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Third Circuit recognizes ‘subgroup’ disparate impact claims under ADEA, creates circuit split

By Lorene D. Park, J.D.

Citing the Supreme Court and emphasizing that the ADEA prohibits discrimination based on age and not status of being age 40 or older, and creating a split among the circuit courts, the Third Circuit concluded that “subgroup” disparate impact claims are cognizable under the ADEA. Accordingly, a lower court erred in granting summary judgment against ADEA claims by a group of plaintiffs who filed a putative collective action alleging that their employer’s reduction in force (RIF) had a disparate impact on individuals age 50 and over. Reversing in part, the appeals court also found that the district court erred in applying too high of a reliability standard and excluding testimony by the plaintiffs’ statistical expert, though its other evidentiary rulings were affirmed (Karlo v. Pittsburgh Glass Works, LLC, January 10, 2017, Smith, D.).

Pittsburgh Glass Works (PGW) manufactures automotive glass and owns related businesses including a software business, replacement-glass distributor, insurance claims administrator, and glass treatment supplier. In response to the downturn in the economy, PGW engaged in several reductions in force, including a March 31 layoff of 100 salaried employees in over 40 locations or divisions. Individual unit directors had broad discretion in selecting who to terminate. The company did not provide training, guidelines, or policies to decisionmakers, nor did it conduct any disparate-impact analysis or document why any particular employee was selected.

ADEA suit. Seven employees who worked in PGW’s manufacturing technology division filed a putative ADEA collective action, asserting claims for disparate treatment, disparate impact, and, as to two plaintiffs, retaliation. Granting conditional certification, the district court ruled that ADEA subgroups are cognizable and certified a collective of employees terminated by the RIF who were at least 50 years old. The case was transferred to another judge, though, who eventually ruled otherwise. That judge also decertified the collective.

Expert testimony excluded. Of relevance to this appeal, PGW was then granted a Daubert motion to exclude three areas of expert testimony. First, Dr. Michael Campion was prepared to offer statistical evidence in favor of plaintiffs’ disparate-impact claim. Second, Dr. Campion intended to offer his expert opinion on “reasonable” HR practices during a RIF. And third, Dr. Anthony G. Greenwald proposed to testify as to age-related implicit-bias studies.

Summary judgment. As to the plaintiffs’ disparate impact claims, the district court granted summary judgment, ruling that their 50-and-older disparate-impact claim was not cognizable under the ADEA and they lacked evidence to support the claim after the exclusion of Dr. Campion’s statistics-related testimony. The plaintiffs appealed, seeking reversal of the summary judgment order and statistics-related Daubert ruling on their disparate impact claims. They also appealed the other Daubert rulings and the order decertifying the collective action. (The disparate treatment and retaliation claims were not at issue on appeal.)

“Subgroup” disparate impact claims are cognizable under the ADEA. While disparate impact claims under the ADEA usually examine the effect of a facially neutral policy on all employees who are at least 40 years old, the plaintiffs in this case identified a policy that disproportionately impacted a subgroup of that population: employees older than 50. Because the employer’s policy allegedly favored younger members of the protected class, adding those individuals to the comparison group would wash out the statistical evidence of a disparity.

Reversing in part, the Third Circuit held that an ADEA disparate impact claim can proceed on evidence that a specific, facially neutral employment practice caused a significant adverse impact based on age. Here, the plaintiffs could demonstrate such impact with various forms of evidence, including 40-and-older comparisons, subgroup comparisons, or more sophisticated statistical modeling, so long as the evidence meets the usual standards for admissibility. To hold otherwise, the appeals court explained, “would ignore significant age-based disparities.”

Age itself is key, not being 40 and over. In reaching its decision, the appeals court reviewed the text and history of the ADEA and the history of disparate impact claims generally. It noted that the scope of disparate impact liability under the ADEA is narrower than under Title VII because of textual differences. Nonetheless, the Supreme Court in O’Connor v. Consolidated Coin Caterers Corp. clarified that although the ADEA protects a class of individuals at least 40 years old, it proscribes age discrimination, not 40-and-over discrimination. Thus, it is irrelevant if the beneficiary of age discrimination is also in the protected class. Though O’Connor involved disparate treatment, the disparate impact provision uses the same operative phrase, “because of such individual’s age,” so the interpretation should be consistent, noted the Third Circuit.

While PGW and its amici argued that disparate-impact claims generally rely on comparisons between entire classes, they cited Title VII cases, and the appeals court explained that the ADEA is different. Title VII protects group identities, such as race, but the trait protected by the ADEA is a continuous variable and requires a different statistical analysis. “The continuous, non-categorical nature of age cannot be adequately addressed by simply aggregating forty-and-older employees. More exacting analysis may be needed in certain cases, and subgroups may answer that need,” explained the appeals court.

Moreover, continued the court, “[r]efusing to recognize subgroup claims would deny redress for significantly discriminatory policies that affect employees most in need of the ADEA’s protection.” Thus, the remedial purpose of the ADEA also supported its decision.

Rejected other Circuits’ reasoning. While its interpretation of the ADEA was at odds with decisions from the Second, Sixth, and Eighth Circuits, the Third Circuit opined that they relied primarily on policy considerations that it did not find persuasive. Before addressing each Circuit’s precedent in turn, the court here summarized the problems it found in those decisions, including that they were contradicted by O’Connor; they confused evidentiary concerns with statutory interpretation; and they incorrectly assumed recognizing subgroups would proliferate liability for reasonable employment practices.

Daubert rulings. Having concluded that ADEA disparate impact claims are not limited to 40-and-older comparisons, the appeals court addressed the lower court’s second reason for granting summary judgment—the exclusion of the plaintiffs’ statistics expert under Daubert and Rule 702. While the lower court did not err in excluding other reports, including one on reasonable HR practices and one on research in the general population concerning implicit age bias, the Third Circuit found that it should not have excluded testimony by the plaintiffs’ statistics expert proposing to offer statistical evidence that employees older than 45, 50, and 55 years old were more likely to be fired in the March 2009 RIF than were younger employees.

Vacating and remanding that ruling for further Daubert proceedings, the appeals court noted that the lower court found that the expert’s data was unreliable because it included data that was not part of the “Agreed Data Set” to which the parties stipulated, but it ignored without explanation the expert’s subsequent analysis curing that deficiency. The district court also erred in applying an “incorrectly rigorous standard for reliability,” applying a higher bar (a “merits standard of correctness”) than demanded by Rule 702.

No error in decertifying collective action. Affirming the lower court’s decertification decision, the appeals court found that it did not err in applying the Third Circuit’s ruling in Zavala v. Walmart Stores Inc. and concluding that the plaintiffs failed to show they were similarly situated. Though they were terminated in the same RIF, and the existence of separate defenses or damage calculations does not automatically vitiate a collective action, the court could have determined that the differences were too pronounced in this case to proceed as a collective.