Opinion ID: 400084
Heading Depth: 2
Heading Rank: 2

Heading: Good Faith Conformity under the Portal Act

Text: 60 The Portal Act was designed to protect employers from liability if they took certain actions on the basis of an interpretation of the law by a government agency, even if the agency's interpretation later turned out to be wrong. 29 U.S.C. § 259 (1976). Section 10(a) of the Portal Act, the text of which is set out in pertinent part at note 5, supra, provides that an employer shall not be subject to any liability ... if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on a written ruling or interpretation of an appropriate government officer, here, the Wage-Hour Administrator. Thus the Portal Act defense requires the employer to establish three interrelated elements: (1) that its action was taken in reliance on a ruling of the Administrator, (2) that it was in conformity with that ruling, and (3) that it was in good faith. 61 Home asserts that in lowering the mandatory retirement age to 62 in 1974 it relied on two published opinion letters and a published regulation of the Wage-Hour Administrator. The first such letter, dated September 6, 1968 (1968 letter), stated as follows: 62 The lowering of the retirement age from 65 to 62 years for employees participating in a bona fide retirement plan would not affect the applicability of provisions authorizing retirement irrespective of age pursuant to retirement or pension plans, provided such plans are not a subterfuge to evade the purposes of the Act. The statutory exception would not apply to the involuntary retirement before age 65 of employees who are not participants in a retirement plan. 63 This is in further reference to your letter concerning the application of the Age Discrimination in Employment Act to a retirement program which is being considered by one of your clients. 64 The lowering of the retirement age from 65 to 62 years for those employees participating in a bona fide retirement plan would not affect the applicability of the exception specified in section 4(f)(2) of the Act. Section 4(f)(2) authorizes involuntary retirement irrespective of age, provided that such retirement is pursuant to the terms of a retirement or pension benefit plan meeting the requirements of the statute. 65 The exception set forth in section 4(f)(2) of the (A)ct would not apply, however, to the involuntary retirement before age 65 of employees who are not participants in your client's retirement plan. 66 Empl. Prac. Guide (CCH) P 18,045 (1968) (emphasis added). The second letter, dated June 29, 1971 (1971 letter), was similar, and stated in pertinent part as follows: 67 Exception to the statutory ban on age discrimination allowed bona fide employee benefit plans pertains to a plan that is established in good faith to provide certain fringe benefits for employees, and not as a device to avoid application of the law. 68 This is in further reference to your letter of April 28, 1971, concerning the application of the Age Discrimination in Employment Act to bona fide employee benefit plans. We regret the delay in responding to your inquiry. 69 In this connection, the term bona fide, given its generally understood meaning, describes a plan established in good faith to provide certain fringe benefits for employees, and not as a device or subterfuge to avoid the purposes of the Act. 70 Section 4(f)(2) has not, up to this date, been litigated in the courts. 71 Id. P 18,103 (1971) (emphasis added). The regulation, published on June 21, 1969 (1969 regulation), stated, in pertinent part, as follows: 72 (a) Section 4(f)(2) of the Act provides that It shall not be unlawful for an employer, employment agency, or labor organization    to observe the terms of    any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this Act, except that no such employee benefit plan shall excuse the failure to hire any individual   . Thus, the Act authorizes involuntary retirement irrespective of age, provided that such retirement is pursuant to the terms of a retirement or pension plan meeting the requirements of section 4(f)(2). 73 29 C.F.R. § 860.110(a) (ellipses in original; emphasis added). 74 Quinn testified at his deposition that he had consulted these opinion letters and the regulation prior to Home's lowering of the mandatory retirement age, and that he had believed Home's action would be in conformity with these rulings: 75 A ... I am further aware that I came to know of two or three rulings which seemed to be on all four (sic); one which lowered it from 65 to 62, as we were doing, provided we had a bona fide plan that was not a su(b)terfuge. And I was satisfied, as counsel, that we met these tests. 76 Q Mr. Quinn, is it your testimony that in concluding that it was legally proper to reduce the retirement age, that you, in fact, back in 1973, relied on the opinions and regulations that have been handed you here today? 77 A Yes. The opinions and regulations that construes (sic) the section, 4F2 Section. 78 The district court accepted Home's contention that it was thus entitled to judgment as a matter of law on the basis of § 10 of the Portal Act. We think none of the three elements required for the defense has been proven. 79 First, the action of the employer, for which it seeks to escape liability by virtue of the Portal Act, must have been taken in reliance on the administrative ruling or interpretation. We think that neither the letters nor the regulation gave any sort of interpretive guidance, relative to Home's proposed action, on which Home could rely within the meaning of the Portal Act. As the italicized portions of the letters and regulation, quoted above, demonstrate, the thrust of the Administrator's statement in each instance was that the retirement of employees on the basis of age pursuant to a bona fide retirement plan would not violate the ADEA, so long as the plan was not a subterfuge or a device to evade the Act. See 1968 letter (provided such plans are not a subterfuge to evade the purposes of the Act; provided that such retirement is pursuant to the terms of a retirement or pension benefit plan meeting the requirements of the Statute); 1971 letter (and not as a device to avoid application of the law; and not as a device or subterfuge to avoid the purposes of the Act); 1969 regulation (provided that such retirement is pursuant to the terms of a retirement or pension plan meeting the requirements of section 4(f)(2)). None of the Administrator's statements contained any elaboration of what does or does not constitute subterfuge. In essence, each stated that an employer would comply with the Act if it complied with § 4(f)(2). They thus gave Home no guidance on which to rely to know whether or not its own reduction of the mandatory retirement age constituted subterfuge. In effect Home was left to its own devices to interpret the Act. But as stated in President Truman's message to Congress on his signing of the Portal Act, § 10 was not intended to make each employer his own judge of whether or not he has been guilty of a violation. Message of President Truman to accompany the Portal-to-Portal Act of 1947, (1947) U.S.Code Cong. & Ad.News 1827 (May 14, 1947). 14 80 Next, assuming that as a technical matter Home could have relied on the letters and regulation, its action must have been in conformity with the ruling or interpretation. Since the letters and regulation stated that whatever was to be done must not be subterfuge, in order to establish a Portal Act defense Home must prove that its reduction of the mandatory retirement age was not subterfuge. As we have indicated in Part A above, Home's alleged reasons for its reduction of the mandatory retirement age not only fail to disprove subterfuge as a matter of law, they would support an inference that its action was in fact subterfuge. Thus the question of Home's conformity with the ruling that its act must not be subterfuge is similarly unresolved. This, of course, highlights the jejunity of a Portal Act defense when the interpretation purportedly relied on has done no more than repeat the requirements of the statute: if the employer has acted in conformity with the interpretation he will have obeyed the statute, and the Portal Act defense will be available only when the employer does not need it. 81 The final element that an employer must establish in order to prove a Portal Act defense is that its conformance with the administrative ruling or interpretation was in good faith. This is not a requirement of a showing of general good faith; the Portal Act language, in good faith in conformity with, precisely links the question of good faith to an act in conformity, and if there is no conformity, general good faith in other respects cannot save the day. The interrelationship among the elements was described in the President's message to Congress: 82 I wish also to refer to the so-called good faith provisions of Sections 9 and 10 of the Act. It has been said that they make each employer his own judge of whether or not he has been guilty of a violation. It seems to me that this view fails to take into account the safeguards which are contained in these Sections. The employer must meet an objective test of actual conformity with an administrative ruling or policy. If the employer avails himself of the defense under these Sections, he must bear the burden of proof. He must show that there was affirmative action by an administrative agency and that he relied upon and conformed with such action. He must show further that he acted in good faith in relying upon that administrative action. 83 Id. 84 Two conclusions follow from the fact that these elements are so intertwined. First, the serious questions that we have discussed as to whether or not Home's action was in conformity with the interpretation that its action must not be subterfuge necessarily leave the question of Home's pertinent good faith unresolved. Second, the district court's interpretation, in reliance on dicta from Addison v. Huron Stevedoring Corp., supra, 15 of the precise contours of the good faith defense requirement is flawed. The district court relied on Addison for the proposition that all that is required is that the employer have evinced an  'honest intention to ascertain what the ... Act requires and to act in accordance with it.'  Slip op. at 15, quoting Addison, 204 F.2d at 93. We believe the Portal Act requires more. 85 The circumstances in Addison were materially different from those of the present case. In Addison, the agency advice was specific and left no room for interpretation. See district court opinion in Addison, 96 F.Supp. 142, 159 (S.D.N.Y.1950). Hence, the Addison court's dicta stating that only subjective good faith, rather than reasonable grounds for belief, need be shown, had greater validity there, where the employer was not left to its own devices. In the circumstances here, we believe the honest intention to ascertain is not sufficient to establish good faith within the meaning of the Portal Act. An employer may well make an honest effort to become informed as to the precise requirements of the Act; and even if the only information made available to it is a haec-verba repetition of the terms of the statute, its intention was no less honest. But where the administrative interpretation is uninformative and leaves the employer to make its own reading of the precise requirements of the statute, the employer's honest, but unsuccessful, intention to obtain information does not relieve it of liability. 86 In short, the Portal Act was not intended to allow an employer to insulate itself from liability for the consequences of its own improvident interpretation of the statute. In the circumstances of the present case, Home has not established a Portal Act defense.