approximately 100 employees took a buyout, but that left Knolls with 31 positions that still had to be cut per the government's mandate. Knolls determined that the employees laid off would be selected by supervisors' (somewhat discretionary) rankings on "performance," "flexibility," and "critical skills." A factor for years of service was also added, but still 30 of the 31 employees selected were age 40 or over. A group of employees sued, claiming that the factors used had the discriminatory effect – regardless of the employer's intent – of selecting employees based on their age.

Although the court's holding turned largely on a legal interpretation of the design of the Age Discrimination in Employment Act (ADEA), at its core it decided that where there is a discriminatory impact on employees in a layoff situation it may be the employer that is required to prove the reasonableness of its selection criteria – as an affirmative defense to the lawsuit.

The court had previously held that if an employer classifies employees without respect to age (i.e., by performance or other "neutral" factors) it may still be liable under the ADEA if such classification adversely affects the employees because of their age – i.e., has a disparate (unequal) impact on older employees in the workforce. If that is the case, the court now holds, the employer may have the burden of producing evidence that its selection criteria are reasonable and of persuading the judge/jury of the same. The court even recognized that this may not always be fair: "there is no denying that putting employers to the work of persuading factfinders that their choices are reasonable makes it harder and costlier to defend than if employers merely bore the burden of production; nor do we doubt that this will sometimes affect the way employers do business with their employees. But at the end of the day . . . concerns have to be directed to Congress . . . ."

So what do you do when faced with conducting layoffs? First, use neutral selection criteria, such as seniority, department needs, or performance. Second – and this is the really critical step – review the statistical impact of the criteria you have used. Do the criteria tend to impact one particular class of employees (based on age or any other protected criteria)? Third, if such an impact exists, you may need to redefine your criteria to avoid such an impact.

The point to be taken from this decision is that layoffs and the selection criteria used to determine who is selected should not be undertaken lightly, but instead with the assumption that in the event you are called to question, you may have to bear the burden of proving the effect and reasonableness of the criteria used.

Ryan McCabe Poor is a partner at Ice Miller LLP. Ryan provides labor and employment law advice and counsel, including representation in litigation in state and federal court and before administrative bodies, collective bargaining negotiations, arbitrations, and labor relations services, assistance with employment contracts and separation agreements, and the development of policies, procedures, and training programs.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.