Alaska Employment Law

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Introduction

The United States Supreme Court issued an opinion yesterday, June 19, 2008, in Kentucky Retirement Systems v. EEOC in which the Court reversed an en banc panel of the Sixth Circuit, and held that Kentucky’s retirement plan did not violate the Age Discrimination in Employment Act (ADEA) even though it used age as a factor, in part, to calculate benefits. This summary briefly reviews the case and its significance.

The Case

Kentucky has a public employee retirement plan that has normal and disability retirement benefits. An employee eligible for normal retirement benefits is not eligible for disability retirement benefits. Eligibility for normal retirement benefits is a combination of age and minimum service requirements. Thus, age is an indirect factor in determining benefits. The plan allows certain hazardous positions (police, for example) to receive normal retirement benefits after either (1) working for 20 years, or (2) working for 5 years and reaching the age of 55. The plan also allows employees who are seriously disabled to retire immediately and receive benefits. Some disabled employees could be treated more favorably than other disabled employees on the basis of age. This is because, for disabled employees, the plan adds “imputed years” to the employee’s actual years of service to bring them up to one of the two normal retirement levels (20 years of service or age 55 with 5 years). Thus, if an employee had worked for 17 years and became disabled at the age of 40, the plan would add 3 years and calculate benefits as if the employee had worked 20 years. But if an employee had worked for 17 years and became disabled at the age of 54, the plan would add 1 year and calculate benefits as if the employee had retired at the age of 55 with 18 years of service. The employee who became disabled at an older age would receive fewer benefits.

The EEOC filed suit alleging that the policy denied benefits or paid reduced benefits because of age. The district court disagreed, noting that the policy did not discriminate based on age but instead merely recognized age as concomitant with a retirement plan (any retirement plan). The Sixth Circuit affirmed, observing that the policy’s interplay with age only reflected an “actuarial reality” and nothing else. However, en banc review was sought and granted, and the full court reversed 10-4. The majority concluded that the use of age as a factor excluded employees who were 55 or over from receiving a particular retirement benefit (disability) and that the policy also could be applied to  deny retirement benefits even though younger employees would be eligible for those. The majority noted that four other circuits, including the Ninth Circuit, had held that similar policies gave rise to ADEA violations.

The four dissenting judges viewed the policy as being non-discriminatory in scope and application, and as using age only in the sense of it being an actuarial reality that would be found in any retirement-based plan. The dissent viewed the policy as simply reflecting a way by which an employee who became disabled before being eligible for normal retirement benefits could receive retirement benefits equal or close to what he or she would have received if no disability was suffered.

The Opinion

The United States Supreme Court reversed on a 5-4 vote.  Justice Breyer wrote for the majority, and was joined by Chief Justice Roberts and Justices Stevens, Souter, and Thomas. The majority concluded that pension status was not a proxy for an impermissible age bias. The majority noted that age and pension status are different concepts, and that Kentucky’s plan was a general plan applicable to all employees, making it unlikely that any decision was made that impermissibly targeted any one particular employee. Under Hazen Paper, a 1993 disparate treatment (intentional discrimination) ADEA case, the Court emphasized that an age discrimination claim required proof that the challenged decision was made because of age. No such evidence existed here. The majority also observed that Congress had devised somewhat similar plans in different contexts, and pointed out that in some cases older workers could be treated more favorably under Kentucky’s plan.

Justice Kennedy dissented. Justices Scalia, Ginsburg, and Alito joined his dissent. The dissent viewed this case as turning on the fact that Kentucky’s plan used age as a factor in a manner that could discriminate against older workers. This, the dissent felt, violated the ADEA without further inquiry. Indeed, the dissent highlighted the fact that, until now, all Circuit Courts of Appeal that had examined this issue had struck down retirement plans that relied on similar age factors as Kentucky’s plan did. The dissent also interpreted the Older Workers Benefit Protection Act as prohibiting employers from adopting benefit plans that discriminated on the basis of age, and determined that Kentucky’s plan did just this.

In my annual term preview for the U.S. Supreme Court’s 2007-08 Term issued in September 2007, I predicted:

In Kentucky Retirement Systems, I believe the Court will reverse. I think this case is conceptually similar to Smith v. City of Jackson, the 2005 ADEA case in which the Court rejected the employees’ disparate impact theories because reasonable factors other than age existed to support the employer’s policy. Is any consideration of “age” arbitrary and thus a violation of the ADEA? Not all age discrimination in employment is actionable.

A surprisingly (to me) slim majority agreed with the reasoning underlying my forecast.

Significance

This is a difficult case to fit within the capsule of a short summary, and it is hard to draw too many lessons from the majority’s opinion because this case turned on the application of specific facts unique to the case before the Court. However, I think it is not too far off base to predict that most commentators and courts will likely understand this case as allowing a bit more leeway for employers to use age as a factor in employee benefit plans or general employment policies particularly where, as here, the plan or policy could benefit older workers in some instances and there was no discernible evidence that anything was done to discriminate because of an employee’s age.

Conclusion

This legal summary is for informational purposes and is not intended as legal advice. Employers with questions or seeking additional information should confer with counsel.