The cutback that cuts the wrong way
Older workers claim disparate impact
By Julie Badel
If a company is out to get rid of old workers, it better be careful.
A seemingly innocuous process of ranking employees and gradually weeding out
the low performers has generated a surprising amount of controversy as well as litigation
against Ford Motor Co. The evaluation process instituted at
Ford differed from the kind of process typically used by
employers when reducing the work force only because it
required a fixed percentage of employees to be ranked in the
bottom group, and certain consequences followed the low
Ford instituted a new evaluation policy for its top 18,000
managers and executives in January, 2000. The performance-
evaluation process called for 10 percent of the group to be
graded "A," 80 percent "B" and 10
percent "C," not unlike a typical bell curve.
Employees receiving a C grade were not eligible for a raise
or bonus. An employee who received a C grade for two
consecutive years was subject to demotion or termination.
According to USA Today, this evaluation system enabled
Ford to avoid layoffs in an era of declining profits and
Most employers would agree that this is a noble goal. In
addition, adopting the Ford system would help many employers
avoid the problems that often occur in relying on previous
performance evaluations when selecting employees for
termination during a reduction in force. Because so many
supervisors are loath to criticize their subordinates in a
review and provide an honest evaluation of their
performance, employee performance reviews often do not
reflect actual performance. The grade inflation so rampant
in the schools has found its way into the workplace.
As a result, many employers who rely on existing reviews in
selecting the lowest performing employees for termination
during a reduction in force find little or no difference
among employee ratings on their reviews. The system used by
Ford essentially required supervisors to distinguish among
employees by ranking some of them in the bottom
It is difficult to conjure up a legal reason why an employer
cannot rank its at-will employees on the basis of
performance, withhold monetary rewards to the poorest
performers, and ultimately demote or terminate them.
However, following criticism by employees and a number of
lawsuits, at least one of which claims the performance
process targeted older workers, Ford modified the
performance system in July, 2001 to classify workers into
three groups — top achiever, achiever and improvement
required — rather than using letter grades. Under the
modified process, no set percentage of workers had to be
categorized in the lowest group, according to the
California Employment Law Letter.
The challenged Ford performance plan involves two noteworthy
issues, the first being the use of a somewhat unique
performance ranking system that requires some employees to
be at the bottom of the totem pole. This type of evaluation
system has been variously referred to as a "forced
distribution" or "rank and yank" system. The
second involves the use of a theory of age discrimination,
that of disparate impact, on which courts have issued very
Some 60 managers sued Ford in Michigan state court, claiming
that the performance-management process had a
"disparate impact" on older workers, according to
the BNA Daily Labor Report. Employment discrimination
claims generally are brought under one of two theories. A
"disparate treatment" claim is one of intentional
discrimination and alleges that an employer treated
employees in a protected group differently from employees in
a nonprotected group because of their membership in that
group. For example, a claim that an employer hired only male
waiters and refused to hire women as waitresses states a
disparate treatment claim on the basis of sex.
A "disparate impact" claim, on the other hand,
focuses on a neutral rule or practice that affects a
protected group more harshly than others. As an example of a
disparate impact claim, hiring only workers who are at least
6 feet 2 inches tall could have a disparate impact on women,
most of whom are not 6 feet 2 inches tall. An employer can
defend against a disparate impact claim by demonstrating
that business necessity justifies the practice. Using this
same hypothetical, an airline could defend the use of a
height requirement (although probably not a requirement to
be 6 feet 2 inches tall) for flight attendants on the ground
that they have to be tall enough to reach the overhead
In an oral ruling on July 31, 2001, a Michigan judge decided
that the Ford employees could pursue their age
discrimination claim on a disparate impact theory, a
decision that The Daily Labor Report said a Ford
lawyer called an issue of "first impression in
Michigan." Michigan's Elliot-Larsen Civil Rights Act,
the law under which the Ford employees sued, prohibits
discrimination on the basis of religion, race, color,
national origin, age, sex, height, weight, familial status
and marital status. MCLS §37.2101 et seq.
Age discrimination under federal law is prohibited by the
Age Discrimination in Employment Act, 29 U.S.C. §623,
while disparate impact claims originated in cases brought
under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
§2000e et seq., which prohibits discrimination on the
basis of race, color, religion, national origin and sex.
Because the language of the two federal statutes differs,
federal courts disagree whether ADEA claims can be brought
on a disparate impact theory.
While suggesting that it would decline to recognize a
disparate impact claim under the ADEA, the U.S. Supreme
Court has yet to rule on the matter. A case on the court's
docket this term will require the court to resolve the
issue. However, many of the federal courts of appeal
interpret the Supreme Court's decision in Hazen Paper Co.
v. Biggins, 507 U.S. 604 (1993), as a disinclination to
recognize disparate impact claims under the ADEA.
Biggins claimed that his employer fired him — at age
62 — because of his age a few weeks before his tenth
employment anniversary when he would have been vested in the
company's pension plan. Both the jury and the federal court
of appeals found in Biggins' favor. While Biggins brought
his case under a disparate treatment theory and the court
had no need to address the viability of a disparate impact
theory, the court observed that in enacting the ADEA,
Congress sought to prohibit disparate treatment.
Concerns that older workers were being deprived of
employment because of inaccurate stereotypes about declining
productivity and competence prompted congressional enactment
of the federal ban on age discrimination, according to the
court. The court noted that making an employment decision on
a factor correlated with age, such as pension status, did
not invoke the specter of inaccurate and stigmatizing
stereotypes. It held that an employer does not violate the
ADEA by interfering with an employee's pension benefits that
would have vested by virtue of the employee's years of
Three justices concurred to underscore that the court's
opinion should not be read to sanction a disparate impact
theory of liability under the ADEA, noting the existence of
substantial arguments for not carrying over disparate impact
claims from Title VII of the Civil Rights Act of 1964 to the
Following Hazen Paper, a number of the circuit courts
of appeal, among them the First, Third, Sixth, Seventh,
Tenth and Eleventh circuits, have declined to recognize a
disparate impact theory under the ADEA. Adams v. Florida
Power Corp., 255 F.3d 1322 (11th Cir. 2001). The lengthy
set of reasons advanced by the Tenth Circuit in Ellis v.
United Airlines Inc., 73 F.3d 999 (10th Cir. 1996),
exemplifies the reasoning used by the other circuits that
have declined to recognize a disparate impact claim.
First, the ADEA provides that it is not unlawful for an
employer to take any action otherwise prohibited by the ADEA
if based on "factors other than age." 29 U.S.C.
§623(f). Title VII does not contain similar language.
However, the Equal Pay Act mirrors this language, and the
U.S. Supreme Court has interpreted that statute to preclude
disparate impact claims.
Second, the court in Ellis interpreted the
legislative history of the ADEA to encompass only purposeful
acts of age discrimination, pointing to a secretary of Labor
report recommending that Congress prohibit intentional
discrimination based on stereotypes about age.
Third, the court observed that Congress amended Title VII of
the Civil Rights Act of 1964 in 1991 explicitly to provide
for a disparate impact cause of action. No parallel
provision was added to the ADEA. As its fourth reason, the
court pointed to the Supreme Court's decision in Hazen
Paper. Finally, the Ellis court noted the trend
among other courts to decline to recognize a disparate
impact ADEA claim in the wake of Hazen Paper.
Other courts have allowed terminated employees to challenge
ranking systems under a disparate treatment theory, a case
in point being a Dolores Oubre, in Louisiana. Oubre's
employer, Entergy Operations Inc., instituted a new employee
evaluation process in which employees were ranked according
to two criteria, performance and potential, in comparison
with their peers. Ultimately, employees were placed into one
of nine groups, and the lowest 10 percent of the employees
had to be placed in the lowest group. Oubre found herself in
this group. Given a choice between a severance package and
an action plan for one year to upgrade her ranking, she
accepted the severance package and then sued.
Oubre argued that company management deliberately
implemented a ranking system that was prone to age
stereotyping. The individual who devised the ranking system
admitted that the system adversely affected older employees.
Oubre also pointed out that prior to the new ranking system,
she received positive evaluations every year. The court
acknowledged that the facts lent themselves to a disparate
impact theory, but concluded that the ranking process was
not a neutral process. Instead, the court described the
ranking as one that was impermissibly infected with age
stereotyping. This exemplifies a classic case of disparate
treatment, and the court denied the company's motion for
summary judgment. Oubre v. Entergy Operations Inc.,
1998 U.S. Dist. LEXIS 15306 (E.D. La. 1998).
Like Oubre, Charles Hartsell also challenged his employer's
ranking system, which involved a required percentage of
employees to be ranked in the bottom group in Hartsell v.
The Boeing Co., 1998 U.S. Dist. LEXIS 3287 (D. Del.
1998). In preparing for a reduction in force, Hartsell's
employer, Boeing, rated employees based on work competence,
diligence in accomplishing assigned tasks, and work
capabilities and classified them into three groups.
Hartsell was downgraded when he was viewed as the least
qualified of the managers who had been placed in the lowest
group. A panel that included both human resources personnel
and older workers reviewed the decision and found nothing
amiss in Hartsell's rating or his identification as a
However, the court seemed troubled that there were no
performance reviews that incorporated prior corrective
action notices, which Boeing pointed to in order to support
its judgment of Hartsell's poor performance. As a result,
the court denied Boeing summary judgment.
Other than establishing a set percentage of employees who
had to be ranked in the bottom group, the evaluation process
used in Oubre and Hartsell did not differ
materially from the kind of ranking process typically used
by employers during a workforce reduction geared toward
selecting the poorest performers for termination. Provided
that those processes use objective and job-related criteria,
employers often prevail at the summary judgment stage.
The result when Armand Deshais and Karl Steig sued their
employer, Consolidated Rail Corp., when they were laid off
based on a performance rating is typical of the result an
employer might expect from terminations based on a ranking
system used to select the poorest performers. In Deshais
v. Consolidated Rail Corp., 956 F. Supp. 230 (N.D. N.Y.
1997), the employer rated its supervisors based on
performance evaluations (50 percent), a structured interview
(30 percent), supervisor's recommendations (10 percent) and
specific project/team activities (10 percent).
The 10 supervisors with the lowest scores, including 49-year-
old Deshais and 47-year-old Steig, were selected for
termination in a reduction in force. They had no evidence to
support their claims of age discrimination other than an
affidavit from a former employee who alleged that employees
"perceived" a negative atmosphere toward older
employees by management. In granting Conrail summary
judgment, the court referred to the "time-consuming
evaluation system" to provide a ranking of the
Where does this leave employers? Performance evaluations may
be more critical in today's economy than ever. Employers not
bound by a union contract generally prefer to terminate
their lowest performers rather than those employees with the
least amount of seniority in an economic downturn. Ranking
employees based on their performance evaluations is the
logical step to take.
However, employers must carefully structure their evaluation
systems and administer them uniformly. The following
elements are critical to any evaluation system:
Employees must be evaluated on a regular basis, initially
either three or six months after hire, and either annually
or semiannually thereafter.
The criteria on which the employees are evaluated should
relate to the job that the employee performs.
Whenever possible, the criteria evaluated should be
objective (quantity of work, attendance) rather than
subjective (leadership, cooperation), and when subjective
criteria are used, they should be defined so all supervisors
completing a review are rating the same characteristics.
Subjective criteria, such as "potential" and
"versatility," which could be argued as criteria
to deselect older workers, should be avoided.
Evaluations should be honest. A falsely positive review is
far more damaging to an employer's case than no review at
Reviews should be discussed with employees, and employees
should be given an opportunity to reflect their comments on
the review itself. Often, even a poor performer will
acknowledge that a review critical of his or her performance
All evaluations should be reviewed by human resources for
If the employee is given an overall rating, whether a
descriptive word (outstanding, competent, needs improvement)
or a number, the overall rating should be consistent with
the individual ratings in each area. For example, a review
in which an employee is rated "competent" in seven
out of 10 areas but is given an overall rating of
"needs improvement" may suggest a bias to provide
the employee with a lower rating than his performance
If an employee traditionally has had better reviews, the
review itself should explain why it is significantly lower
than the employee's reviews have been historically.
Sometimes a new supervisor with higher expectations triggers
a lower than normal rating. Other times, the employee has
trouble learning new tasks or just seems to lose interest in
the job. But whatever reason accounts for the decline,
reflecting the problem in the review itself will help to
stem arguments that the review is artificially critical in
order to place the employee on a termination list.
Workforce reductions on the basis of performance make the
most sense for employers. Employers should continue to make
reduction-in-force decisions on the basis of employee
performance and their resultant rank, and if performance is
reviewed based on objective and job-related factors, with
the safeguards discussed above, employers should be able to
withstand most attacks from older workers.
Badel is a partner at Epstein Becker & Green, P.C.,
in Chicago. Her e-mail is