[Federal Register Volume 73, Number 62 (Monday, March 31, 2008)]
[Proposed Rules]
[Pages 16807-16809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6517]


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EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

29 CFR Part 1625

RIN 3046-AA76


Disparate Impact Under the Age Discrimination in Employment Act

AGENCY: Equal Employment Opportunity Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Equal Employment Opportunity Commission (``EEOC'' or 
``Commission'') is issuing this notice of proposed rulemaking 
(``NPRM'') to address issues related to the United States Supreme 
Court's decision in Smith v. City of Jackson. The Court ruled that 
disparate impact claims are cognizable under the Age Discrimination in 
Employment Act (``ADEA'') but that liability is precluded when the 
impact is attributable to a reasonable factor other than age. Current 
EEOC regulations interpret the ADEA as prohibiting an employment 
practice that has a disparate impact on individuals within the 
protected age group unless it is justified as a business necessity.

DATES: Comments must be received on or before May 30, 2008. The 
Commission will consider any comments received on or before the closing 
date and thereafter adopt final regulations. Comments received after 
the closing date will be considered to the extent practicable.

ADDRESSES: You may submit comments by any of the following methods:
     By mail to Stephen Llewellyn, Executive Officer, Executive 
Secretariat, Equal Employment Opportunity Commission, 1801 L Street, 
NW., Washington, DC 20507.
     By facsimile (``FAX'') machine to (202) 663-4114. (There 
is no toll free FAX number). Only comments of six or fewer pages will 
be accepted via FAX transmittal, in order to assure access to the 
equipment. Receipt of FAX transmittals will not be acknowledged, except 
that the sender may request confirmation of receipt by calling the 
Executive Secretariat staff at (202) 663-4070 (voice) or (202) 663-4074 
(TTY). (These are not toll free numbers).
     By the Federal eRulemaking Portal: http://www.regulations.gov. After accessing this web site, follow its 
instructions for submitting comments.
    Instructions: All comment submissions must include the agency name 
and docket number or the Regulatory Information Number (RIN) for this 
rulemaking. Comments need be submitted in only one of the above-listed 
formats, not all three. All comments received will be posted without 
change to http://www.regulations.gov, including any personal 
information you provide. Copies of the received comments also will be 
available for inspection in the EEOC Library, FOIA Reading Room, by 
advanced appointment only, from 9 a.m. to 5 p.m., Monday through Friday 
except legal holidays, from May 30, 2008 until the Commission publishes 
the rule in final form. Persons who schedule an appointment in the EEOC 
Library, FOIA Reading Room, and need assistance to view the comments 
will be provided with appropriate aids upon request, such as readers or 
print magnifiers. To schedule an appointment to inspect the comments at 
the EEOC Library, FOIA Reading Room, contact the EEOC Library by 
calling (202) 663-4630 (voice) or (202) 663-4641 (TTY). (These are not 
toll free numbers).

FOR FURTHER INFORMATION CONTACT: Dianna B. Johnston, Assistant Legal 
Counsel, or Lyn J. McDermott, Senior Attorney-Advisor, at (202) 663-
4638 (voice) or (202) 663-7026 (TTY). (These are not toll free 
numbers). This notice also is available in the following formats: large 
print, Braille, audio tape and electronic file on computer disk. 
Requests for this notice in an alternative format should be made to the 
Publications Information Center at 1-800-669-3362 (voice) or 1-800-800-
3302 (TTY).

SUPPLEMENTARY INFORMATION: In Smith v. City of Jackson, 544 U.S. 228 
(2005), the United States Supreme Court held that the ADEA authorizes 
recovery for disparate impact claims of discrimination. This holding 
validated the Commission's longstanding rule that disparate impact 
analysis applies in ADEA cases. The Court also held that the 
``reasonable factors other than age'' (``RFOA'') test, rather than the 
business-necessity test, is the appropriate standard for determining 
the lawfulness of a practice that disproportionately affects older 
individuals. This ruling differs from the EEOC's position that an 
employment practice that had a disparate impact on individuals within 
the protected age group could not be a reasonable factor other than age 
unless it was justified as a business necessity. The Commission 
proposes to amend its regulation to reflect the Supreme Court's 
decision.

Smith v. City of Jackson

    The Smith plaintiffs, senior police and public safety officers, 
alleged that the defendant City's pay plan had a disparate impact on 
older workers because it gave proportionately larger pay increases to 
newer officers than to more senior officers. Older officers, who tended 
to hold senior positions, on average received raises that represented a 
smaller percentage of their salaries than did the raises given to 
younger officers. The City explained that, after a survey of salaries 
in comparable communities, it raised the junior officers' salaries to 
make them competitive with those for comparable positions in the 
region. 544 U.S. at 241-42.
    The Fifth Circuit Court of Appeals dismissed the plaintiffs' 
disparate impact claim on the ground that such claims ``are 
categorically unavailable under the ADEA.'' Id. at 231. The Supreme 
Court disagreed and ruled that plaintiffs may challenge facially 
neutral employment practices under the ADEA. Id. at 233-40. The Court 
also ruled, however, that the ``scope of disparate-impact liability 
under the ADEA is narrower than under Title VII'' of the Civil Rights 
Act of 1964, 42 U.S.C. 2000e et seq.\1\ 544 U.S. at 240.
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    \1\ Title VII prohibits employment discrimination based on race, 
color, religion, sex, and national origin. In Griggs v. Duke Power 
Co., 401 U.S. 424 (1971), the Supreme Court first recognized the 
disparate impact theory of discrimination under Title VII. The Court 
held that Title VII prohibits not only intentional discrimination 
but also employment practices that, because they have a disparate 
impact on a group protected by Title VII, are ``fair in form but 
discriminatory in operation.'' Id. at 431.

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[[Page 16808]]

    In holding that disparate impact claims are cognizable under the 
ADEA, the Supreme Court relied in large part on the parallel 
prohibitory language and the common purposes of the ADEA and Title VII. 
Id. at 233-40. Accord McKennon v. Nashville Banner Pub. Co., 513 U.S. 
352, 358 (1995) (statutes share ``common substantive features'' and 
``common purpose: `the elimination of discrimination in the 
workplace''') (quoting Oscar Meyer & Co. v. Evans, 441 U.S. 750, 756 
(1979)). The Court noted that, in passing the ADEA, Congress was 
concerned that application of facially neutral employment standards, 
such as a high school diploma requirement, may ``unfairly'' limit the 
employment opportunities of older individuals. 544 U.S. at 235 n.5 
(quoting Report of the Sec'y of Labor, The Older American Worker: Age 
Discrimination in Employment 3 (1965), reprinted in U.S. EEOC, Leg. 
History of the ADEA 21 (1981)) (``Wirtz Report''). The Court observed 
that there is a ``remarkable similarity between the congressional 
goals'' of Title VII and ``those present in the Wirtz Report.'' 544 
U.S. at 235 n.5.
    At the same time, however, the Court identified two key textual 
differences that affect the relative scope of disparate impact 
liability under the two statutes. First, the ADEA contains the RFOA 
provision, which has no parallel in Title VII and precludes liability 
for actions ``otherwise prohibited'' by the statute ``where the 
differentiation is based on reasonable factors other than age.'' \2\ 
Id. at 240. Second, in reaction to the decision in Wards Cove Packing 
Co. v. Atonio,\3\ which ``narrowly construed the employer's exposure to 
liability on a disparate-impact theory,'' Congress amended Title VII 
but not the ADEA. 544 U.S. at 240 (citing the Civil Rights Act of 1991, 
sec. 2, 105 Stat. 1071). Accordingly, ``Wards Cove's pre-1991 
interpretation of Title VII's identical language remains applicable to 
the ADEA.'' 544 U.S. at 240.\4\
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    \2\ The Court found that the presence of the RFOA provision 
supported its conclusion that disparate impact claims are cognizable 
under the ADEA. 544 U.S. at 238-40. The RFOA provision ``plays its 
principal role'' in disparate impact cases, where it ``preclud[es] 
liability if the adverse impact was attributable to a nonage factor 
that was `reasonable.' '' Id. at 239. Comparing the RFOA provision 
with the Equal Pay Act provision that precludes recovery when a pay 
differential is based on ``any other factor other than sex,'' 29 
U.S.C. 206(d)(1), the Court found it ``instructive'' that ``Congress 
provided that employers could use only reasonable factors in 
defending a suit under the ADEA.'' 544 U.S at 239 n.11 (emphasis in 
the original).
    \3\ 490 U.S. 642 (1989).
    \4\ The ``identical'' language is in section 703(a)(2) of Title 
VII (42 U.S.C. 2000e-2(a)(2)) and section 4(a)(2) of the ADEA (29 
U.S.C. 623(a)(2)), which make it unlawful for employers ``to limit, 
segregate, or classify'' individuals in a manner that would deprive 
or tend to deprive any individual of employment opportunities or 
otherwise adversely affect his status as an employee, because of 
such individual's [protected status].
    The language of the two statutes significantly differs, however, 
with regard to the applicable defense. Unlike the ADEA, which 
provides a defense when the practice is based on a reasonable factor 
other than age (29 U.S.C. 623(f)(1)), Title VII provides a defense 
only when the practice is job related and consistent with business 
necessity (42 U.S.C. 2000e-2(k)(1)(A)).
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    Applying its analysis, the Court rejected the Smith plaintiffs' 
disparate impact claims on the merits. The Court ruled that the 
plaintiffs failed to satisfy Wards Cove's requirement that they 
identify a ``specific test, requirement, or practice within the pay 
plan that has an adverse impact on older workers.'' Id. at 241.
    In addition, focusing on the plan's purpose, design, and 
implementation, the Court found that the City's pay plan was based on 
reasonable factors other than age. The Court noted that the City 
grouped officers by seniority in five ranks and set wage ranges based 
on salaries in comparable communities. Most of the officers were in the 
three lowest ranks, where age did not affect officers' pay. In the two 
highest ranks, where all of the officers were over 40, raises were 
higher in terms of dollar amounts; they were lower only in terms of 
percentage of salary. The Court concluded that the plan, as designed 
and administered, ``was a decision based on a `reasonable factor other 
than age' that responded to the City's legitimate goal of retaining 
police officers.'' Id. at 242.
    Finally, the Court noted that, although ``there may have been other 
reasonable ways for the City to achieve its goals, the one selected was 
not unreasonable.'' Unlike Title VII's business necessity defense, 
which requires the employer to use the least discriminatory 
alternative, ``the reasonableness inquiry includes no such 
requirement.'' Id. at 243.

Revisions to Agency Regulations

    The Commission proposes to revise current paragraph 1625.7(d) to 
state that an employment practice that has an adverse impact on 
individuals within the protected age group on the basis of older age is 
discriminatory unless the practice is justified by a ``reasonable 
factor other than age'' (RFOA). This revision reflects the Supreme 
Court's conclusion that disparate impact claims are cognizable under 
the ADEA and that the RFOA test, rather than the business-necessity 
test, is the appropriate standard for determining the lawfulness of a 
practice that disproportionately affects older individuals.
    The proposed revision also states that the individual challenging 
the allegedly unlawful employment practice bears the burden of 
isolating and identifying the specific employment practice responsible 
for the adverse impact. As the Supreme Court stressed in Smith, ``it is 
not enough to simply allege that there is a disparate impact on 
workers, or point to a generalized policy that leads to such an impact. 
Rather, the employee is `responsible for isolating and identifying the 
specific employment practices that are allegedly responsible for any 
observed statistical disparities.' ''\5\
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    \5\ Smith v. City of Jackson, 544 U.S. 228, 241 (2005) (quoting 
Wards Cove, 490 U.S. at 656) (emphasis in Smith).
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    The Commission proposes to revise current paragraph 1625.7(e) to 
state that, when the RFOA exception is raised, the employer has the 
burden of showing that a reasonable factor other than age exists 
factually. This section reiterates the Commission's longstanding 
position that the RFOA provision creates an affirmative defense that 
the employer must establish.\6\
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    \6\ Until recently, most courts treated RFOA as an affirmative 
defense. See, e.g., Enlow v. Salem-Keizer Yellow Cab Co., Inc. 389 
F.3d 802, 807-08 (9th Cir. 2004) (in the context of a disparate 
treatment claim, characterizing the RFOA as an affirmative defense 
and holding that it was unavailable where the challenged practice is 
based on age), cert. denied, 544 U.S. 974 (2005); E.E.O.C. v. 
Johnson & Higgins, Inc., 91 F.3d 1529, 1541 (2d Cir. 1996) (same), 
cert. denied, 522 U.S. 808 (1997). However, the Second and Tenth 
Circuits have recently concluded that defendants bear only the 
burden of production, not the burden of persuasion, on the issue. 
Meacham v. Knolls Atomic Power Lab., 461 F.3d 134, 141-43 (2d Cir. 
2006), cert. granted, 76 U.S.L.W. 3391 (U.S. Jan. 18, 2008) (No. 06-
1505); Pippin v. Burlington Res. Oil & Gas Co., 440 F.3d 1186, 1200 
(10th Cir. 2006). But see Meacham, 461 F3d at 147-53 (Pooler, J., 
dissenting) (RFOA is an affirmative defense). The court in EEOC v. 
Allstate Ins. Co., 458 F. Supp. 2d 980 (E.D. Mo. 2006), 
certification for interlocutory appeal on other grounds granted, 
2007 WL 38675 (E.D. Mo. Jan. 4, 2007), did not analyze the issue but 
followed the lead of Pippin and Meacham to conclude that the 
defendant did not bear the burden of proof. For the reasons 
explained in the text and accompanying footnotes, the Commission 
disagrees with Meacham and Pippin and concludes that the RFOA burden 
of proof rests with the employer.
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    Requiring the employer to bear the burden of proof is consistent 
with the language and structure of the ADEA. The RFOA provision is 
found in section 4(f)(1) of the ADEA, which states that ``[i]t shall 
not be unlawful for an employer * * * to take any action otherwise 
prohibited [by the ADEA] where age is a bona fide occupational 
qualification [''BFOQ''] reasonably

[[Page 16809]]

necessary to the normal operation of the particular business, or where 
the differentiation is based on reasonable factors other than age.'' 29 
U.S.C. 623(f)(1). Since the employer indisputably bears the burden of 
proving BFOQ,\7\ the most natural construction of section 4(f)(1) as a 
whole is that the employer similarly bears the burden of proving RFOA. 
In addition, when Congress enacted the Older Workers Benefit Protection 
Act (``OWBPA'') amendments to the ADEA in 1990, it specifically stated 
that the employer bears the burden of proof on the RFOA affirmative 
defense in section 4(f)(1). S. Rep. No. 101-263, at 30 (1990), as 
reprinted in 1990 U.S.C.C.A.N. 1509, 1535 (noting that Congress was 
incorporating into section 4(f)(2) ``the language of [section] 4(f)(1) 
that is commonly understood to signify an affirmative defense''). This 
approach also is consistent with the allocation of burdens under the 
Equal Pay Act of 1963, 29 U.S.C. 206(d)(1), which precludes liability 
when the employer establishes that a pay differential is ``based on any 
other factor other than sex,'' 29 U.S.C. 206(d)(1)(iv).\8\ The Smith 
Court did not need to discuss the burden of proof because the 
employer's actions were so eminently reasonable that it easily 
prevailed regardless of who bore the ultimate burden.
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    \7\ See Smith, 544 U.S. at 233 n.3 (2005) (referring to the BFOQ 
provision as ``an affirmative defense to liability'').
    \8\ Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974) 
(shifting the burden of proof to the employer ``is consistent with 
the general rule that the application of an exemption under the Fair 
Labor Standards Act is a matter of affirmative defense on which the 
employer has the burden of proof'').
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    The Commission invites comments on these proposed changes from all 
interested parties. The Commission also invites comments on whether the 
regulations should address other matters concerning the application of 
the disparate impact theory of discrimination under the ADEA. In 
particular, the Commission would welcome comments on the following 
specific question:
    1. Should the regulations provide more information on the meaning 
of ``reasonable factors other than age''? If so, what should the 
regulations say? For example, should the regulations refer to tort law 
standards such as negligence and reasonable standard of care when 
addressing the meaning of ``reasonable''? Should the regulations offer 
factors relevant to whether an employment practice is based on 
reasonable factors other than age? If so, what should those factors be?

Regulatory Procedures

Executive Order 12866

    Pursuant to Executive Order 12866, EEOC has coordinated this 
proposed rule with the Office of Management and Budget. Under section 
3(f)(1) of Executive Order 12866, EEOC has determined that the 
regulation will not have an annual effect on the economy of $100 
million or more or adversely affect in a material way the economy, a 
sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State or local tribal 
governments or communities. Therefore, a detailed cost-benefit 
assessment of the regulation is not required.

Paperwork Reduction Act

    This proposal contains no new information collection requirements 
subject to review by the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35).

Regulatory Flexibility Act

    The Commission certifies under 5 U.S.C. 605(b) that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities because it imposes no economic or reporting 
burdens on such firms and makes no change to employers' compliance 
obligations under the Act. Instead, the proposed rule brings the 
Commission's regulations into compliance with a recent Supreme Court 
interpretation of the Act. For this reason, a regulatory flexibility 
analysis is not required.

Unfunded Mandates Reform Act of 1995

    This proposed rule will not result in the expenditure by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year, and it will not 
significantly or uniquely affect small governments. Therefore, no 
actions were deemed necessary under the provisions of the Unfunded 
Mandates Reform Act of 1995.

List of Subjects in 29 CFR Part 1625

    Advertising, Age, Employee benefit plans, Equal employment 
opportunity, Retirement.

    Dated: March 25, 2008.

    For the Commission.
Naomi C. Earp,
Chair.
    For the reasons set forth in the preamble, the Equal Employment 
Opportunity Commission proposes to amend 29 CFR chapter XIV part 1625 
as follows:

PART 1625--AGE DISCRIMINATION IN EMPLOYMENT ACT

    1. The authority citation for part 1625 continues to read as 
follows:

    Authority: 81 Stat. 602; 29 U.S.C. 621; 5 U.S.C. 301; 
Secretary's Order No. 10-68; Secretary's Order No. 11-68; Sec. 9, 81 
Stat. 605; 29 U.S.C. 628; sec. 12, 29 U.S.C. 631, Pub. L. 99-592, 
100 Stat. 3342; sec. 2, Reorg. Plan No. 1 of 1978, 43 FR 19807.

Subpart A--Interpretations

    2. Revise paragraphs (d) and (e) of Sec.  1625.7 to read as 
follows:


Sec.  1625.7  Differentiations based on reasonable factors other than 
age.

* * * * *
    (d) Any employment practice that adversely affects individuals 
within the protected age group on the basis of older age is 
discriminatory unless the practice is justified by a ``reasonable 
factor other than age.'' An individual challenging the allegedly 
unlawful practice is responsible for isolating and identifying the 
specific employment practice that is allegedly responsible for any 
observed statistical disparities.
    (e) Whenever the exception of ``a reasonable factor other than 
age'' is raised, the employer bears the burden of proving that the 
``reasonable factor other than age'' exists factually.
* * * * *
 [FR Doc. E8-6517 Filed 3-28-08; 8:45 am]
BILLING CODE 6570-01-P