The workforce is getting older. If you’re like most retailers, you have or will have older employees, and you have to grapple with this fact: Age discrimination is illegal. Firing or refusing to hire or promote people age 40 or older is illegal under a variety of laws, most notably the federal Age Discrimination in Employment Act (ADEA). And it could cost you.
Many employers think the law applies only to elderly workers. Not so. The ADEA protects employees 40 and older (except for certain highly paid top managers). Baby boomers may rail at this middle-age benchmark as being “old,” but they benefit—40 is the early end of what the law sets up as the “protected age group.”
Many employers think they can’t get into trouble if they fire older workers, as long as they replace them with other people over 40. Wrong. “You cannot, as a defense, say you laid off someone who was 55 but replaced that person with someone who was 50,” says Cecily A. Waterman, a partner with Brobeck, Phleger & Harrison. “That’s a common misunderstanding.”
Increasingly, older workers who believe their employers discriminated against them are taking them to court. “We haven’t reached the full potential in terms of age discrimination lawsuits or problems that can be expected by management,” says attorney James N. Adler, a partner with Irell & Manella in Los Angeles. Age-bias complaints with the Equal Employment Opportunity Commission (EEOC) increased 14 percent in 2002 over 2001 (second in acceleration only to religious discrimination), and 41 percent in the past three years.
Age discrimination lawsuits can be frightening for employers. It costs money to hire an attorney to fight the suit, and if you lose, the financial penalties can mount up: they’re often based on the older worker’s forfeited earnings, and older workers often have higher salaries than their younger counterparts. “Age-bias plaintiffs tend to be older white males at a later stage in their careers, and that elevates the damages,” says John J. Donohue III, professor of law at Stamford Law School. But they’re not the only ones. Increasing numbers of female employees are suing against age discrimination. And regardless of gender, not everyone who sues was fired from a high-paying job.
Getting it right
Here’s what employment-law attorneys say are the most common errors:
- No internal policies that prohibit age discrimination
- Failing to document performance problems
- Age-biased training programs
- Age-biased retirement plans
- Not watching the demographics of all employee practices
- Hiring young, for longevity
Before looking at reversing these errors, there’s one more thing you need to know: willful violation. Employers who are guilty of willfully violating the ADEA are fined double damages. What is willful violation? The definition varies by court case and by state, but basically it means knowing what the law requires, and deliberately ignoring it. Here are two real-life examples: In one case, a memo in the employee’s personnel file blatantly said, “Joe is too old for the job… ” And in another case, an employer had asked an attorney to formulate employee policies, including age—and then ignored the attorney’s advice.
So, how to protect yourself? First, understand this key principle: according to the ADEA (and similar state laws), you must treat all employees the same way, regardless of age. You may not discriminate by age in the way you recruit, hire, pay, train, promote, fire or conduct any other activity related to employment, including perks, benefits, conditions of employment, and terms offered. Here’s how to help ensure that you’re getting it right when to comes to older employees.
Establish policies that prohibit age discrimination
You must put them in writing and then communicated to your managers and supervisors. Just having policies on the books isn’t enough. When age discrimination cases come up, it’s frequently not the top managers who are directly involved. But if someone further down the line does something discriminatory due to lack of knowledge, the company is responsible. If you have managers with the authority to make personnel decisions but aren’t aware of the law, you have a time bomb ticking. And small employers are as liable as larger ones.
Even if your state doesn’t have a restrictive age bias law, an employee can sue you for emotional distress caused by acts of age discrimination. “Awards can be much higher in such cases,” says Donohue. While the typical ADEA age bias case averages $150,000 (not including double damages for willful violation), awards in wrongful-discharge suits under state law have been known to run upwards of $1 million.
Document performance problems
Employers get into difficulty when they don’t document performance problems, which reach a point where his or her poor performance becomes intolerable. If you fire that employee—and he happens to be older—your business can get hit with an age discrimination charge; and if the employee can point to his history of good performance appraisals—or even none at all—he has a strong court case. And this happens a lot: good reviews instead of more realistic bad ones. Why? Good intentions; soft hearts; fear of hurting feelings; fear of confrontation. All human reasons, and none of them have merit. And that’s not good for employees, and certainly not good for the company.
Have age-neutral training programs
“Avoid the stereotypical notion that an older person is less capable than a younger one,” says Waterman. One company selected younger staff members to participate in advanced training programs. A few years later, the employer decided to downsize for economic reasons. The criteria management used to decide which employees to fire? The ones who weren’t as highly trained. That company committed two illegal acts. First, it was biased in its selection for training programs; and it compounded the error by firing employees who were older, even though skill level was the excuse. In court, that employer was fined heavily.
Have age-neutral retirement plans
If you offer a pension plan or 401(k), it has to be age-neutral—and it has to conform to other federal laws (such as ERISA) governing retirement plans and protecting employees’ rights. Some employers land in court because they fired older workers just before being vested in (entitled to) their benefits—which is blatantly illegal. Also illegal is forcing older employees to take early retirement. In a typical scenario, the older worker is threatened with termination without benefits unless he takes early retirement “willingly.” Nor can management hassle older workers to the point where they’re forced to quit. Called “constructive discharge,” this can take many forms. Sometimes an employer will reduce an older employee’s duties to nothing, or move her from an office to a closet with a table. Or an employer “counsels” an older employee too much or too hard about trifling matters—being two minutes late, for example—extremely nit-picky things that other employees aren’t called on the carpet for.
Keep an eye on demographics for group decisions
When a group of your employees is being hired, fired or promoted, or when their pay is being changed, look at the ages of the those employees to make sure older workers aren’t being singled out, even unintentionally. (While you’re at it, watch for other demographics, too—gender, ethnicity, etc.)
Consciously or not, employers continually fall into legal quicksand when they fire more than one worker at a time—and the terminated workers are over the age of 40. Suppose you decide to terminate everyone with salaries that are higher than the average for certain positions. Because salary often reflects seniority, such action may discriminate by age. “Group terminations have become a real battleground,” says Joseph P. Harkins, a partner with Littler Mendelson, the nation’s largest employment-law firm. Make sure the proportion of terminated workers over 40 isn’t too high. “When you lay off people, ask how much of your current workforce is over 40 and how many of the people being laid off is over 40. Make the two figures as close as you possibly can to make your terminations bulletproof.”
The problem is worse if you replace older employees with younger ones. “If you fire people over 40 and replace them with others under 40, and if you look around and see all of your employees are under 40, you’re facing a lawsuit,” says Newel B. Knight, partner with Stephens, Knight & Edwards.
Hire for “best,” not for “young”
If you consciously look for younger candidates and avoid older ones because you think the younger ones are more energetic, more motivated and more likely to stay with you longer, you’re setting yourself up for legal trouble. “We’re seeing an increasing problem where businesses… [are] consciously trying to find individuals 45 years old or younger,” says Lawrence R. Levin of Funkhouser, Vegosen, Liebman & Dunn, a discrimination-law firm. But many younger people move on for higher pay, which means employers not only don’t get the longevity they want, “they also run the risk of lawsuits for discriminatory hiring. This is becoming an increasingly serious issue,” he says. And lawsuits abound.
“At one time, older workers would refrain from suing because of the stigma,” says Levin, but not anymore. Says Marianne M. Jennings, professor of business law at Arizona State University. “They were afraid no one else would want to hire someone who sued a former employer. Now [some] say the chance of getting another job is so slim they might as well sue.”
Another twist: Not only are employees who think they have a case seeking out attorneys—attorneys are seeking them out, too. “Many lawyers are moving into the field of age discrimination, contacting people who have gotten laid off and persuading them they can help,” says Levin. And very often, they can—precisely because employers didn’t know or didn’t care about age-discrimination law.
Ready, aim, fire
Of course, there are legitimate reasons for firing older workers. You’re on safe ground if their performance is truly sub-par, and it’s been documented: records in their personnel files show they weren’t performing at the level the job requires. Have a written description of each job, so you also have that to measure their performance against. Also OK: Trimming business costs by means of layoffs across the board. “A genuine reduction in force is a legitimate reason,” says Henry C. Blackiston III, a partner with Shearman & Sterling. “The [employee] may have been doing a fine job but perhaps you… [no longer] need the number of people you have on staff.” The trick in this case is not to do it in a way that treats the protected age group differently and unfairly compared to younger staffers.
Most employers who are guilty of acts of discrimination aren’t trying to be mean-spirited; and for that reason, things change for the better—better for older employees, and better for your business. Eliminating age-discrimination practices not only reduces your chances of a costly lawsuit, it sends a message, creates a positive image for your business, and makes for happier, more productive employees—of all ages.