(August
1999)
Older Workers Receive Layoff Protection
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January 1, 2000
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Employers with 5 or more employees
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| On August 2, 1999, Governor Gray
Davis signed SB 26, which ensures that older workers (age 40
or older) will receive greater protection against layoffs, effectively
barring salary levels as a basis for layoff selection. |
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For decades, California’s
anti-discrimination laws have protected older workers against
adverse employment decisions based on stereotypes about a person’s
age. These laws have always addressed two basic forms of discrimination:
Disparate treatment (where an employee is subjected to adverse
conditions because of his/her status in a protected class) and
adverse impact (where an employer applies a criteria that is
neutral on its face, but results in a disproportionate number
of protected class members being negatively impacted).
In 1997, a California Court of Appeals decided the case of Marks
v. Loral Corp., in which an older employee charged that he was
laid off because of his age. The employer won, proving that the
layoff decisions were based on the relative salaries of employees,
not based on age. The Court agreed that under this disparate treatment
analysis, age was not a motivating factor behind the layoff decision.
The Court also concluded that even if older workers were disproportionately
affected in the layoffs, it was a legitimate business necessity
to consider salaries when cutting costs. Showing a legitimate business
necessity is a defense to an adverse impact claim.
The premise for SB 26 is that it takes years for an employee to
work up to a higher pay level; therefore, higher salaries are generally
paid to older workers, effectively making salary a proxy for age.
SB 26 overturns the ruling in Marks in an extremely unusual manner:
It acknowledges that the law has always protected older workers
from age-based decisions and declares that it is not intending
to change existing law. The statute states that its purpose is
to “declare the Legislature’s rejection of the opinion
in [Marks] and state that the opinion does not affect existing
law in any way...” What the new law really does, however,
is eliminate the consideration of relative salaries as a legitimate
business necessity in determining layoffs, when employees age 40
or older are affected. Specifically, the new law states that “the
use of salary as the basis for differentiating between employees
when terminating employment may be found to constitute age discrimination
if use of that criterion adversely impacts older workers as a group,” and
further states the intent that the adverse impact theory of proof
may be used in claims of age discrimination. |
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When an employer cuts costs by
laying off employees, it is generally as a last resort. In such
situations, an employer wants to retain its most productive workers
while minimizing salary expenses. If older workers as a group
would be adversely impacted, SB 26 eliminates an employer’s
ability to use salaries as a basis to cut costs in a layoff.
Employers may be committing age discrimination if older workers
with higher salaries are laid off while younger employees who
earn less for the same work are retained.
Although the statute addressed this “discrimination” only
in the context of terminations, there is the possibility that the
rationale of this statute could be applied to other employment
decisions, such as hiring. Additionally, given that this new law
is being touted as “making it easier to sue for age discrimination”,
it may prompt many older workers to consider legal action.
Although SB 26 deals with older employees in the context of higher
salaries, under long-standing anti-bias laws, an employer might
face age discrimination charges if the highest salaries were disproportionately
paid to its younger workers. The best method for avoiding this
quagmire is to have a carefully thought-out compensation structure
that bases pay levels on the value of the work being performed,
not on how long a person has been employed. This may include maximum
pay levels for positions.
Finally, take care that the reasons for all personnel decisions,
including pay issues, can be clearly articulated and are properly
documented. Also, there should be a periodic analysis of general
personnel matters (including performance evaluations) for possible
adverse impact on any protected group. This is particularly important
if a possible layoff looms in the future. |
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