Age-discrimination update.

A Supreme Court action taken in April and another late last year could alter age-discrimination claims.

Two recent actions taken by the U.S. Supreme Court could significantly affect employee claims for age discrimination. In April of this year, the Supreme Court unanimously held that an employer cannot effectively immunize itself from liability for age discrimination under the Age Discrimination in Employment Act (ADEA) simply by replacing a covered employee with another person who is also age 40 or older. However, the Supreme Court also ruled in this case that a worker must show a connection between his or her age and the adverse action taken. This may increase the burden on employees in age discrimination cases, but to what extent will depend on the interpretation adopted by lower courts.

In late 1995, in Commissioner v. Schleier, the Supreme Court ruled that back pay and liquidated damages recovered under the ADEA are taxable. The plaintiff, Schleier, a former pilot for United Airlines, reported to the Internal Revenue Service as income on his tax return the back pay he received as part of an ADEA class action lawsuit settlement with United, but he did not report as income the liquidated damages awarded. Contesting the failure to report, the IRS fought Schleier's withholding and lost the first two rounds - in the U.S. Tax Court and the Fifth Circuit - before ultimately prevailing in the Supreme Court. The impact of the Schleier decision is that in the future, plaintiffs will seek higher settlement amounts from employers in light of the established personal tax liability.

General prohibitions

The ADEA generally prohibits discrimination against people 40 years old or older, with no upper age limitation. However, the act only applies to employers with 20 or more employees who work 20 or more calendar weeks a year. If your association is covered under the ADEA, you cannot make any "employment decision" based on the age of the individual in question. Keep in mind that a claim for age discrimination can arise out of any aspect of employment: hiring, firing, seniority systems, promotions, incentive programs, or retirement.

Other elements of the ADEA include

* prohibition against mandatory retirement of employees (except in the case of certain highly compensated, policy-making executives);

* codification of the principle that employers must either offer equal benefits or incur equal costs for all employees; and

* codification of the criteria that employers must meet in voluntary early retirement plans and in obtaining waivers of legal claims in individual age-discrimination cases.

Preventive measures

To attempt to prevent ADEA claims by covered employees, take the following steps:

* Do not use age as a criterion for hiring, firing, evaluations, promotions, or employee treatment.

* Refrain from pressuring older workers to retire.

* When encouraging early retirement, provide incentives, including early vesting for pension benefits, health insurance incentives, generous severance pay, counseling and management training, outplacement services, or consultant status.

* Obtain a signed release statement from early retirees affirming that their retirement was voluntary.

* Keep detailed records related to the reasons for terminating any older employees.

More age-discrimination lawsuits are filed every year than any other type of discrimination suit. This is because, as the Schleier case exhibits, the law allows for liquidated damages, increasing a claimant's potential recovery. Another reason is that older employees typically are the highest-paid and can afford to finance an often drawn-out legal battle.

George D. Webster is general counsel emeritus to ASAE and a partner in Webster, Chamberlain & Bean. This Washington, D.C., law firm is counsel to more than 200 nonprofit organizations.