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Supreme Court Rules In Employees’ Favor On Disparate Impact Issue


     By Fulcrum Inquiry Damages, Appraisal, Accounting & Economics Expert Witnesses

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After plaintiffs are able to “isolate and identify the specific employment practices that are allegedly responsible for the statistical disparities”, the employer has the burden of proof regarding why no discrimination is occurring. This brings the rest of the country to where the Ninth Circuit and California state law already was. Stealing a page from the plaintiffs’ play book, more employers should consider use of statistics to justify their conduct.
In Meacham v. Knolls Atomic Power Laboratory, the defendant laid off 31 salaried employees, all but one of whom was at least 40 years old. The employer chose the employees to be affected by the reduction in force (RIF) by grading employees on the basis of their "performance" (based on their two most recent appraisals), "flexibility" (their perceived ability to work on other assignments), and "criticality" (a measure of how important their individual skills were). Most of the laid-off employees sued, claiming that age discrimination was proven by the "disparate impact" of the selection process on older workers. According to the plaintiffs, the three facially-neutral selection criteria were in fact unfairly biased.

A statistics expert employed by the plaintiffs demonstrated that the distribution of released employees was so skewed by age that it was extremely unlikely to have occurred by chance. Specifically, the chances of this particular RIF outcome were only 1 in 348,000 (based on a population of 2063 salaried workers), 1 in 1260 (based on a population of the 245 workers at risk of layoff), and 1 in 6639 (when analyzed by sections of the company). Additionally, the statistics expert testified that the categories of flexibility and critical skills, over which managers had the most discretion, were closely connected to the statistical outcome. Stated otherwise, notwithstanding the facial neutrality of the selection process, managers allowed age bias to taint employee grading where grading was most subjective. At the trial court level, the jury found that the workers facing this layoff procedure were disparately impacted based on their age.

The U.S. Supreme Court addressed a procedural issue involving which side has the burden of proof. Defendants argued that the burden is on the plaintiff, because a plaintiff generally has the burden of proving a successful claim. The Supreme Court disagreed. The Supreme Court determined that a plaintiff must do more than allege a disparate impact in some generalized policy. To prove a prima facie case of disparate impact, a plaintiff must "isolate and identify the specific employment practices that are allegedly responsible for the statistical disparities.” But once a plaintiff meets that threshold, then the burden of proof shifts to the employer to prove its actions were based on "reasonable factors other than age” (RFOA). Stated otherwise, when the ages of the persons identified for layoff suggest the possibility of age bias, then the employer has to present its RFOA proof.

The Court acknowledged that:

"There is no denying that putting employers to the work of persuading fact finders that their choices are reasonable makes it harder and costlier to defend than if employers merely bore the burden of production; nor do we doubt that this will sometimes affect the way employers do business with their employees. But at the end of the day, [these] concerns have to be directed at Congress, which set the balance where it is ...."
Evaluation criteria like those used by Knolls causes problems for employers in age discrimination cases. A trier-of-fact can easily determine that subjective evaluation terms are a proxy for "young". Most employers know that they must anticipate and prepare for legal challenges to their method of selecting employees affected by a reduction in force (RIF). In the same way that statistics can be used to prove this plaintiff’s case, defendants can use statistical analysis to identify in advance whether the employer is likely to be successfully challenged.

Disparate impact cases are likely to become more common as the economy weakens and group layoffs become more widespread. Nevertheless, the impact of this case in California will not be substantial because:

1. Most California discrimination cases are filed in state court, which has a more employee-friendly standard than federal law.

2. The Ninth Circuit had already ruled in a manner consistent with what the Supreme Court determined. In overturning the Second Circuit in the Knolls matter, the Supreme Court sided with the Ninth Circuit.

Fulcrum Inquiry is a financial and economic consulting firm. We have substantial experience in statistics and employment discrimination.

ABOUT THE AUTHOR: David Nolte
Mr. Nolte has 30 years experience in financial and economic consulting. He has served as an expert witness in over 100 trials. He has also regularly served as an arbitrator. Mr. Nolte has achieved the following credentials, CPA, MBA, CMA and ASA.

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
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