Be careful when firing older workers

By G. Phillip Shuler

PB Power Inc. released a business plan in 2002 announcing its intention to "hand pick employees whose mindset resides in the 21st Century" and a new PB supervisor announced that he planned to "strategically hire some younger engineers and designers."

The same supervisor met 63-year-old PB Vice President Fred Machinchick for the first time and inquired of his retirement plans. Machinchick had consistently received excellent performance reviews from PB.

Shortly after the meeting with Machinchick, the new supervisor sent an e-mail to PB's Human Resources Department stating Machinchick had "low motivation to adapt to a rapidly changing business environment and new company management styles." The supervisor also stated in an affidavit that Machinchick was "inflexible, not adaptable with a businesslike attitude."

The following week Machinchick was fired for alleged performance problems. PB had a written disciplinary policy providing that a supervisor should engage in informal and formal discussions with an employee before termination.

Machinchick did not receive the benefit of this policy and was fired without warnings. PB claimed that Machinchick's job was eliminated and he was not replaced. Machinchick claimed that a 42-year-old replaced him, but PB claimed the 42-year-old was not a replacement but only a temporary intermediary between PB and clients previously served by Machinchick.

Machinchick sued PB under the federal Age Discrimination in Employment Act (ADEA) and Texas state law claiming age discrimination in his discharge. The U.S. District Court for the Southern District of Texas granted summary judgment to PB. The U.S. Fifth Circuit Court of Appeals recently reversed. Machinchick v. PB Power, Inc., d/b/a Parsons Brinckenhoff, 5th Cir., No. 64-20418 (January 24, 2005).

The Fifth Circuit concluded that Machinchick did not have to show he was replaced by a younger person but having shown that he was qualified for the job, was fired and was in the protected age group, he only needed to show that he was "otherwise discharged because of his age."

The court concluded that Machinchick's evidence created an inference that age was a factor in his firing. Specifically, the court pointed to the supervisor's age stereotyping remarks (deleted extraneous phrase here -HEM), the retention of the 42-year-old, the supervisor's inquiry about his retirement plans and PB's failure to follow its own policies.

The court also found that Machinchick had shown that PB's articulated performance reasons for his discharge were a pretext for age discrimination because he presented evidence that he had developed five key prospects and had closed a deal with Marathon Oil shortly before his termination for which he had been complimented and that he was given insufficient time to be evaluated under PB's new business plan.

The court applied a mixed motive test where the case involves "… an employment decision based upon a mixture of legitimate and illegitimate motives." In such a case, Machinchick need only "prove that the illegitimate motive was a motivating factor in the decision." The court found that Machinchick's evidence "when considered as a whole - would allow a reasonable jury to find that age was a motivating factor in PB Power's decision to terminate him." The court reversed the summary judgment for PB and sent the case back for trial.

When can you legitimately offer older employees early retirement incentives without exposing yourself to age discrimination or constructive discharge claims? That's the focus of this month's Question & Answer:

Question: Our company's business is slow and, as a result, we need to reduce our workforce. Can we require employees who are eligible for retirement benefits to retire?

Answer: No. Generally you may not force employees to retire as a part of a reduction in force or for any other reason. Mandatory retirement policies may violate both age discrimination laws and the Employee Retirement Income Security Act (ERISA). The only exception to that rule: You may compel the retirement of an employee over 65 who held a bona fide executive or policymaking position for two years before retirement and who's entitled to a pension of at least $44,000 a year.

Question: Can we offer exit incentives to try to convince retirement-eligible employees to voluntarily retire?

Answer: Yes, as long as you go about it the right way. Your offer must be presented in a way that makes it clear that the employee's decision to retire is entirely voluntary. In other words, you cannot tell an employee that he has a choice between retiring or being fired or laid off. Presenting such a "choice" only to older employees opens you up to claims of constructive discharge in violation of the ADEA.

You can and should give honest information about the financial condition of your company and the prospects for future layoffs so the employee can make an informed choice about what to do. But be aware of your risk of liability for fraud under common law or breach of fiduciary duty under ERISA if you give incorrect information or fail to disclose information about current or future enhanced benefits options to plan beneficiaries. And carefully document all your statements to employees about early retirement programs.

Question: Can we limit eligibility for early retirement incentives to certain employees?

Answer: Yes. You don't have to offer early retirement incentives to all eligible employees - you may target positions, facilities or areas of your company that are particularly in need of reduction. You may also target candidates individually based on seniority or performance issues. And you don't have to offer the same kind of amount of incentives to everyone. In limited circumstances, you can even use age as a criterion for the level of benefits offered.

For instance, you can offer more incentives to older employees without violating the rights of younger employees even if your younger employees are in a protected category (such as over 40). You should not generally offer greater incentives to younger employees within a protected group, however, because that may lead to a viable claim of age discrimination from your older employees.

Question: Can we ask an employee to sign a release in exchange for accepting enhanced retirement benefits?

Answer: Yes, but you should be aware that the Older Workers Benefit Protection Act (OWBPA) contains strict standards applicable to all waivers or releases of rights under the ADEA.

To be valid, a waiver of an ADEA claim must be in writing, be written in clear and easily understandable language, and specifically refer to the rights being waived under the law.

The employee must be given at least 21 days to consider the waiver in an individual termination case.

When you are presenting an early retirement option to a group of employees as part of a "program" (which, under the OWBPA, can mean a decision affecting as few as two people), they must be given at least 45 days to consider the waiver and be provided with additional information about who's eligible for the program and how they were selected.

Finally, the waiver must be part of an agreement that is revocable for at least seven days after the employee signs it, and it may not become effective or enforceable until the seven day period has expired.

If you are facing an urgent need for workforce reduction, you should take those waiting periods into consideration when you're thinking about implementing exit incentive programs directed at older employees.

Editor's Note: G. Phillip Shuler is a partner in the New Orleans office of Chaffe, McCall, Phillips, Toler & Sarpy.