8th Circuit Rules that Rehiring Policy is Amenable to Disparate Impact Challenge

The EEOC won an important victory in the 8th Circuit today. In
EEOC v. Allstate, the 8th Circuit affirmed in an interlocutory appeal that a rehiring policy instituted by Allstate as part of a reorganization plan could be challenged under a disparate impact theory, and that the plan did in fact disparately impact older workers.

The rehiring plan came about as a result of a plan to reorganize Allstate's employee insurance agents. Allstate used to hire insurance agents, but it also used to sell insurance through independent contractor agents. In 1990, Allstate stopped hiring new employee agents, entering into new relationships only with independent contractors. Still, until June, 2000, Allstate had about 6300 employee agents. To completely make the switch, Allstate decided to terminate all 6300 of these employees. It gave them four options. Two options allowed the employees to become independent contractors and receive a cash bonus. Two options allowed for severance pay, instead, with a greater amount given in exchange for a release of any claims against Allstate. At first, there was no policy in effect regarding rehiring former employee agents (into non-agent positions), but after a few months, Allstate instituted a plan which provided that former employee-agents would not be considered for rehire in any employee position with Allstate for a period of either (1) one year from their termination date; or (2) the length of time the former agents received severance benefits from Allstate, whichever was longer.

The EEOC brought this action to challenge not the reorganization plan, but just the rehiring portion, arguing that in had a disparate impact on workers over 40 in violation of the ADEA. The district court granted partial summary judgment, agreeing that this policy could be challenged using the disparate impact theory and that the policy had a disparate impact on workers over 40.

Allstate appealed, contesting both holdings. Allstate argued that the Supreme Court's decision in Smith v. City of Jackson, Miss. foreclosed a disparate impact claim for this type of policy. A little analysis of the Smith decision is necessary here. The Supreme Court held that disparate impact claims were cognizable under the ADEA, but made an important distinction between the two prohibitions that form the basis for claims against employers. The ADEA makes it an illegal for an employer:

(1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age;
(2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s age.

29 U.S.C. § 623(a)(1), (2). The Court held that the language in (2) supported disparate impact liability, but the language in (1) did not--it described disparate treatment or intentional discrimination. There was no holding from the Court, however, on exactly what type of policies and practices are described by the two provisions.

Allstate argued that the re-hiring policy was a hiring policy, which would fall under (1), and thus no disparate impact claim could be brought to challenge it. The 8th Circuit agreed that if this was a hiring policy, then it would fall under (1), and no disparate impact claim could be brought. However it agreed with the EEOC and the lower court that this policy was not a hiring policy, but was instead an employment policy, and thus actionable under (2) and amenable to a disparate impact challenge. The reason that this was an employment policy was that it only applied to former employees and not to applicants more generally. Additionally, it was an integral part of the reorganization policy. This is the key new development, but the court did discuss the statistical disparity, as well, and if you're interested in that analysis, I encourage you to look to the opinion.

The real impact from this case is not going to be about rehiring plans and what they are. Rather, the important thing, which is not such good news for the EEOC's position in future cases, is going to be from the implicit holding that hiring policies do not give rise to disparate impact claims. As the dissent in this case noted, (2) refers primarily to employees, whereas (1) refers to individuals. Former employees or applicants are not necessarily employees within the meaning of (2). The Supreme Court said that "employees" means "former employees" for purposes of Title VII (Robinson v. Shell Oil, Co.), but Title VII's version of (2) uses the language "to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities . . ." The implication from the different language may be that Congress did not intend for disparate impact to reach hiring decisions.

In my opinion, the Supreme Court's decision in Smith did not require the 8th Circuit to impliedly hold that hiring decisions are not amenable to disparate impact challenges. The language the Court focused on was not "hiring" or "discharge" as opposed to "limit, segregate, or classify." Instead, the court looked at the singularness of the language in (1) (individual . . . his compensation . . . such individual's age) and contrasted it with the expansiveness of the language in (2) (employees . . . any individual). Nor did Justice O'Connor's concurrence, in which she would have rejected the disparate impact theory entirely under the ADEA, focus on hiring or discharge, or even who employees were.

And the language can be read in (2) to reach hiring policies. While (2) refers to practices regarding employees, it prohibits those policies from "depriv[ing] or tend[ing] to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee." Clearly, any hiring policy other than one that requires every applicant be hired will deprive or tend to deprive some individuals of employment opportunities. When that policy causes an effect based on age, that policy violates the ADEA, just as when it does so on the basis of race, color, religion, sex, or national origin, it violates Title VII. In fact, the 8th Circuit found that this policy did deprive these former employees of employment opportunities and thus fell under (2). Given that fact, I'm not sure why it had to distinguish between hiring policies and employment policies.

Hat tip: Paul Mollica

MM