70 West Madison St.
Chicago, Illinois 60602
Reduction in Force Strategies
Age Discrimination in Employment Act, 29 U.S.C.§151
et seq. ("ADEA"),
generally prohibits discrimination on the basis of age in
employment decisions. Subject
employers (those with 20 or more employees for each working day in
each of 20 or more calendar weeks during the current or preceding
calendar year that are engaged in an "industry
should conduct any reduction in force ("RIF")
in order to minimize ADEA exposure.
Further, employers who offer severance incentives, either
in connection with a RIF or as an alternative to a RIF, also
typically secure from terminating employees a comprehensive
release of claims as a quid pro quo.
Such releases, to the extent they cover ADEA claims, must
meet very specific statutory requirements, including a 45 day
period in which to consider and sign the release (a 21 day period
applies if there is no "group
of employees being offered the incentive/release package).
exposure will be presented any time an employee subject to a RIF
can prove a prima facie case by showing:
that he was within the protected age group (age 40 and
that he was performing in accordance with the employer's
that he was terminated; and
that others not in the protected class were treated more
v. WLS-TV, 846 F.2d 448, 455 (7th Cir. 1988).
in other Title VII cases, the employer must rebut a prima facie
case by articulating a legitimate non-discriminatory reason for
its action. If the
employer does so, the plaintiff must then demonstrate that the
justification is a pretext in order to prevail.
strategies to minimize ADEA exposure generally fall in the
Action taken pursuant to a "bona
fide seniority system"
is exempt by statute from ADEA liability so long as the action is
not a subterfuge to evade the purpose of the ADEA.
29 U.S.C. §623(f)(2)(A).
If layoffs are done on a Alast
hired, first fired@
basis, no ADEA liability should attach.
However, this pattern is usually inconsistent with the
decision to eliminate departments, shifts or job categories instead
of selecting individuals for layoffs can usually be justified as an
exercise of business judgment which courts are reluctant to
second-guess. See, e.g.,
Kephart v. Institute of Gas Technology, 630 F.2d 1217, 1223
(7th Cir. 1980), wherein it is stated that the ADEA "was
not intended as a vehicle for judicial review of business decisions,"
and courts "will
not inquire into the defendant=s
method of conducting its business. . ."
To the extent the company may tie its RIF to the elimination
of product lines or staff "departments,"
this defense may be of some value.
Employers can establish specific RIF procedures to identify
employees to be laid off on a performance basis.
Normally this is a two step procedure involving written
performance appraisals based on procedures stressing "objective"
criteria with review by a specially established RIF committee
empowered to compare performance appraisals and make final RIF
decisions. Once the RIF
committee prepares a performance based list of employees who are not
to be retained, the list should be reviewed to determine whether it
adversely impacts any group by sex or race.
An adverse impact based on age may be tolerated, at least in
the Seventh Circuit. See
Dorsch v. L.B. Foster Co., 782 F.2d 1421, 1427 n. 6 (7th Cir.
1986), quoting with approval Laugesen v. Anaconda Co., 510
F.2d 307, 313 (6th Cir. 1975) as follows:
the usual case, absent any discriminatory intent, discharged
employees will more often than not be replaced by those younger than
they, for older employees are constantly moving out of the labor
market, while younger ones move in.
Bona fide executives or high policy makers for two years
before retirement may be subject to compulsory retirement at age 65
if they will receive at least $44,000 in annual retirement benefits,
or the equivalent. 29
ADEA exposure can be reduced or eliminated with a severance
program or other incentives to induce employees to "voluntarily"
terminate employment. An
employer is specifically permitted by the ADEA to "observe
the terms of a . . . voluntary early retirement incentive plan,"
29 U.S.C. §623(f)(2)(B)
(ii), although such programs should not exclude any employees on the
basis of a maximum age, such as age 65.
above presents a full plate of options and issues, independent of
any consideration of the structure of a severance or retention
program, which is beyond the scope of this article.
Golan & Christie LLP
70 West Madison St.
Chicago, Illinois 60602