```

[Federal Register: February 18, 2010 (Volume 75, Number 32)]
[Proposed Rules]               
[Page 7212-7218]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18fe10-6]                         

=======================================================================
-----------------------------------------------------------------------

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

29 CFR Part 1625

RIN 3046-AA87

 
Definition of ``Reasonable Factors Other Than Age'' Under the Age 
Discrimination in Employment Act

AGENCY: Equal Employment Opportunity Commission

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Equal Employment Opportunity Commission (``EEOC'' or 
``Commission'') is issuing this notice of proposed rulemaking 
(``NPRM'') to address the meaning of ``reasonable factors other than 
age'' (RFOA) under the Age Discrimination in Employment Act (``ADEA'').

DATES: Comments must be received on or before April 19, 2010. The 
Commission will consider any comments received on or before the closing 
date and thereafter adopt final regulations. Comments received after 
the closing date will be considered to the extent practicable.

ADDRESSES: You may submit comments by any of the following methods:
     By mail to Stephen Llewellyn, Executive Officer, Executive 
Secretariat, Equal Employment Opportunity Commission, U.S. Equal 
Employment Opportunity Commission, 131 ``M'' Street, NE., Washington, 
DC 20507.
     By facsimile (``FAX'') machine to (202) 663-4114. (There 
is no toll free FAX number). Only comments of six or fewer pages will 
be accepted via FAX transmittal, in order to assure access to the 
equipment. Receipt of FAX transmittals will not be acknowledged, except 
that the sender may request confirmation of receipt by calling the 
Executive Secretariat staff at (202) 663-4070 (voice) or (202) 663-4074 
(TTY). (These are not toll free numbers).
     By the Federal eRulemaking Portal: http://www.regulations.gov. After accessing this Web site, follow its 
instructions for submitting comments.
    Instructions: All comment submissions must include the agency name 
and docket number or the Regulatory Information Number (RIN) for this 
rulemaking. Comments need be submitted in only one of the above-listed 
formats, not all three. All comments received will be posted without 
change to http://www.regulations.gov, including any personal 
information you provide. Copies of the received comments also will be 
available for inspection in the EEOC Library, FOIA Reading Room, by 
advanced appointment only, from 9 a.m. to 5 p.m., Monday through Friday 
except legal holidays, from April 19, 2010 until the Commission 
publishes the rule in final form. Persons who schedule an appointment 
in the EEOC Library, FOIA Reading Room, and need assistance to view the 
comments will be provided with appropriate aids upon request, such as 
readers or print magnifiers. To schedule an appointment to inspect the 
comments at the EEOC Library, FOIA Reading Room, contact the EEOC 
Library by calling (202) 663-4630 (voice) or (202) 663-4641 (TTY). 
(These are not toll free numbers).

FOR FURTHER INFORMATION CONTACT: Dianna B. Johnston, Assistant Legal 
Counsel, or Lyn J. McDermott, Senior Attorney-Advisor, at (202) 663-
4638 (voice) or (202) 663-7026 (TTY). (These are not toll free 
numbers). This notice also is available in the following formats: Large 
print, Braille, audio tape and electronic file on computer disk. 
Requests for this notice in an alternative format should be made to the 
Publications Information Center at

[[Page 7213]]

1-800-669-3362 (voice) or 1-800-800-3302 (TTY).

SUPPLEMENTARY INFORMATION: On March 31, 2008, the EEOC published a 
Notice of Proposed Rulemaking (``NPRM'') proposing to amend its 
regulations to reflect the Supreme Court's decision in Smith v. City of 
Jackson.\1\ 73 FR 16807, Mar. 31, 2008. The NPRM proposed to revise 29 
CFR 1625.7(d) to state that an employment practice that has an adverse 
impact on individuals within the protected age group on the basis of 
older age is discriminatory unless the practice is justified by a 
``reasonable factor other than age.'' The proposed revision also stated 
that the individual challenging the allegedly unlawful employment 
practice bears the burden of isolating and identifying the specific 
employment practice responsible for the adverse impact. The Commission 
also proposed to revise 29 CFR 1625.7(e) to state that, when the RFOA 
exception is raised, the employer has the burden of showing that a 
reasonable factor other than age exists factually.
---------------------------------------------------------------------------

    \1\ 544 U.S. 228 (2005).
---------------------------------------------------------------------------

    In addition to requesting public comment on the proposed rule, the 
Commission asked whether regulations should provide more information on 
the meaning of ``reasonable factors other than age'' and, if so, what 
the regulations should say. Eight commenters supported efforts to 
provide more information on the issue, one commenter thought the EEOC 
should not provide additional information, and one commenter did not 
address the question. After consideration of the public comments, and 
in light of recent Supreme Court decisions, the Commission believes it 
appropriate to issue a new NPRM to address the scope of the RFOA 
defense. Accordingly, before finalizing its regulations concerning 
disparate impact under the ADEA, the Commission is publishing this new 
NPRM proposing to amend its regulations to define ``reasonable factors 
other than age.''

Recent Supreme Court Decisions

    In Smith v. City of Jackson,\2\ the United States Supreme Court 
held that the ADEA authorizes recovery for disparate impact claims of 
discrimination and that the ``reasonable factors other than age'' test, 
rather than the business-necessity test, is the appropriate standard 
for determining the lawfulness of a practice that disproportionately 
affects older individuals.
---------------------------------------------------------------------------

    \2\ 544 U.S. 228 (2005).
---------------------------------------------------------------------------

    The Smith plaintiffs, senior police and public safety officers, 
alleged that the defendant City's pay plan had a disparate impact on 
older workers because it gave proportionately larger pay increases to 
newer officers than to more senior officers. Older officers, who tended 
to hold senior positions, on average received raises that represented a 
smaller percentage of their salaries than did the raises given to 
younger officers. The City explained that, after a survey of salaries 
in comparable communities, it raised the junior officers' salaries to 
make them competitive with those for comparable positions in the 
region.\3\
---------------------------------------------------------------------------

    \3\ Id. at 241-42.
---------------------------------------------------------------------------

    The Supreme Court ruled that plaintiffs may challenge facially 
neutral employment practices under the ADEA but that the ``scope of 
disparate-impact liability under the ADEA is narrower than under Title 
VII'' of the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.\4\ The 
Court relied in large part on the parallel prohibitory language and the 
common purposes of the ADEA and Title VII.\5\ The Court noted that, in 
passing the ADEA, Congress was concerned that application of facially 
neutral employment standards, such as a high school diploma 
requirement, may ``unfairly'' limit the employment opportunities of 
older individuals.\6\ The Court observed that there is a ``remarkable 
similarity between the congressional goals'' of Title VII and ``those 
present in the Wirtz Report.'' \7\
---------------------------------------------------------------------------

    \4\ Id. at 233-40. Title VII prohibits employment discrimination 
based on race, color, religion, sex, and national origin. In Griggs 
v. Duke Power Co., 401 U.S. 424 (1971), the Supreme Court first 
recognized the disparate impact theory of discrimination under Title 
VII. The Court held that Title VII prohibits not only intentional 
discrimination but also employment practices that, because they have 
a disparate impact on a group protected by Title VII, are ``fair in 
form but discriminatory in operation.'' 401 U.S. at 431.
    \5\ 544 U.S. at 233-40.
    \6\ Id. at 235 n.5 (quoting Report of the Sec'y of Labor, The 
Older American Worker: Age Discrimination in Employment 3 (1965), 
reprinted in U.S. EEOC, Leg. History of the ADEA 21 (1981) (``Wirtz 
Report'')). Section 715 of the Civil Rights Act of 1964 directed the 
Secretary of Labor ``to make a full and complete study of the 
factors which might tend to result in discrimination in employment 
because of age and of the consequences of such discrimination on the 
economy and individuals affected.'' 78 Stat. 265. Secretary W. 
Willard Wirtz presented his findings and recommendations in the 
Wirtz Report.
    \7\ 544 U.S. at 235 n.5.
---------------------------------------------------------------------------

    At the same time, however, the Court identified two key textual 
differences that affect the relative scope of disparate impact 
liability under the two statutes. First, the ADEA contains the RFOA 
provision, which has no parallel in Title VII and precludes liability 
for actions ``otherwise prohibited'' by the statute ``where the 
differentiation is based on reasonable factors other than age.'' \8\ 
The RFOA provision ``plays its principal role'' in disparate impact 
cases, where it ``preclud[es] liability if the adverse impact was 
attributable to a nonage factor that was `reasonable'.'' \9\ Comparing 
the RFOA provision with the Equal Pay Act provision that precludes 
recovery when a pay differential is based on ``any other factor other 
than sex,'' \10\ the Court found it ``instructive'' that ``Congress 
provided that employers could use only reasonable factors in defending 
a suit under the ADEA.'' \11\
---------------------------------------------------------------------------

    \8\ Id. at 240. The Court found that the presence of the RFOA 
provision supported its conclusion that disparate impact claims are 
cognizable under the ADEA. Id. at 238-40.
    \9\ Id. at 239.
    \10\ 29 U.S.C. 206(d)(1).
    \11\ 544 U.S. at 239 n.11 (emphasis in the original).
---------------------------------------------------------------------------

    Second, in reaction to the decision in Wards Cove Packing Co. v. 
Atonio,\12\ which ``narrowly construed the employer's exposure to 
liability on a disparate-impact theory,'' Congress amended Title VII 
but not the ADEA.\13\ Accordingly, ``Wards Cove's pre-1991 
interpretation of Title VII's identical language remains applicable to 
the ADEA.'' \14\
---------------------------------------------------------------------------

    \12\ 490 U.S. 642 (1989). The Wards Cove Court ruled that, in a 
Title VII disparate-impact case, the plaintiff must isolate and 
identify the specific employment practice that has a disparate 
impact. Although the defendant had the burden of articulating a 
business justification for the challenged practice, the burden of 
persuasion remained at all times with the plaintiff. According to 
the Court, ``at the justification stage, * * * the dispositive issue 
is whether a challenged practice serves, in a significant way, the 
legitimate employment goals of the employer.'' Id. at 659. If the 
challenged practice was justified by business necessity, the 
plaintiff could still prevail by showing that the employer refused 
to adopt an equally effective, less discriminatory alternative. Id. 
at 660-61.
    \13\ 544 U.S. at 240 (citing the Civil Rights Act of 1991, sec. 
2, 105 Stat. 1071).
    \14\ Id. at 240. The ``identical'' language is in section 
703(a)(2) of Title VII (42 U.S.C. 2000e-2(a)(2)) and section 4(a)(2) 
of the ADEA (29 U.S.C. 623(a)(2)), which make it unlawful for 
employers ``to limit, segregate, or classify'' individuals in a 
manner that would ``deprive or tend to deprive any individual of 
employment opportunities or otherwise adversely affect his status as 
an employee, because of such individual's [protected status].''
    The language of the two statutes significantly differs, however, 
with regard to the applicable defense. Unlike the ADEA, which 
provides a defense when the practice is based on a reasonable factor 
other than age (29 U.S.C. 623(f)(1)), Title VII provides a defense 
only when the practice is job related and consistent with business 
necessity (42 U.S.C. 2000e-2(k)(1)(A)).
---------------------------------------------------------------------------

    Applying its analysis, the Court rejected the Smith plaintiffs' 
disparate impact claims on the merits. Focusing on the plan's purpose, 
design, and implementation, the Court found that the City's pay plan 
was based on

[[Page 7214]]

reasonable factors other than age.\15\ The Court noted that the City 
grouped officers by seniority in five ranks and set wage ranges based 
on salaries in comparable communities. Most of the officers were in the 
three lowest ranks, where age did not affect officers' pay. In the two 
highest ranks, where all of the officers were over 40, raises were 
higher in terms of dollar amounts; they were lower only in terms of 
percentage of salary. The Court concluded that the plan, as designed 
and administered, ``was a decision based on a `reasonable factor other 
than age' that responded to the City's legitimate goal of retaining 
police officers.'' \16\
---------------------------------------------------------------------------

    \15\ The Court also ruled that the plaintiffs failed to satisfy 
Wards Cove's requirement that they identify a ``specific test, 
requirement, or practice within the pay plan that has an adverse 
impact on older workers.'' 544 U.S. at 241.
    \16\ Id. at 242.
---------------------------------------------------------------------------

    Finally, the Court noted that, although ``there may have been other 
reasonable ways for the City to achieve its goals, the one selected was 
not unreasonable.'' ``Unlike the business necessity test, which asks 
whether there are other ways for the employer to achieve its goals that 
do not result in a disparate impact on a protected class, the 
reasonableness inquiry includes no such requirement.'' \17\
---------------------------------------------------------------------------

    \17\ Id. at 243.
---------------------------------------------------------------------------

    Smith did not specify which party bore the burden of persuasion on 
the RFOA defense, and most of the lower courts that addressed the issue 
after Smith held that the plaintiff bore the burden of proving that the 
employer's action was unreasonable.\18\ Subsequently, in Meacham v. 
Knolls Atomic Power Lab.,\19\ the Supreme Court held that an employer 
defending an ADEA disparate-impact claim bears both the burden of 
production and the burden of persuasion on the reasonable factors other 
than age defense.
---------------------------------------------------------------------------

    \18\ See, e.g., Pippin v. Burlington Res. Oil & Gas Co., 440 
F.3d 1186, 1200 (10th Cir. 2006); Meacham v. Knolls Atomic Power 
Lab., 461 F.3d 134, 141-43 (2d Cir. 2006), vacated and remanded, 128 
S. Ct. 2395 (2008).
    \19\ 128 S. Ct. 2395 (2008).
---------------------------------------------------------------------------

    Knolls Atomic Power Laboratories (``KAPL''), the employer in 
Meacham, instituted an involuntary reduction in force (``IRIF'') in 
1996 to reduce its workforce by 31 employees. To identify employees for 
the IRIF, KAPL asked managers to rate their employees on three 
factors--performance, flexibility, and the criticality of their 
skills--and to add points for years of service. Managers then ranked 
employees according to their scores and identified the lowest ranked 
employees for layoff. Thirty of the 31 employees selected for layoff 
were older than 40, even though only approximately 58% of the workforce 
was older than 40. The plaintiffs' statistical expert testified that 
the manner in which managers subjectively scored employees for 
flexibility and criticality accounted for the statistically significant 
disparities.\20\
---------------------------------------------------------------------------

    \20\ Id. at 2398-99. The Second Circuit initially affirmed a 
jury verdict for the plaintiffs on their disparate impact claim. Id. 
at 2399 (citing Meacham v. Knolls Atomic Power Lab., 381 F.3d 56, 
74-47 (2d Cir. 2004)). Following the Smith decision, the Supreme 
Court vacated the judgment and remanded the case to the appellate 
court. On remand, a divided panel of the Second Circuit ruled that 
plaintiffs bear the burden of persuasion on the RFOA defense and 
held that the plaintiffs had not met that burden. Id. (citing 
Meacham v. Knolls Atomic Power Lab., 461 F.3d 134, 140-41, 144 (2d 
Cir. 2006)).
---------------------------------------------------------------------------

    Relying on the text and structure of the ADEA, the Supreme Court 
ruled that the RFOA provision creates an affirmative defense. The 
provision is in section 623(f)(1), which lists exemptions for employer 
practices ``otherwise prohibited'' by sections 623(a), (b), (c), or 
(e). As the court observed, it is a ``longstanding convention'' that 
the party claiming the benefits of an exemption bears the burden of 
proof.\21\
---------------------------------------------------------------------------

    \21\ Id. at 2400.
---------------------------------------------------------------------------

    The Court noted that the bona fide occupational qualification 
provision, which also is in section 623(f)(1), creates an affirmative 
defense. The Court also noted that it has interpreted the Equal Pay Act 
exemption for pay differentials based on ``any other factor other than 
sex'' as an affirmative defense. In addition, in the Older Workers 
Benefit Protection Act, Congress added the phrase ``otherwise 
prohibited'' to section 623(f)(2) of the ADEA to clarify that the 
section establishes an affirmative defense. This confirms that the 
phrase ``refers to an excuse or justification'' and signals an 
affirmative defense on which the employer bears the burden of 
proof.\22\
---------------------------------------------------------------------------

    \22\ Id. at 2402.
---------------------------------------------------------------------------

    The Court rejected KAPL's argument that, to prove that an adverse 
action occurred because of age, plaintiffs must show that the 
challenged employment practice was not based on a reasonable factor 
other than age.\23\ The Court also rejected the Second Circuit's 
conclusion that plaintiffs have the RFOA burden of persuasion because 
plaintiffs bore the business necessity burden of persuasion under Wards 
Cove and the RFOA defense ``replaces'' the business necessity test. 
That ``the business necessity test should have no place in ADEA 
disparate-impact cases'' does not preclude a finding ``that the RFOA 
exemption is an affirmative defense.'' \24\
---------------------------------------------------------------------------

    \23\ Id. at 2403.
    \24\ Id. at 2404.
---------------------------------------------------------------------------

    Finally, the Court noted that, ``the more plainly reasonable'' the 
non-age factor, the smaller the difference between the burdens of 
production and persuasion. ``It will be mainly in cases where the 
reasonableness of the non-age factor is obscure for some reason, that 
the employer will have more evidence to reveal and more convincing to 
do in going from production to persuasion.'' \25\
---------------------------------------------------------------------------

    \25\ Id. at 2406.
---------------------------------------------------------------------------

Revisions to Agency Regulations

    The Commission proposes to revise current paragraph 1625.7(b) to 
clarify the scope of the RFOA defense. Consistent with Smith and 
Meacham, the proposed revision explains that whether a particular 
employment practice is based on reasonable factors other than age turns 
on the facts and circumstances of each particular situation and whether 
the employer acted prudently in light of those facts. This standard is 
lower than Title VII's business-necessity test \26\ but higher than the 
Equal Pay Act's ``any other factor'' test.\27\ It represents a balanced 
approach that preserves an employer's right to make reasonable business 
decisions while protecting older workers from facially neutral 
employment criteria that arbitrarily limit their employment 
opportunities.
---------------------------------------------------------------------------

    \26\ 42 U.S.C. 2000e-2(k)(1)(A)(i) (noting that a particular 
employment practice that has a disparate impact based on race, 
color, religion, sex, or national origin is unlawful unless the 
employer ``demonstrate[s] that the challenged practice is job 
related for the position in question and consistent with business 
necessity'').
    \27\ 29 U.S.C. 206(d)(1)(iv) (noting that a sex-based wage 
differential is not unlawful when payment is made pursuant to ``a 
differential based on any other factor other than sex'').
---------------------------------------------------------------------------

    Proposed paragraph 1625.7(b) notes that whether a differentiation 
is based on reasonable factors other than age must be decided on the 
basis of all the particular facts and circumstances surrounding each 
individual situation.

Reasonable

In General
    The statutory requirement that the non-age factor be reasonable is 
a key element of the RFOA defense.\28\ In Smith, the Court found it 
``instructive'' that the ADEA provides a defense only when the factor 
is reasonable, unlike the Equal Pay Act, which the Court said permits 
an employer to justify a pay differential by proving that it is based 
on any factor other than sex.\29\ The test

[[Page 7215]]

for whether an age-based employment practice is lawful is not 
``rational basis''; instead, the statute requires that the practice be 
``reasonable.'' In defining what factors are reasonable, we look to 
tort law,\30\ which contains the most extensive legal definition of 
reasonableness.
---------------------------------------------------------------------------

    \28\ See Meacham, 128 S. Ct. at 2403 (``The focus of the defense 
is that the factor relied upon was a `reasonable' one for the 
employer to be using.'').
    \29\  Smith, 544 U.S. at 239 n.11 (citing 29 U.S.C. 206(d)(1) 
(Equal Pay Act recovery barred where pay differential is ``based on 
any other factor other than sex'')); compare id. with 29 U.S.C. 
623(f)(1) (ADEA's RFOA provision, which bars recovery only when 
based on a reasonable factor other than age). Cf. Wards Cove Packing 
Co. v. Atonio, 490 U.S. 642, 660 (1989) (``A mere insubstantial 
justification * * * will not suffice, because such a low standard of 
review would permit discrimination to be practiced through the use 
of spurious, seemingly neutral employment practices.'').
    \30\ See W. Page Keeton et al., ``Prosser and Keeton on Torts'' 
1, at 4-6 (5th ed. 1984) (torts ``consist of the breach of duties 
fixed * * * by law,'' provide ``compensation of individuals, rather 
than the public, for losses which they have suffered within the 
scope of their legally recognized interests,'' and impose liability 
``upon conduct which is socially unreasonable'').
    The Supreme Court has turned to tort law for useful guidance in 
resolving employment discrimination cases. See, e.g., Kolstad v. 
American Dental Assn., 527 U.S. 526, 538 (1999) (employer's state of 
mind relevant to award of punitive damages); Faragher v. City of 
Boca Raton, 524 U.S. 775, 799-802 (1998) (because lower courts have 
applied a negligence standard to coworker harassment, it is not 
appropriate to treat supervisory harassment as being within the 
scope of employment; however, agency principles weighed in favor of 
holding an employer vicariously liable for some tortious conduct of 
a supervisor made possible by abuse of his supervisory authority). 
So, too, have lower courts. See Baskerville v. Culligan 
International Company, 50 F.3d 428, 432 (7th Cir. 1995) (Posner, J.) 
(in determining when an employer has taken reasonable steps to 
discover and rectify acts of sexual harassment of its employees, the 
court observed that ``what is reasonable depends on the gravity of 
the harassment[; j]ust as in conventional tort law a potential 
injurer is required to take more care, other things being equal, to 
prevent catastrophic accidents than to prevent minor ones, [citing, 
inter alia]; W. Page Keeton et al., ``Prosser and Keeton on the Law 
of Torts'' 34, at 208 (5th ed. 1984)''; Shager v. Upjohn Co., 913 
F.2d 398, 405 (7th Cir. 1990) (noting that age discrimination 
constitutes a tort and therefore doctrine of respondeat superior 
applies).
---------------------------------------------------------------------------

    Proposed paragraph 1625.7(b)(1) explains that a reasonable factor 
is one that is objectively reasonable when viewed from the position of 
a reasonable employer under like circumstances.\31\ It is one that 
would be used in a like manner by a prudent \32\ employer mindful of 
its responsibilities under the ADEA. In light of Smith and Meacham, a 
prudent employer knows or should know that the ADEA was designed in 
part to avoid the application of neutral employment standards that 
disproportionately affect the employment opportunities of older 
individuals.\33\ Accordingly, a reasonable factor is one that an 
employer exercising reasonable care to avoid limiting the employment 
opportunities of older persons would use.\34\
---------------------------------------------------------------------------

    \31\ Cf. Restatement (Second) of Torts 283 (1965) (standard of 
conduct to avoid liability for negligence ``is that of a reasonable 
man under like circumstances'').
    \32\ Cf. Restatement (Second) of Torts 283 cmt. c (1965) 
(``reasonable man'' standard refers to a person of ``ordinary 
prudence'').
    \33\ See Smith, 544 U.S. at 235, n.5 (quoting Wirtz Report).
    \34\ Cf. Faragher v. City of Boca Raton, 524 U.S. 775, 808-09 
(1998) (rejecting employer's argument that it should not be held 
liable for negligently failing to promulgate anti-harassment policy 
where EEOC regulations advised employers to take all steps necessary 
to prevent harassment and holding as a matter of law that employer 
did not exercise reasonable care to prevent sexual harassment).
---------------------------------------------------------------------------

    Consistent with Smith, proposed paragraph 1625.7(b)(1) provides 
that the RFOA defense requires evidence that the challenged practice 
was reasonably designed to further or achieve a legitimate business 
purpose and was reasonably administered to achieve that purpose.\35\ In 
Smith, for example, the method chosen by the employer to compete for 
new personnel was one used by most employers in like circumstances--
raising the salaries of the least senior employees to attract new 
applicants. That an employer uses a common business practice is not 
dispositive of reasonableness, but it weighs in the employer's 
favor.\36\
---------------------------------------------------------------------------

    \35\ See Smith, 544 U.S. at 235 n.5 (quoting Wirtz Report's 
discussion of employment standards that unfairly limit employment 
opportunities of older individuals).
    \36\ See id. at 241 (``it is not surprising that certain 
employment criteria that are routinely used may be reasonable 
despite their adverse impact on older workers as a group'').
---------------------------------------------------------------------------

    In addition to the employment practice's design, the way in which 
it is administered affects its reasonableness. For example, for 
purposes of the RFOA defense, it may be reasonable to consider factors 
such as job performance and skill sets when deciding whom to discharge 
during a reduction in force.\37\ It also may be reasonable to consider 
the extent to which an employee possesses a critical skill (i.e., one 
that is key to the employer's operations), or is flexible (i.e., has 
skills that can be used in various assignments or has the ability to 
acquire new skills).\38\ Use of such factors is reasonable under the 
ADEA if the employer has made reasonable efforts to administer its 
employment practice accurately and fairly and has assessed the age-
based impact of the practice and taken steps to ameliorate unnecessary 
and avoidable harm. Steps such as training its managers to avoid age-
based stereotyping, identifying specific knowledge or skills the 
employer wants to retain (e.g., familiarity with the company's filing 
system or ability to integrate different computer networks), and 
providing guidance on how to measure flexibility (e.g., whether an 
employee performs a variety of tasks or willingly accepts new 
assignments) are evidence of reasonableness.
---------------------------------------------------------------------------

    \37\ See Pippin v. Burlington Res. Oil & Gas Co., 440 F.3d 1186, 
1200-01 (10th Cir. 2006) (finding that reliance on performance 
ratings and employee skill sets when choosing workers for layoff was 
reasonable as a matter of law but placing RFOA burden of persuasion 
on plaintiff).
    \38\ See, e.g., Meacham v. Knolls Atomic Power Lab., 461 F.3d 
134, 144 (2d Cir. 2006) (noting that employer's expert testified 
that `` `criticality' and `flexibility' were ubiquitous components 
of `systems for making personnel decisions' ''), vacated and 
remanded, 128 S. Ct. 2395 (2008). However, selecting employees for 
retention based on their work schedule ``flexibility'' might expose 
an employer to allegations of disparate treatment or failure to 
accommodate under Title VII or the Americans with Disabilities Act, 
42 U.S.C. 12101 et seq. For example, ranking employees according to 
their ability to work flexible schedules might affect an employee 
who has been assigned to a regular, set schedule as a reasonable 
accommodation.
---------------------------------------------------------------------------

    The determination of reasonableness also requires consideration of 
what the employer knew or should have known about the practice's impact 
when it took the challenged action.\39\ If the employer had no reason 
to know that its actions would have an age-based adverse impact, then 
it cannot be expected to take any action to ameliorate such impact. An 
employer, however, cannot hide behind lack of knowledge. A reasonable 
employer implementing practices that harm significant numbers of 
employees will evaluate the process to determine whether its practice 
has a disproportionate impact based on age. If the practice has a 
substantial adverse age-based impact, the employer's failure to have 
measured the impact will not protect it from a finding that it should 
have known of the impact.
---------------------------------------------------------------------------

    \39\ Cf. Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 
759 (1998) (applying agency principles, the Court noted that an 
employer may be liable for a supervisor's sexual harassment when the 
employer's ``own negligence is a cause of the harassment'' and that 
``[a]n employer is negligent if it knew or should have known about 
the conduct and failed to stop it'').
---------------------------------------------------------------------------

Relevant Factors
    To aid in assessing whether an employment practice is based on a 
reasonable factor other than age, proposed paragraph 1625.7(b)(1) sets 
forth a nonexhaustive list of factors that may be relevant to the RFOA 
defense. As noted above, relevant considerations include whether the 
practice and its implementation are common business practices and the 
extent to which the employer took steps to assess and ameliorate the 
adverse impact on older workers. The extent to which the factor is 
related to the employer's stated business goals also is relevant to 
whether it is a reasonable one. For example, in Smith, the city's 
``decision to grant a larger raise to lower echelon

[[Page 7216]]

employees for the purpose of bringing salaries in line with that of 
surrounding police forces * * * responded to the City's legitimate goal 
of retaining police officers.'' \40\
---------------------------------------------------------------------------

    \40\ Smith, 544 U.S. at 242.
---------------------------------------------------------------------------

    The extent to which the employer took steps to define the factor 
accurately also is relevant to reasonableness. For example, an 
employee's flexibility may be assessed through concrete examples of 
behavior such as accepting or resisting new assignments, seeking or 
refusing training, and being open or opposed to new ways of doing 
things. Similarly, the steps the employer took to apply the factor 
fairly and accurately affect the determination of whether the factor 
was reasonable. For example, the extent to which the employer provided 
decision makers with training or other guidance on how to implement the 
practice may be relevant to whether the practice was administered in a 
reasonable way.
    In addition, the list includes the severity of the practice's 
impact on individuals within the protected age group. Severity is 
measured both in terms of the degree of injury to affected employees 
and the scope of the impact, i.e., the number of persons harmed.\41\ 
Smith is perhaps the quintessential example of negligible impact 
because the impact was slight in both degree and scope. Although the 
raises given to older workers were smaller in percentage terms, they 
were higher in actual dollar terms. Thus, to the extent that any older 
workers suffered any harm, it was minor.\42\ In addition, to the extent 
workers could be said to have been disadvantaged, the numbers of those 
so affected were small.
---------------------------------------------------------------------------

    \41\ Restatement (Second) of Torts 293 (1965) (in determining 
the magnitude of the risk for the purpose of determining whether the 
actor is negligent, factors that must be considered include the 
extent of the likely harm and the number of persons whose interests 
are likely to be harmed).
    \42\ The city's pay plan divided five police ranks into a series 
of steps and set the wages for the ranks based on a survey of wages 
in surrounding communities. Most of the officers were in the three 
lowest ranks, where age did not affect compensation. Compensation 
was affected only in the two highest ranks, police lieutenant and 
deputy police chief, where all of the officers were over 40. 
Although the raises given to the more senior older workers were 
smaller in percentage terms than the raises given to the less senior 
younger workers, they were larger in dollar terms. Overall, 
approximately 66% of the officers under 40 received raises of more 
than 10% while approximately 45% of those over 40 did. Smith, 544 
U.S. at 241-42.
---------------------------------------------------------------------------

    The other end of the severity spectrum is one in which the harm to 
affected individuals is significant and falls primarily on older 
individuals. The more severe the harm, the greater the care that ought 
to be exercised.\43\ This end of the spectrum is exemplified by the 
facts in Meacham, where the affected employees lost their jobs and the 
age-based effect was ``startlingly skewed.'' \44\ This is not to say 
that a reasonable employer must entirely eliminate the impact but, 
rather, that a reasonable employer would investigate the reason for the 
result and attempt to reduce the impact to the extent appropriate to 
the given facts.
---------------------------------------------------------------------------

    \43\ Cf. Restatement (Second) of Torts 298 cmt. b (1965) (``The 
greater the danger, the greater the care which must be 
exercised.'').
    \44\ Meacham v. Knolls Atomic Power Lab., 461 F.3d 134, 145 (2d 
Cir. 2006), vacated, 128 S. Ct. 2395 (2008).
---------------------------------------------------------------------------

    The extent to which the employer took preventive or corrective 
steps to minimize the severity of the harm, in light of the burden of 
undertaking such steps, also is relevant to the issue of 
reasonableness. As noted in the Restatement, the reasonableness of the 
employer's actions also includes consideration of the relationship 
between the severity of the harm and the availability of measures that 
would reduce or eliminate the risk of harm.\45\ If, as in Smith, the 
harm is negligible both in terms of the numbers affected and the degree 
of harm to those affected, it is not necessary to consider whether 
there are measures that would further reduce or eliminate the harm.
---------------------------------------------------------------------------

    \45\ Cf. Restatement (Second) of Torts 292 cmt. c (1965) (``if 
the actor can advance or protect his interest as adequately by other 
conduct which involves less risk of harm to others, the risk 
contained in his conduct is clearly unreasonable.'').
---------------------------------------------------------------------------

    On the other hand, if the harm is severe, the determination of 
reasonableness includes consideration of whether the employer knew or 
should have known of measures that would reduce or eliminate the harm 
and the extent of the burden that implementing such measures would 
place on the employer.\46\ For example, a reduction-in-force designed 
to cut costs by terminating sales people with the highest salaries 
might severely affect older workers. The employer could mitigate the 
harm by also considering the sales revenues that the affected 
individuals generated. By considering revenue as well as salary, the 
process would reasonably achieve the employer's important goal of 
cutting costs without unfairly limiting the employment opportunities of 
older individuals.
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    Finally, the determination of reasonableness includes consideration 
of whether other options were available and the reasons the employer 
selected the option it did. As the proposed regulation notes, this does 
not require an employer to adopt a practice that has the least impact 
on members of the protected group. Unlike Title VII's business 
necessity defense, which requires an employer to use the least 
discriminatory alternative,\47\ ``the reasonableness inquiry includes 
no such requirement.'' \48\ Thus, the availability of a less 
discriminatory practice does not by itself make a challenged practice 
unreasonable.
---------------------------------------------------------------------------

    \47\ Title VII requires an employer to adopt the least 
discriminatory alternative. See 42 U.S.C. 2000e-2(k)(1)(A). In 
contrast, factors listed in the proposed paragraph refer to what the 
employer ``knew or should have known'' at the time of the challenged 
action. These factors recognize that the RFOA test is less stringent 
than the business necessity test and that ``the scope of disparate-
impact liability under ADEA is narrower than under Title VII.'' 
Smith, 544 U.S. at 240.
    \48\ Smith, 544 U.S. at 243.
---------------------------------------------------------------------------

    That the reasonableness inquiry does not require an employer to use 
the least discriminatory alternative, however, does not mean that the 
existence of alternatives is irrelevant. An employer's knowledge of and 
failure to use equally effective, but less discriminatory, alternatives 
is relevant to whether the employer's chosen practice is reasonable. 
This is especially true if the chosen practice significantly affects 
the employment opportunities of older individuals but only marginally 
advances a minor goal of the employer. ``If the actor can advance or 
protect his interest as adequately by other conduct which involves less 
risk of harm to others, the risk contained in his conduct is clearly 
unreasonable.'' \49\
---------------------------------------------------------------------------

    \49\ Restatement (Second) of Torts 292, cmt. c (1965).
---------------------------------------------------------------------------

    On the other hand, the dearth of equally effective options also is 
relevant to whether the employer's chosen practice is reasonable. The 
fewer options available, the more reasonable the employer's action 
appears. Thus, for example, a practice that appears unreasonable in the 
abstract because it severely affected a high percentage of older 
workers might in fact be reasonable because there were no other options 
or the available options were more burdensome than the one chosen.

Factors Other Than Age

    Proposed paragraph 1625.7(b)(2) makes clear that, for the RFOA 
defense to apply, the challenged practice must be based on a non-age 
factor.\50\ As the proposed paragraph notes, disparate impact 
challenges typically involve

[[Page 7217]]

practices that are based on objective, non-age factors.\51\ Objectively 
measurable factors such as salary and seniority are non-age factors. 
Although they may sometimes correlate with age, they are analytically 
and factually distinct from age.\52\
---------------------------------------------------------------------------

    \50\ See 29 CFR 1625.7(c) (``When an employment practice uses 
age as a limiting criterion, the defense that the practice is 
justified by a reasonable factor other than age is unavailable.''); 
Smith, 544 U.S. at 239 (RFOA ``preclud[es] liability if the adverse 
impact was attributable to a nonage factor that was `reasonable.' 
'').
    \51\ See Meacham, 128 S. Ct. at 2403 (``in the typical 
disparate-impact case, the employer's practice is `without respect 
to age' and its adverse impact (though `because of age') is 
`attributable to a nonage factor' * * *'').
    \52\ See Hazen Paper Co. v. Biggins, 507 U.S. 604, 611 (1993) 
(``Because age and years of service are analytically distinct, an 
employer can take account of one while ignoring the other, and thus 
it is incorrect to say that a decision based on years of service is 
necessarily `age based.' ''); Anderson v. Baxter Healthcare Corp., 
13 F.3d 1120, 1125-26 (7th Cir. 1994) (age and compensation levels 
are analytically distinct).
---------------------------------------------------------------------------

    On the other hand, the unchecked use of subjective criteria that 
are subject to age-based stereotypes may not be distinct from age.\53\ 
The Supreme Court has recognized that the problem of discrimination by 
lower-level managers given unchecked discretion to engage in subjective 
decision making needs to be addressed and that disparate impact 
analysis is sometimes the only way to do so.\54\ Like Title VII, the 
ADEA was directed at ``the consequences of employment practices, not 
simply the motivation'' and ``good faith `does not redeem employment 
procedures * * * that operate as `built-in headwinds' for [protected] 
groups and are unrelated to measuring job capability.' '' \55\
---------------------------------------------------------------------------

    \53\ See Durante v. Qualcomm, 144 Fed. Appx. 603, 606 (9th Cir. 
2005) (unpublished) (although `` `[p]laintiffs generally cannot 
attack an overall decisionmaking process in the disparate impact 
context, [and] must instead identify the particular element or 
practice within the process that causes an adverse impact[,]' * * * 
an overall decision-making process may be subject to a disparate 
impact challenge if the employer utilizes an `undisciplined system 
of subjective decision-making' '') (quoting Stout v. Potter, 276 
F.3d 118, 1124 (9th Cir. 2002) and Watson v. Fort Worth Bank & 
Trust, 487 U.S. 977, 990 (1988)).
    \54\ Watson v. Fort Worth Bank and Trust, 487 U.S. 977, 990 
(1988).
    \55\ Smith, 544 U.S. 228, 234-35 (emphasis in original) (citing 
Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971)).
---------------------------------------------------------------------------

    For example, an employer that is downsizing may want to retain 
individuals with the ability to learn new computer skills. If the 
employer makes no effort to assess that ability objectively but instead 
gives managers unchecked discretion to determine whom to retain, the 
decision makers may act on the basis of stereotypes about older 
workers' willingness or ability to learn computer skills. As a 
consequence, the downsizing may result in a significantly younger but 
not necessarily more technologically capable workforce. In that 
situation, where age-based stereotypes infected an undisciplined 
decision-making process, the employer did not rely on a factor other 
than age.
    An employer that gives unchecked discretion to supervisors to 
engage in subjective decision making should know that doing so may well 
cause an age-based disparate impact. Thus, employers that give their 
supervisors unchecked discretion to make subjective decisions expose 
themselves to liability on this basis. They should particularly avoid 
giving such discretion to rate employees on criteria known to be 
susceptible to age-based stereotyping, such as flexibility, willingness 
to learn, or technological skills. Instead, evaluation criteria should 
be objectified to the extent feasible. For example, instead of asking 
supervisors in the abstract to rate employees' willingness to take on 
new tasks, employers should instruct supervisors to identify times that 
an employee was asked to perform new tasks and to describe the 
employee's reaction to such assignments. In addition, supervisors 
should be trained to become aware of and avoid age-based stereotyping. 
If the employer does give supervisors unchecked discretion to engage in 
subjective decision making, it should determine whether doing so had a 
disparate impact and, if so, should take reasonable steps to determine 
whether that impact might be attributable to supervisors' conscious or 
unconscious age bias and to mitigate the problem.\56\
---------------------------------------------------------------------------

    \56\ An employer that gives supervisors unchecked discretion to 
engage in subject decisionmaking should also determine whether doing 
so resulted in age-based disparate treatment. Cases challenging 
subjective decisionmaking may involve allegations of disparate 
treatment as well as disparate impact. See, e.g., Meacham, 128 S. 
Ct. at 2398 (noting that plaintiffs raised both disparate-treatment 
and disparate-impact claims).
---------------------------------------------------------------------------

    To aid in assessing whether an employment practice is based on a 
non-age factor, proposed paragraph 1625.7(b)(2) sets forth a 
nonexhaustive list of factors that are relevant to the RFOA defense. 
Relevant factors include the extent to which the employer gave 
supervisors unchecked discretion to assess employees subjectively, the 
extent to which supervisors were asked to evaluate employees based on 
factors known to be subject to age-based stereotypes, and the extent to 
which supervisors were given guidance or training about how to apply 
the factors and avoid discrimination.
    The Commission invites comments on the proposed changes from all 
interested parties.

Regulatory Procedures

Executive Order 12866

    Pursuant to Executive Order 12866, EEOC has coordinated this 
proposed rule with the Office of Management and Budget. Under section 
3(f)(1) of Executive Order 12866, EEOC has determined that the 
regulation will not have an annual effect on the economy of $100 
million or more or adversely affect in a material way the economy, a 
sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State or local tribal 
governments or communities. Therefore, a detailed cost-benefit 
assessment of the regulation is not required.

Paperwork Reduction Act

    This proposal contains no new information collection requirements 
subject to review by the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35).

Regulatory Flexibility Act

    The Commission certifies under 5 U.S.C. 605(b) that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities because it imposes no economic or reporting 
burdens on such firms and makes no change to employers' compliance 
obligations under the Act. Instead, the proposed rule brings the 
Commission's regulations into compliance with recent Supreme Court 
interpretations of the Act. For this reason, a regulatory flexibility 
analysis is not required.

Unfunded Mandates Reform Act of 1995

    This proposed rule will not result in the expenditure by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year, and it will not 
significantly or uniquely affect small governments. Therefore, no 
actions were deemed necessary under the provisions of the Unfunded 
Mandates Reform Act of 1995.

List of Subjects in 29 CFR Part 1625

    Advertising, Age, Employee benefit plans, Equal employment 
opportunity, Retirement.

    Dated: February 12, 2010.

    For the Commission.
Stuart J. Ishimaru,
Acting Chairman.

    For the reasons set forth in the preamble, the Equal Employment 
Opportunity Commission proposes to

[[Page 7218]]

amend 29 CFR chapter XIV part 1625 as follows:

PART 1625--AGE DISCRIMINATION IN EMPLOYMENT ACT

    1. The authority citation for part 1625 continues to read as 
follows:

    Authority:  81 Stat. 602; 29 U.S.C. 621; 5 U.S.C. 301; 
Secretary's Order No. 10-68; Secretary's Order No. 11-68; Sec. 9, 81 
Stat. 605; 29 U.S.C. 628; sec. 12, 29 U.S.C. 631, Pub. L. 99-592, 
100 Stat. 3342; sec. 2, Reorg. Plan No. 1 of 1978, 43 FR 19807.

Subpart A--Interpretations

    2. Revise paragraph (b) of Sec.  1625.7 to read as follows:


Sec.  1625.7  Differentiations based on reasonable factors other than 
age.

* * * * *
    (b) Whether a differentiation is based on reasonable factors other 
than age (``RFOA'') must be decided on the basis of all the particular 
facts and circumstances surrounding each individual situation.
    (1) Reasonable. A reasonable factor is one that is objectively 
reasonable when viewed from the position of a reasonable employer 
(i.e., a prudent employer mindful of its responsibilities under the 
ADEA) under like circumstances. To establish the RFOA defense, an 
employer must show that the employment practice was both 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. Factors relevant to determining whether an 
employment practice is reasonable include but are not limited to, the 
following:
    (i) Whether the employment practice and the manner of its 
implementation are common business practices;
    (ii) The extent to which the factor is related to the employer's 
stated business goal;
    (iii) The extent to which the employer took steps to define the 
factor accurately and to apply the factor fairly and accurately (e.g., 
training, guidance, instruction of managers);
    (iv) The extent to which the employer took steps to assess the 
adverse impact of its employment practice on older workers;
    (v) The severity of the harm to individuals within the protected 
age group, in terms of both the degree of injury and the numbers of 
persons adversely affected, and the extent to which the employer took 
preventive or corrective steps to minimize the severity of the harm, in 
light of the burden of undertaking such steps; and
    (vi) Whether other options were available and the reasons the 
employer selected the option it did.\1\
---------------------------------------------------------------------------

    \1\ This does not mean that an employer must adopt an employment 
practice that has the least severe impact on members of the 
protected age group. ``Unlike the business necessity test, which 
asks whether there are other ways for the employer to achieve its 
goals that do not result in a disparate impact on a protected class, 
the reasonableness inquiry includes no such requirement.'' Smith v. 
City of Jackson, 544 U.S. 228, 243 (2005). Instead, this simply 
means that the availability of other options is one of the factors 
relevant to whether the practice was a reasonable one. ``If the 
actor can advance or protect his interest as adequately by other 
conduct which involves less risk of harm to others, the risk 
contained in his conduct is clearly unreasonable.'' Restatement 
(Second) of Torts 292, cmt. c (1965).
---------------------------------------------------------------------------

    (2) Factors Other Than Age. When an employment practice has a 
significant disparate impact on older individuals, the RFOA defense 
applies only if the practice is not based on age. In the typical 
disparate impact case, the practice is based on an objective non-age 
factor and the only question is whether the practice is reasonable. 
When disparate impact results from giving supervisors unchecked 
discretion to engage in subjective decision making, however, the impact 
may, in fact, be based on age because the supervisors to whom decision 
making was delegated may have acted on the bases of conscious or 
unconscious age-based stereotypes. Factors relevant to determining 
whether a factor is ``other than age'' include, but are not limited to, 
the following:
    (i) The extent to which the employer gave supervisors unchecked 
discretion to assess employees subjectively;
    (ii) The extent to which supervisors were asked to evaluate 
employees based on factors known to be subject to age-based 
stereotypes; and
    (iii) The extent to which supervisors were given guidance or 
training about how to apply the factors and avoid discrimination.
* * * * *
[FR Doc. 2010-3126 Filed 2-17-10; 8:45 am]
BILLING CODE 6570-01-P
```