Infotech and the Law: Ruling on age bias could hinder outsourcing

Jonathan Cain

In addition to all of the pricing, competition, human resources and other pressures facing government IT contractors, the Supreme Court just added one more: new exposure to age discrimination claims filed by older workers who are harmed by employment decisions that appear to be neutral.

This decision also may have consequences for a customer's enthusiasm for outsourcing IT work to contractors, particularly work involving legacy systems with a resident supporting workforce.

In Smith v. City of Jackson, decided in April, the Supreme Court changed the landscape for claims brought under the Age Discrimination in Employment Act of 1967.

It ruled that an employee could sue over employer actions that unintentionally cause a disproportionate amount of harm to workers age 40 or older. This means an employee is no longer required to prove that the employer's age discrimination was intentional.

The Smith case was filed by a group of police officers over a salary plan that gave larger raises to officers with less than five years of tenure to make their salaries competitive with comparable positions in the market. They claimed this discriminated against older officers, even though the plan appeared to be age neutral, because most officers over age 40 did not qualify for the larger raises.

The court decided that the salary plan was permissible, because it was based on reasonable factors other than age -- in this case, a desire to make salaries of younger officers competitive with those in surrounding jurisdictions.

However, it also established that an older employee suing under the age discrimination act no longer is required to prove that an employer deliberately discriminated against him.

The employer is vulnerable to disparate-impact liability, even though the workplace policy is age neutral and appears to be non-discriminatory, if it has a disparate impact upon older workers.

One day after the Supreme Court issued its decision in Smith, a group of Federal Aviation Administration flight service station workers sued the agency over its decision to outsource the flight service station function to a private contractor.

That suit alleges that the decision to contract out the flight service function was timed so as to deny substantial federal retirement benefits to the flight service station workforce, 91 percent of whom are more than 40 years of age.

It's easy to see the potential effects of the Smith decision on IT integrators and service providers. Internally, changes in cash compensation structures such as salary, changes in non-cash compensation structures such as stock options, modifications to health or retirement benefits, educational and training opportunities and a host of other aspects of the employment relationship can have the unintentional effect of discriminating against older workers.

Externally, any outsourcing or other services contract that results in replacing the customer's employees with contract workers may result in unintended disparate treatment of the customer's older workers, such as is alleged in the case against FAA.

Employers must evaluate the impact its actions may have upon employees age 40 or older. When a policy or action may disproportionately harm older workers in contrast to workers under age 40, the employer will have to determine whether a sufficient "reasonable factor other than age" justifies the difference in treatment, and thus protects the employer from liability under the age discrimination act.

Even if there are "reasonable factors" that ultimately justify the disparate treatment, that decision typically will be made by a jury in the event of a suit challenging the action. The only sure way to avoid the risk of an adverse jury verdict is to avoid actions that result in disparate treatment.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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