Opinion ID: 400084
Heading Depth: 2
Heading Rank: 1

Heading: Subterfuge under the ADEA

Text: 32 At all pertinent times herein, § 4(a)(1) of the ADEA, which is set forth in full at note 3, supra, made it unlawful for an employer such as Home to discharge any individual (whose age was over 40 and under 65) ... because of such individual's age. 6 Section 4(f) of the Act, however, quoted in note 4, supra, provided certain exceptions. Section 4(f)(2) provided that it was not unlawful for an employer to observe the terms of ... any bona fide employee benefit plan such as a retirement ... plan, which is not a subterfuge to evade the purposes of the ADEA. 33 As the district court stated, the employer has the burden of proving that its age-based actions fall within the exception provided by § 4(f)(2). EEOC v. Eastern Airlines, Inc., 645 F.2d 69 (5th Cir. 1981). See generally Belton, Burdens of Pleading and Proof in Discrimination Cases: Toward a Theory of Procedural Justice, 34 Vand.L.Rev. 1205, 1257-61 (1981). The § 4(f)(2) defense has three elements: (1) there must be a bona fide (retirement) plan, (2) the action must have been taken in observance of its terms, and (3) the retirement plan must not have been a subterfuge to evade the purposes of the ADEA. E.g., EEOC v. Baltimore & Ohio R.R., 632 F.2d 1107, 1110 (4th Cir. 1980); Smart v. Porter Paint Co., 630 F.2d 490, 493 (7th Cir. 1980). 34 The parties in the present case agree that the first two elements are established. They stipulated that the Plan, both before and after Home's 1974 amendments, was a bona fide plan within the meaning of the Act because Home employees who retired pursuant to its terms received substantial benefits; and they agreed that in requiring the prompt retirement of employees who reached the age of 62 after January 1, 1974, 7 Home was observing the terms of its bona fide Plan. The controversy centers on whether or not the plan was a subterfuge to evade the purposes of the Act. For the reasons below we conclude that there is no basis for ruling that Home's action was not subterfuge without making an examination of Home's motives for lowering the mandatory retirement age, and that a proper assessment of the evidence as to Home's alleged motives suggests that its action may well have been subterfuge. 35 Home contends that as a matter of law its Plan cannot be deemed a subterfuge (1) because it is a bona fide plan, paying substantial benefits, and (2) because the Plan included a mandatory retirement feature prior to the enactment of the ADEA. It purports to find support for these positions in the Supreme Court's decision in United Air Lines, Inc. v. McMann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977). We think McMann requires their rejection. 36 In McMann, the Supreme Court addressed the meaning of the word subterfuge in § 4(f)(2) and the proof that, in the circumstances, the employer needed to offer as to that element. There, the plaintiff challenged the pension plan of United Air Lines (United) which, with all its pertinent terms, had been established in 1941 and was construed to provide for mandatory retirement at age 60. McMann conceded that United's plan was bona fide 'in the sense that it exist(ed) and pa(id) benefits,'  434 U.S. at 194, 98 S.Ct. at 446, but contended, with the support of the Secretary of Labor as amicus curiae, that enforcement of the age-60 retirement provision, even under a bona fide plan instituted in good faith in 1941, was a subterfuge to evade the Act, id. The court of appeals had ruled that a pre-age-65 retirement falls within the meaning of 'subterfuge' unless the employer can show that the early retirement provision ... ha(s) some economic or business purpose other than arbitrary age discrimination.' (McMann v. United Air Lines, Inc.,) 542 F.2d 217, 221 ((4th Cir.) 1976). Id. at 195, 98 S.Ct. at 446 (brackets and ellipsis in original). The Supreme Court reversed, holding that where the plan was concededly bona fide, in the sense that substantial benefits were paid, and had been established decades before the enactment of the ADEA, it could not be deemed a subterfuge: 37 In this case, of course, our function is narrowly confined to discerning the meaning of the statutory language; we do not pass on the wisdom of fixed mandatory retirements at a particular age. So limited, we find nothing to indicate Congress intended wholesale invalidation of retirement plans instituted in good faith before its passage, or intended to require employers to bear the burden of showing a business or economic purpose to justify bona fide pre-existing plans as the Fourth Circuit concluded. In ordinary parlance, and in dictionary definitions as well, a subterfuge is a scheme, plan, stratagem, or artifice of evasion. In the context of this statute, subterfuge must be given its ordinary meaning and we must assume Congress intended it in that sense. So read, a plan established in 1941, if bona fide, as is conceded here, cannot be a subterfuge to evade an Act passed 26 years later. To spell out an intent in 1941 to evade a statutory requirement not enacted until 1967 attributes, at the very least, a remarkable prescience to the employer. We reject any such per se rule requiring an employer to show an economic or business purpose in order to satisfy the subterfuge language of the Act. 38 434 U.S. at 203, 98 S.Ct. at 450 (footnote omitted). The ruling in McMann does not purport to relieve all employers of all obligation to prove economic or business purposes in order to disprove subterfuge. Rather, the thrust of McMann is that where the plan is bona fide, in that it pays substantial benefits, and where the action taken is in observance of its terms, the employer can meet its burden of proving that the plan is not a subterfuge simply by showing that it was established long before the ADEA was enacted. Where, however, the pertinent terms of the plan were adopted after the ADEA was enacted, this avenue of disproving subterfuge is simply not open. Proof by the employer of non-age-based reasons will then be required. 39 Home's argument that McMann warrants entry of judgment for Home as a matter of law appears to be based principally on the McMann Court's quotation of the following passage from Zinger v. Blanchette, 549 F.2d 901, 905 (3d Cir. 1977), cert. denied, 434 U.S. 1008, 98 S.Ct. 717, 54 L.Ed.2d 750 (1978): 40 The primary purpose of the Act is to prevent age discrimination in hiring and discharging workers. There is, however, a clear, measurable difference between outright discharge and retirement, a distinction that cannot be overlooked in analyzing the Act. While discharge without compensation is obviously undesirable, retirement on an adequate pension is generally regarded with favor. A careful examination of the legislative history demonstrates that, while cognizant of the disruptive effect retirement may have on individuals, Congress continued to regard retirement plans favorably and chose therefore to legislate only with respect to discharge. 549 F.2d at 905. (Emphasis supplied; footnote omitted.) 41 McMann supra, 434 U.S. at 198, 98 S.Ct. at 447. Emphasizing the last sentence in the Zinger quote, 8 Home argues here that 42 the Court as well as the Congress favorably regarded retirement plans like Home's that paid substantial benefits, and decided that those plans could not be subterfuges to evade the Act's purposes whether they or amendments to them were adopted before or after the Act's effective date. 43 (Appellee's Brief at 30.) Neither the suggestion that a bona fide plan is ipso facto not a subterfuge, nor the suggestion that the time of adoption of the plan's pertinent terms 9 is irrelevant, can be supported. Taking these contentions in reverse order, we note first that neither Zinger nor McMann ruled on a plan whose pertinent provisions were adopted after the Act's effective date. Indeed, it is clear that the McMann majority relied heavily on the fact that United had set its mandatory retirement age at 60 prior to the enactment of the ADEA (the opinion referred to plans instituted ... before its passage, 434 U.S. at 203, 98 S.Ct. at 450, and pre-existing plans, id.), and concluded that United's plan so long predated the Act (26 years, id.), that it could not rationally be considered to have been intended, in any normal sense, as a device to evade the Act. See also concurring opinion of Justice Stewart: I think it is simply not possible for a bona fide retirement plan adopted long before the Act was even contemplated to be a 'subterfuge' to 'evade' either its terms or its purposes. Id. at 204, 98 S.Ct. at 450. Obviously no such impossibility inheres in an amendment that follows enactment of the Act. 44 Nor do we find tenable the proposition that no plan that is bona fide can be a subterfuge. To assume that bona fide and not a subterfuge carry the same meaning is to ignore both the language and the stated purposes of Congress. If Congress had intended that a plan that is bona fide be considered ipso facto not a subterfuge, there would have been no reason for the insertion in § 4(f)(2) of the not a subterfuge clause. And in view of the purposes of Congress in enacting the ADEA, there is no basis for finding that clause redundant. If the meaning of the term bona fide is that stipulated by the parties in the present case, bona fide means simply that the plan pays substantial retirement benefits. 10 Equating bona fide with not a subterfuge to evade the purposes of (the Act) would thus require us to infer that the only purpose of the Act was to ensure the payment of substantial retirement benefits to older employees. Any such inference is repeatedly rebuffed by Congress's statements of its findings and purpose, 29 U.S.C. § 621, as well as by the legislative history of the Act. In § 621 Congress stated that older workers were disadvantaged in their efforts to retain employment, § 621(a)(1), that the incidence of unemployment was detrimental to older workers' skill and morale, § 621(a)(3), and that older workers' employment problems were grave, id.; and it thus declared that a purpose of the ADEA was to promote employment of older persons, § 621(b). Likewise, the House of Representatives Committee Report on the bill that became the ADEA, stated that the purpose of the bill was to promote the employment of older workers based on their ability, (1967) U.S.Code Cong. & Ad.News 2213, 2214; that the Secretary of Labor would be authorized to educate employers to achieve (1) the reduction of barriers to ... employment, (2) the promotion of employment, and (3) the expan(sion) (of) employment opportunities for older workers, id. at 2216; and that the (bill's) primary objective (was) the promotion of employment opportunities for older workers, id. at 2219. The suggestion that all the purposes of the Act would be served simply by retiring older workers and paying them pensions is thus squarely contradicted. Finally, we note that if the McMann Court had believed that a bona fide plan is ipso facto not a subterfuge, it would have had no need to discuss what an employer must prove in order to establish that its bona fide plan is not a subterfuge. 45 Since, under the authorities, Home could not meet its burden of disproving subterfuge merely by showing the date of its Plan's pertinent amendments or by showing that the Plan pays substantial benefits, we conclude that it was incumbent on Home to prove valid business reasons for its action in lowering the mandatory retirement age, 11 and we turn now to an evaluation of the reasons Home has advanced. 46 Home's brief on appeal offers the following recapitulation:In 1974, Home had four legitimate business reasons for reducing the normal and mandatory retirement age under the Plan. First, Home wanted to remain competitive in the labor market. Second, Home wanted to keep in step with City Investing Company, and its other subsidiaries, each of which allowed employees to retire at age 62 without reduced benefits. Third, Home wanted to improve employee morale (a) by giving employees greater retirement benefits during more retirement years and, collaterally and secondarily, (b) by increasing promotional opportunities for all employees who could qualify for promotion. And fourth, Home wanted to ensure trained replacements for its many employees who were retiring early. 47 (Appellees' Brief at 34-35.) None of these reasons supports the entry of summary judgment in favor of Home. 48 Preliminarily, we note that although Home generally discusses the reductions of mandatory and normal retirement ages in tandem, the two are obviously different. Forcing an employee to retire at a given age is hardly the same as merely permitting him to do so. Only the forced retirements are under attack. With the difference clearly in focus, we see that most of Home's reasons have no application whatever to its lowering of the mandatory retirement age. 49 The first reason, to remain competitive in the labor market, was properly found by the district court to be based on the Towers, Perrin report and recommendation. As the district court noted, Towers, Perrin found merely that other companies allowed their employees to retire with full pension benefits at age 62; it said nothing about other companies forcing such retirement and it did not recommend that Home lower its mandatory retirement age. We agree with the district court, therefore, that the first alleged reason provides no support with respect to lowering the mandatory retirement age. Slip op. at 6. 50 The second reason, the desire to keep in step with affiliated companies, is similarly unrelated to the mandatory retirement age. Home tells us that its affiliates allowed employees to retire with full benefits at age 62. There is no suggestion that those employees were forced to retire at that age. 51 The third reason advanced by Home has two parts, and each part has a serious defect. In part (a), Home argues that it sought to improve employee morale by giving employees greater retirement benefits during more retirement years. This was, again, only a reason for reducing the normal retirement age. Reduction in the normal retirement age could indeed improve the morale of employees who wished to retire at age 62. But the lowering of the mandatory retirement age had no relevance to these employees. As a practical matter the lower mandatory retirement age affected only those employees whose morale it could not improve: those who wished to continue working past age 62. The argument that employee morale was to be improved by the longer period of retirement thus makes sense only with respect to the lowering of the normal, not the mandatory, age. 12 52 In part (b) of its third reason, Home argues that it sought to improve employee morale by increasing promotional opportunities for all employees who could qualify for promotion. The defect in this reason results from the fact that as a result of the forced retirements at age 62, no employee between the ages of 62 and 65 could qualify for promotion. Hence the change was explicitly designed to increase promotional opportunities only for employees under the age of 62. And it can reasonably be inferred that Home's focus was on persons considerably under the age of 62, since its explanation sent to employees stated, (i)f you are a young employee, this Plan change can create entirely new career opportunities for you. Thus, far from establishing as a matter of law that Home's action was not a subterfuge to evade the purposes of the Act, this reason plainly indicates that it may very well have been Home's intent to eliminate older workers in favor of younger ones, a conclusion that would require the entry of judgment against Home. As to this alleged reason, the district court stated as follows: 53 though this change may have had greater appeal for younger workers and been directed more at them, we do not find a basis here for concluding that Home's motivation in amending the plan was to advantage younger workers at the expense of older ones. 54 Slip op. at 10. We think that in light of the present record this conclusion could be questioned even if it were a ruling after a trial on the merits. But certainly in the context of a motion by Home for summary judgment, the inference should have been drawn from Home's preclusion of the advancement of workers aged 62-65, from its total elimination of such workers from its employ, and from its explicit appeal to the young, that Home's motivation was to advantage younger workers at the expense of older ones. 55 Finally, Home's fourth reason, to ensure trained replacements for its many employees who were retiring early, cannot support summary judgment in Home's favor. Given all the circumstances, this explanation, which Home claims was its primary reason for reducing the mandatory retirement age, appears to be specious. First, we note that Home did not eliminate early retirements; prior to the 1974 amendments employees could retire as early as age 55; after the amendments they could retire just as early. Second, although Home could reasonably have feared that a mandatory retirement age of 65 while retirement with full benefits was permissible at age 62 would lead a number of persons between the ages of 62 and 65 to take early retirement, the appeal of this argument is lessened by the fact that most of Home's early retirees apparently were not in the 62-65 age bracket. Quinn emphasized in his deposition that before 1974 a lot of Home employees had retired at age 60 or 61; and it was stipulated that in that period, i.e., when Home's mandatory and normal retirement ages were 65, the average age of early retirees was under 62. Thus, the lowering of the mandatory retirement age to 62 would hardly produce greater predictability in the retirement dates of the bulk of the early retirees; they were leaving Home before age 62. Third, for every age bracket of early retirement, Home's 1974 amendments increased the percentage of pension benefits payable to the early retiree. Thus, early retirements became not less attractive, but more attractive; they were likely not to decrease, but to increase. And this, indeed, was precisely what Home intended. Quinn's memorandum to the chairman of Home's board of directors stated that the early retirement penalties for employees 58-61 years old were decreased in order to encourage early retirement: 56 Under this schedule the penalty for early retirement at ages 58 through 61 would be significantly reduced from the present and the (Retirement) Committee feels that this is consistent with its objective of promoting turnover. 57 And yet, in the face of its greater encouragement of early retirements, Home apparently did nothing to achieve what it claims was the primary goal of the mandatory retirement feature, i.e., ensuring trained replacements for early retirees. It could probably have achieved this goal by requiring that those electing to retire early give the company adequate notice to permit a successor to be found or trained. But it could have done this regardless of whether the mandatory and normal retirement ages were the same. Perhaps it is not insignificant that in no Home document discussing the lowering of the retirement ages is there any mention of spontaneous early retirements as a problem. We conclude that Home's failure to take any steps to require advance notice of early retirement or to assure training of successors for early retirees casts doubt upon the verity of spontaneous early retirements as a reason for lowering the mandatory retirement age. Home's action to encourage early retirements and its failure to take any steps to eliminate their spontaneity suggest that the problem was of little real concern and that the reason is pretext. 13 58 In sum, Home has offered a total of five reasons for its lowering of the mandatory retirement age, in an effort to carry its burden of proving that its action was not subterfuge for age discrimination. Three of the alleged reasons had no relationship whatever to the mandatory age. One, billed as Home's primary reason, i.e., coping with spontaneous early retirements, appears to be specious. And one reason, which appears to amount to no more than a desire to increase opportunities for the young, would, if proved a motivating factor, justify entry of judgment against Home. Summary judgment in Home's favor should not have been granted on its § 4(f)(2) defense. 59