In a closely-watched case, the Supreme Court has held that an employer may provide benefits to a select group of older employees while not providing the same benefits to a similar group of younger employees even though the younger employees are also protected by federal age discrimination laws. General Dynamics Land Systems, Inc. v. Cline, No. 02-1080 (2/24/04). A lower court decision to the contrary had threatened long-standing employer practices of grandfathering older employees from adverse changes in benefits plans and of offering early retirement incentives only to older employees.
The Age Discrimination in Employment Act ("ADEA" or the "Act") protects employees age 40 and over from discrimination on account of age, including discrimination in benefits plans and other terms and conditions of employment. In Cline, General Dynamics negotiated with its union to eliminate retiree health benefits for future retirees but agreed to grandfather current employees who were 50 and over at the time of the agreement. The lawsuit was brought by Cline and others between the ages of 40 and 50 who claimed that since they were in the protected group, they also should have been grandfathered. The case had "legs" both because of the plain wording of ADEA and because the EEOC had long taken the same position as the Cline plaintiffs. The Act prohibits discrimination "because of [an] individual's age." The plaintiffs and the EEOC pointed out that it does not prohibit discrimination on account of older age. Thus, they argued, the statute has a two-way application: while one can't discriminate against older protected employees, one also can't discriminate against younger protected employees. And Cline was surely discriminated against on account of age because the only reason he was not grandfathered was because he hadn't reached the age of 50.
The Supreme Court majority was unwilling to look only at the bare words of the Act but instead said that it had to be interpreted in context, in this case the context of the social injustice that the statute was meant to correct. Citing numerous statements in the Act's legislative history, the Court concluded that the statute was intended only to prohibit discrimination against older employees and the word "age" in this context was, and is, common usage for the term "older age." The legal arguments arriving at this conclusion cover many pages of colorful commentary ("If Congress had been worrying about protecting the younger against the older, it would not likely have ignored everyone under 40 . . . . prejudice suffered by a 40-year-old is not typically owing to youth, as 40-year-olds tend to find out. The enemy of 40 is 30, not 50.") The Court also summarily dismissed the EEOC's ability to dictate the result in this case. Normally, a long-standing position by the agency charged with enforcing a law is granted deference by the courts. However, the Court here effectively held that because the EEOC's position was clearly wrong on the face of the statute, it was owed no deference.
The importance of the case, however, is not in the legal reasoning but in its practical consequences. The Cline plaintiffs and the EEOC clearly believed that their position would result in employers having to provide benefits to more employees. In effect, they used the age discrimination argument as a lever to require employers to spread benefits intended only for older employees to all employees age 40 and over. Their assumption, however, seems clearly misguided because the more likely reaction of employers would be to provide no benefits to any employees. We all know, for example, that retiree health benefits are very costly and many employers are eliminating them. General Dynamics tried to manage the cutback in a humane way by promising to continue to provide the benefits to persons already retired and to employees not yet retired but over the age of 50. Because of the costs, General Dynamics' alternative to this arrangement is not likely to be a grandfathering of all employees over 40, but no grandfathering for any current employees. Another common employer practice–early retirement incentives–were also at risk in this case and for the same reason. When an employer has too many employees and needs to cut back, it generally has two options, involuntary layoffs or voluntary incentive programs. Typically, voluntary programs are favored by employers as well as employees, not only because they work, but because they are much better for morale. These programs work because older employees (say, those over 55 or 60) are typically thinking about retirement, and an incentive program is often the factor that tips them in the direction of retiring sooner rather than later. Thus, a typical incentive program might be to offer a lump-sum payment of several months to a year of pay for anyone over a certain age who wishes to retire. If this program had to be offered to anyone over 40 it would simply cost too much and many valued employees an employer would otherwise want to retain might take the money and run. Instead of taking these risks, an employer would be much more likely to resort to layoffs–an approach that does benefit anyone. It is fair to say that the Supreme Court has done a better job of ensuring benefit enhancements to older workers in general than the EEOC could have accomplished by requiring employers to give younger employees any benefits extended to older employees. In a voluntary benefits world, an obvious reaction to mandates is providing nothing.