Third Circuit Recognizes “Subgroup” ADEA Disparate-Impact Claims

January 2017 (No. 2)

Labor and Employment

Action item: The Third Circuit’s January 10, 2017 decision regarding an employer’s age-based liability under the Age Discrimination in Employment Act (“ADEA”) should serve as a call to action to employers to evaluate and review their policies to ensure that they do not inadvertently violate the ADEA by discriminating against individuals who are in “subgroups” over 40 years old.

Most employers know that the plain language of the ADEA protects “individuals who are at least 40 years of age,” and its disparate impact provision prohibits an employer from “adversely affect[ing an employee’s] status . . . because of such individual’s age.” But in Karlo v. Pittsburgh Glass Works, the Third Circuit made employers’ lives a little more complicated by holding that “‘subgroup’ disparate-impact claims are cognizable under the ADEA.” In other words, the Third Circuit held that under the ADEA, employees in a subgroup older than 40 years old—in Karlo, the subgroup of employees was 50-and-older—can bring disparate impact claims against their employer alleging that they were “disfavored relative to younger employees,” even if the younger employees were 40 years old or older.

Reversing the District Court, the Third Circuit held that “the ADEA prohibits disparate impacts based on age, not 40-and-older identity. A rule that disallowed subgroups would ignore genuine statistical disparities….” This holding creates a circuit split—currently the Second, Sixth, and Eighth Circuits hold differently than the Third Circuit—and could have significant ramifications for employers’ well-intentioned efforts to abide by the ADEA. For example, having a seemingly facially neutral policy that in practice favors 40-year-olds but significantly disfavors 50-year-olds could expose an employer to liability.

Largely relying on the U.S. Supreme Court’s decision in O’Connor v. Consolidated Coin Caterers Corp., the Third Circuit in Karlo held that “[a] specific, facially neutral policy that significantly disfavors employees over 50 years old supports a claim of disparate impact under the plain text of [the ADEA]. Although the employer’s policy might favor younger members of the 40-and-over cohort, that is an ‘utterly irrelevant factor,’ in evaluating whether a company’s oldest employees were disproportionately affected because of their age.”

The alleged discrimination of the 50-and-above subgroup in Karlo took place in the context of a reduction in force, in which numerous employees who were over 50 years old were terminated. The policy in Karlo “favored younger members of the protected class,” and as such, the Court held that “an ADEA disparate-impact claim may proceed when a plaintiff offers evidence that a specific, facially neutral employment practice caused a significantly disproportionate adverse impact based on age,” and plaintiffs can use “various forms of evidence, including 40-and-older comparisons, subgroup comparisons, or more sophisticated modeling,” to demonstrate such impact.

© 2017, Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

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