Age discrimination claims of retirement-eligible employees who opted not to retire, and as a result did not receive a distribution from the liquidation of a trust that provided unemployment benefits to laid-off employees, failed. The Seventh Circuit found that although the liquidation plan had a disparate impact on older workers, it was justified by several reasonable factors other than age. First, the liquidation achieved a long-standing financial objective of Caterpillar to eliminate the costly unemployment benefits. It also saved money by incentivizing early retirement and reducing administrative expenses, and it contributed to labor peace between the employer and a union (O’Brien v. Caterpillar Inc., August 20, 2018, Sykes, D.).
Unemployment benefit plan. Until 2012 every collective bargaining agreement between Caterpillar and the Machinists union included a pension plan and a supplemental unemployment benefit plan. Under the unemployment plan, Caterpillar made monthly contributions to a trust that paid benefits out to laid-off employees. In 2012, Caterpillar and the union agreed to end the unemployment plan. In exchange for the elimination of the benefits, Caterpillar distributed $7.8 million to certain employees who had participated in the plan. Retirement-eligible employees received a pro rata share if they agreed to retire. Those who were ineligible to retire received the same pro rata share of the fund but with no strings attached.
Disparate impact alleged. At the time the CBA was ratified, there were 269 employees who participated in the unemployment plan. Of those, 184 were eligible to retire, and 136 opted to retire to collect a share of the fund. However, a group of 48 retirement-eligible employees opted not to retire and as a result did not receive a distribution. They brought this lawsuit, alleging that the liquidation plan had a disparate impact on older workers and accordingly violated the ADEA. Caterpillar moved for summary judgment.
The district court granted Caterpillar’s motion. It held that the employees could not make out a prima facie case of age discrimination because (1) the unemployment-plan liquidation was a one-time decision that did not constitute a practice or policy, and (2) the liquidation treated workers differently based on retirement eligibility, not age. In the alternative, the district court held that any disparate impact on older workers was based on a reasonable factor other than age.
Employment practice. To establish a prima facie disparate-impact claim, the employees must (1) identify a specific employment practice and (2) offer statistical evidence demonstrating that the identified practice caused a significant age-based disparity.
As an initial matter, Caterpillar asserted that the cumulative effect of an “assortment of documents” did not constitute a single policy and that any age disparity was attributable to the definitions for retirement eligibility and for participation in the unemployment plan. Both definitions predated the liquidation plan; neither depended solely on age. The employees specifically identified a cause for the disparate impact: Caterpillar’s decision to condition benefits or retirement eligibility, a status strongly correlated with age.
Next, Caterpillar argued that because the liquidation plan was a “one-off event,” it did not constitute an actionable practice or policy. However, the Seventh Circuit observed that though the liquidation plan was a single event, it applied the same rules to hundreds of employees and caused significant age-based disparities between workers. As a result, it was an actionable policy.
Disparate impact. Caterpillar also argued that the employees failed to demonstrate that the liquidation plan had an age-related disparate impact. Under the pension plan, retirement eligibility depended on a combination of age and a factor correlated with age (credited service). Therefore, by definition, the terms of the liquidation plan had a disparate impact on older workers. Only 1.4% of employees under the age of 55 were eligible for retirement, compared with 93.4% of those 55 and older. In light of the substantial statistical disparities between the ages of retirement-eligible and nonretirement-eligible employees, the employees had established a prima facie case of disparate-impact case.
Factor other than age. Still, to prove a disparate-impact claim, the employees had to show that Caterpillar’s liquidation plan had a disparate impact on them “because of” their membership in a protected group. After disposing of two arguments by Caterpillar, the appeals court turned to Caterpillar’s affirmative defense that its liquidation plan was based on a reasonable factor other than age. To prevail Caterpillar had to show that its less favorable treatment of retirement-eligible employees was reasonably designed to further or achieve a legitimate business purpose and administered in a way that reasonably achieves that purpose in light of the particular facts and circumstances that were known, or should have been known, to the employer.
Cost-cutting measures. The appeals court concluded that Caterpillar satisfied its burden. The liquidation plan was justified by a reasonable factor other than age. For over a decade, Caterpillar tried to eliminate the unemployment plan to reduce labor costs. Unemployment costs were infrequent, so Caterpillar felt that it could use the funds more efficiently. Further, Caterpillar hoped to avoid the expense of upgrading the unemployment plan’s outdated administration system. Recognizing that the union had resisted its prior attempts to eliminate the plan, Caterpillar offered $7.8 million to union members to secure their support. Caterpillar’s proposal was reasonably designed to achieve these cost-cutting measures.
Retirement incentive. Caterpillar’s decision to offer an inferior deal to retirement-eligible employees was also valid. Voluntary retirement incentives are permissible under the ADEA. Caterpillar’s proposal killed two birds with one stone: It maintained the retirement incentives and induced union members to sign off on the deal. When an employer enters into an agreement that has a disparate impact on older employees, the employer has the burden to prove that the disparate impact resulted from a reasonable factor other than age. Here, Caterpillar needed the union’s agreement to achieve a legitimate business purpose. To the extent that the liquidation plan was reasonably designed to further that objective, it was protected by the affirmative defense.
Although the appeals court found that the employees established a prima facie case of disparate-impact age discrimination, and the plan created a substantial age-based disparity between workers, the liquidation plan was based on several reasonable factors other than age, so that Caterpillar established its affirmative defense to disparate-impact liability.
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