SUPREME COURT ISSUES FLURRY OF EMPLOYMENT DECISIONS

On June 19, 2008, the U.S. Supreme Court decided four employment cases:

- Meacham v. Knolls Atomic Power Laboratory, in which the Supreme Court held that the employer has the burden of proving that some legitimate explanation other than age is the reason for an employment action that disproportionately affects older workers.

- Kentucky Retirement Systems v. EEOC, in which the Supreme Court held that a state retirement system did not discriminate against employees who become disabled after reaching retirement-eligible age, although younger workers received more favorable treatment under the system.

- Chamber of Commerce v. Brown, in which the Supreme Court held that portions of California Assembly Bill 1889 seeking to regulate employer speech about union organizing are preempted by the National Labor Relations Act (NLRA).

- Metropolitan Life Insurance Co. v. Glenn, in which the Supreme Court held that an insurance company serving as a plan administrator has a conflict of interest in both evaluating and paying benefits claims for employees, and that a judge should take this into account when reviewing a denial of benefits claim.

Meacham v. Knolls Atomic Power Laboratory

Facts of the Case: The employer, Knolls Atomic Power Laboratory, conducted a reduction in force in which employee were scored on “performance,” “flexibility,” and “critical skills,” along with points for years of service. Of the 31 employees selected for layoff, 30 were over the age of 40. Of those employees, 28 sued for violation of the Age Discrimination in Employment Act (“ADEA”), arguing that the workforce reduction process had an unlawful disparate impact on older workers.

The Court’s Ruling: The ADEA provides that an employer may take an action that would be otherwise prohibited “where the differentiation is based on reasonable factors other than age,” (also known as the “RFOA exemption”). At issue in the case was who bears the burden of proving the reasonableness or unreasonableness of the employer’s factors. Looking to the language and structure of ADEA, the Supreme Court determined that the RFOA exemption is an affirmative defense and that the employer bears the burden of proving it. The Court observed that a plaintiff still has the burden of identifying the specific employment practices causing the disparate impact on older workers.

The ruling in this case will pose enhanced risks for employers in age discrimination cases involving the application of subjective criteria where this results in an adverse impact on older workers.

Kentucky Retirement Systems v. EEOC

Facts of the Case: The plaintiff, who had become disabled after reaching retirement age (i.e., 55), claimed that he was a victim of age discrimination because, under Kentucky’s plan, he was not eligible for an increase in his pension benefits based on the number of years he otherwise would have continued working absent the disability. In contrast, under Kentucky’s plan, workers who become disabled before reaching 20 years of service or before turning age 55 would receive pension benefits based on the number of years needed to bring the disabled worker’s years of service to 20 or to the number of years the individual would have worked by the time he or she turned 55. Thus, the plaintiff claimed he was treated less favorably than younger workers, in violation of the ADEA.

The Court’s Ruling: The Supreme Court found that, even though the system worked to the disadvantage of an older worker in this case, it did not violate the ADEA. The Court relied heavily on its prior decision in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993). There, the Court held that a plaintiff alleging age discrimination on the basis of disparate treatment must show that their age actually played a role in the employer’s decision making process and had a determinative influence on the outcome. The Court in that case rejected a claim of age discrimination by an employee whose dismissal was motivated by his pension status, noting that although pension status depended upon years of service, and years of service typically go hand in hand with age, the two concepts are “analytically distinct.” In this case, the Court noted, Kentucky’s plan simply seeks to treat all disabled employees as if they had worked to a point at which they would be eligible for a normal pension. The disparity in treatment between older workers who become disabled after retirement age and those who become disabled before retirement age is based strictly upon pension eligibility, and does not rest upon any of the stereotypical assumptions about older workers that the ADEA sought to eradicate.

This decision will have limited impact on most employers, as the practice at issue is not used frequently.

Chamber of Commerce v. Brown

Facts of the Case: Two provisions of a California statute known as "Assembly Bill 1889" – §16645.2, applicable to grant recipients, and §16645.7, applicable to private employers receiving more than $10,000 in program funds in any year – prohibit several classes of employers that receive state funds from using the funds "to assist, promote, or deter union organizing." The prohibition encompasses any attempt by an employer to influence employee decisions whether to support or oppose a labor organization and whether to become a member of a labor organization. Despite the foregoing neutral policy statement, the statute expressly exempted certain activities performed or expenses incurred with certain actions that promoted unionization, including allowing union access to employer facilities or property and negotiating, entering into or carrying out a voluntary recognition agreement with a union. The Chamber of Commerce argued that the National Labor Relations Act (“NLRA”) preempted the provisions of the statute regulating employer speech about union organizing under circumstances in which Congress intended free debate.

The Court’s Ruling: The Supreme Court held that the challenged statutory provisions are preempted by the NLRA under Machinists v. Wisconsin Employment Relations Comm'n, 427 U.S. 132, 140 (1976) because they regulate within a "zone protected and reserved for market freedom." The Court relied on the 1947 Taft-Hartley amendments to the NLRA, specifically §8(c), which protects from NLRB regulation non-coercive speech by both unions and employers about labor organizing. In this regard, the Court noted that California's policy judgment that partisan employer speech necessarily interferes with an employee's choice about union representation is the same policy judgment that Congress rejected when it passed the Taft-Hartley Act.

This is an important decision. A contrary ruling would have opened the door to other state and local laws like the California law that was ruled preempted.

Metropolitan Life Insurance Co. v. Glenn

Facts of the Case: Metropolitan Life Insurance Company (“MetLife”) serves as insurer and plan administrator for the employer’s long-term disability insurance plan, which is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). As administrator, MetLife has discretionary authority to assess the validity of an employee’s benefit claim. As insurer, MetLife has responsibility to pay the claim. An employee was denied benefits, and sought judicial review of the denial under ERISA, claiming that MetLife’s two roles constituted a conflict of interest.

The Court’s Ruling: The Supreme Court held that MetLife dual roles were a conflict of interest. It observed that where an employer both funds the plan and evaluates the claims, such a conflict clearly exists. With regard to the situation where a professional insurance company serves in both roles, the Court found that “the employer’s own conflict may extend to its selection of an insurance company to administer its plan” and that the insurance company also had a conflict of interest. The Court concluded that such conflict was a factor that a judge, in reviewing the lawfulness of a benefits denial, should take into account. The Supreme Court stated that the significance of this factor would depend on the circumstances of each case.

Employers who fund and administer benefit plans of the sort at issue in MetLife must be prepared to meet a high burden in justifying benefit denials. Depending upon the facts, a similar high standard can apply to instances where an employer vests another company with the same responsibilities.

Shawe Rosenthal, LLP provides this publication for informational purposes, and it should not be construed or relied upon as legal advice. You should contact your Shawe Rosenthal, LLP lawyer to discuss any questions that you may have concerning your own situation.