Today’s AGING Workforce is Ripe with Potential for Age Discrimination Claims

The 1990s were a time of turbulence for businesses as employers faced corporate restructuring, seasonal layoffs and reductions in force (RIF). The changing workplace relationships brought about both an increase in age discrimination cases and an increase in the need for employment practices liability (EPL) coverage.

The Age Discrimination in Employment Act of 1967 (ADEA) protects individuals who are 40 years of age or older from employment discrimination based on age. Although the Equal Employment Opportunity Commission (EEOC) has made many significant strides in combating employment discrimination, the commission continues to receive charges of discrimination in record numbers. Altogether, 170,000 ADEA charges were filed during the 1990s—more than half of which involved allegations of discharges or layoffs based on age.

Demographics are changing in the workplace. According to the California Commission on Aging, by the year 2005, over half of the state’s workforce will be 40 or over. As the “baby boomers” (persons born between 1946 and 1964) get older, age discrimination is becoming one of the most frequent claims under EPL.

With older Americans wanting to remain in the job market for a variety of reasons, including economic necessity or personal choice, will lawsuits related to age discrimination increase or decrease in the coming years?

“I don’t know if one can make a categorical suggestion that age claims are increasing,” said Steven Gerber, partner of Gerber & Samson law firm and chairman of the Defense Research Institute’s employment law committee. “What we can say is that the issue is arising more and more to those of us who practice in this area, and if the claims are not increasing, certainly the potential for claims is increasing.”

In fiscal year 1999, age discrimination charges filed with EEOC under the ADEA totaled 14,141, which accounted for 18.3 percent of all agency charge receipts. The number of charges has been steadily dropping since it peaked at 19,809 in fiscal year 1993 (with the exception of jumping from 15,719 in 1996 to 15,785 in 1997).

Older baby boomers = greater risk

Insurers have responded by jumping into the EPL market with both feet—making this a rapidly expanding line of business. As a result, the market is witnessing a wave of new players, new products and new policy provisions. EPL exposures include employment-related discrimination, such as failure to promote or hire; discriminatory comments based on race, creed, gender, age, religion, sexual orientation or mental and physical handicaps; wrongful termination; and sexual harassment.

“I think age discrimination claims rise or fall depending upon the business economy,” said Rachel McKinney, vice president and underwriting manager for Swett & Crawford in Los Angeles. “And personally, I don’t think there’s as much age discrimination today as there has been in the past. Maybe there are more charges of it, because there is much more awareness.”

McKinney is the founder, administrator and underwriting manager for EPL-Exclusive Advantage©. Available solely through Swett & Crawford, the program features one of the broadest forms available, and offers duty-to-defend and full prior acts coverage. It addresses harassment, discrimination, wrongful termination and whistleblower claims. All employers are considered, with up to 25,000 employees. Minimum premium is $5,000, minimum deductible is $5,000, and limit options between $500,000 and $5 million are offered.

“We opened up in 1995 and we’re pushing $50 million in premiums,” McKinney said. “Most of our years have been very good, but it’s a tough class of business because it’s very litigious—you get lots of claims.”

Looking for smoking guns

Since McKinney introduced EPL-Exclusive Advantage©, the company has had more than 1,000 claims. “But we’ve [only] had three coverage disputes, which is phenomenal,” she said. “We don’t make any close calls—we look for smoking guns before we make a decision. We really like to partner with the insureds and that was the whole idea.”

According to McKinney, a business gets into a problem when it doesn’t make the right business decision. “If an employer hires or fires an employee for ‘non-package’ reasons—looks, ethnicity, gender, race or age—that’s a bad business decision,” she explained. “But hiring or firing on the basis of being qualified or not qualified, educated or not educated, talented or not talented—all of those experiences are wonderful business reasons for hiring somebody, keeping somebody or letting somebody go.”

Shand Morahan & Company Inc. and the Evanston Insurance Company (the Shand/
Evanston Group is a wholly owned subsidiary of Markel Corporation) jumped into the EPL market six years ago. “We are one of the original markets for employment practices,” said Gerry Albanese, senior vice president and chief underwriting officer. “I think there were three markets when we started.” It is estimated that there are more than 30 insurers offering EPL coverage today.

Just as the number of claims have skyrocketed for EPL over the years, so have the number of markets. Is this because it’s a profitable line of business? “If you look at our EPLI [book of business], it does in fact generate an underwriting profit, but there are some areas where the loss ratios are not as favorable as others,” said Letha Heaton, vice president of marketing and sales for Markel. “It appears that the states that have sort of a more litigious background or a more active plaintiffs bar…seem to have the tougher loss ratios.”

EIC’s EPLI policy provides punitive damage coverage. They are one of the few carriers to offer this option on every policy issued.

“Perhaps the most differentiating aspect of our program, as much or more than punitive damages, is that our policy also covers tort (case) law on both a local or federal level,” Heaton said. “Clearly case law is perpetually evolving and further defining discriminatory practices, in fact faster than federal statutes.” Many companies limit coverage to discrimination only as it is defined by statute, she added.

“I think that if you look at our target market—which is smaller businesses, businesses with less than 250 employees—probably the most insidious issue is that regardless of how well-run an organization is, they could be subject to a claim,” Heaton said. “And for a smaller company, that type of issue can be debilitating.”

The truth and nothing but the truth

To reduce the risk of legal action, the law firm of Silver & Freedman suggests that a company keep certain issues in mind when facing a reorganization or an RIF. Analyzing the demographics of the affected employees can help ensure that there is no unintentional disparate impact. For example, if nearly every employee being affected just happens to be over 40, companies should rethink the criteria used, depending on the circumstances.

“Everybody tends to sugarcoat reasons,” Gerber said. For example, an employer says that it is eliminating a job function and lets an employee go, when in fact, the real reason is because the employee has never really learned how to work the company’s computer program. In an effort to avoid insulting the employee, the employer tells a little white lie—but one that can come back to haunt him. The employee is fired and discovery shows that not only did the employer not eliminate the job, but they hired somebody younger, and now the employer is looking at a costly lawsuit.

“It doesn’t matter whether you do everything right or not [as an employer]—you’re going to get claims, especially in California,” Swett’s McKinney said. “The thing is, if you did everything right, then it’ll be easier to defend you.”

As part of its underwriting process, Swett & Crawford makes sure the proper policies and procedures are in place. On July 1, the company began offering Internet training for supervisors with its policy. “We formed an alliance with corpedia.com…and the course is in wrongful termination, discrimination and sexual harassment,” McKinney said. “And one of the things we deal with is age discrimination. It, along with racial discrimination and gender discrimination, are the biggies.”

Just like Swett, Shand knows the importance of educating its insureds. “We approach education from three different platforms,” Heaton said. “We have continuing education seminars for producers…we have a loss prevention guide that goes out with every policy…and then we also have some Internet delivery-based systems for either training or information on EPL.”

Some of the most feared cases in employment law are large age discrimination cases brought by groups of over-40 employees laid off as the result of a large RIF or corporate restructuring. Employers need to be aware of the potential for these situations before they arise.

Is Age Really Nothing But a Number?

The California Supreme Court recently made it more difficult for employees to sue for breach of implied contract and age discrimination, according to John P. LeCrone, an attorney for Los Angeles-based Silver & Freedman. The case, Guz v. Bechtel National, involved a 22-year employee who was laid off in a company-wide RIF. He sued, claiming he had an implied contract that he could be discharged only for good cause. He also sued for age discrimination because Bechtel retained younger workers.

In a 6-1 decision, the Supreme Court held that where an employer maintains a written policy for at-will employment, an employee cannot claim that an “implied” agreement for good cause discharge existed unless he or she can show that the employer specifically promised that good cause would be required. The fact that an employee has worked for the company for many years, explained the Court, does not create an expectation that employment will continue. “[L]ongevity, raises and promotions are their own rewards for the employee’s continuing valued service,” said the Court, and does not imply that employment will be terminated only for good cause.

The Court went on to find that an employee cannot sue for age discrimination unless he or she has direct evidence that unlawful considerations of age motivated the employer to discharge the employee. This part of the Court’s decision contrasts sharply with a recent U.S. Supreme Court case, Reeves v. Sanderson Plumbing Products, which upheld a jury verdict of age discrimination based solely on the belief that the employer lied about the reasons for discharge, with no direct evidence of discriminatory conduct.

In Reeves v. Sanderson Plumbing Products, the Supreme Court ruled that the plaintiffs can win in an employment discrimination case if they show that the employer’s reason for a challenged action is pretextual (not true). The plaintiff does not have to prove that discrimination was the real reason—it can be inferred from the facts. The unanimous Court states, “It is permissible for the trier of fact to infer the ultimate fact of discrimination from the falsity of the employer’s explanation.”

With these decisions-at least in California-LeCrone said he expects to see more cases alleging age discrimination filed in federal court under the Age Discrimination in Employment Act.

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Topics Lawsuits California Claims Training Development