MARKS v. LORAL CORPORATION

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Court of Appeal, Fourth District, Division 3, California.

Michael J. MARKS, Plaintiff and Appellant, v. LORAL CORPORATION et al., Defendants and Respondents.

No. G017833.

Decided: July 25, 1997

James J. Guziak, Orange, for Plaintiff and Appellant. Catherine A. Evans, Rancho Margarita, for Defendants and Respondents.

OPINION

I

Introduction

Michael J. Marks appeals from a judgment after the jury returned a defense verdict in his age discrimination and retaliation lawsuit against his former employer, Loral Corporation, and several other related entities and persons.   He presents a series of challenges to various jury instructions, special verdict forms, and evidentiary rulings given by the trial court.   Most of his contentions are simply cavils about wording, and do not establish error, much less prejudicial error.

One of Marks' arguments, however, has some real substance to it.   For years now, the federal courts have struggled, in applying federal age discrimination law, with the problem of whether an employer's policy or practice which has a “disparate impact” on older workers generally constitutes illegal age discrimination.   A few years ago, Justice Kennedy noted the issue has yet to be resolved by the United States Supreme Court.  (See Hazen Paper Co. v. Biggins (1993) 507 U.S. 604, 617-18, 113 S.Ct. 1701, 1710, 123 L.Ed.2d 338 (conc. opn. of Kennedy, J.).)   In the present case, Marks argues that a particular jury instruction was improper because it told the jury that an employer was entitled to prefer lower paid workers to higher paid workers, even if that preference results in choosing younger workers.   Marks contends that the instruction was not proper.   If it were, he says, it would eliminate the “vast majority” of age discrimination cases because of the “high correlation” between age and salary level.

In this case we need not decide the broad question of whether “disparate impact analysis,” as labor law mavens style it, can ever apply to age discrimination claims, under either federal or California law.   We do, however, determine that the particular jury instruction here-which deals with the impact of compensation differentials in employer decision-making-was correct under both federal and state law:  Employers may indeed prefer workers with lower salaries to workers with higher ones, even if the preference falls disproportionately on older, generally higher paid workers.   Both the text and intent of the federal and state age discrimination statutes compel such a result.   Moreover, when we look at the origins of the “disparate impact” doctrine, we find that, by its very nature, it was never intended to apply to something so basic to the running of any enterprise as its costs of doing business.   There was thus no error in giving the instruction and the judgment must be affirmed.

II

Facts

In 1988, Marks was a member of Ford Aerospace's corporate finance staff in Michigan.   That year the unit moved to Newport Beach, California.   Marks was divorced and his children were in Chicago, relatively nearby.   Seeking to avoid the transfer, he approached various people on Ford's human resources staff to see if there was a “possibility” he might qualify for another position in Michigan.   His efforts were unsuccessful and in July he moved out to California along with the rest of the corporate finance staff.

In 1990, Loral Corporation bought Ford Aerospace Corporation, and Marks found himself working for Loral Aerospace.   In January 1991 Marks filed an age discrimination complaint with the Equal Employment Opportunities Commission against Ford Aerospace, charging that when Ford Aerospace was sold to Loral, several of his younger peers had been offered jobs in Michigan, but he had not.  (Marks mistakenly thought that his complaint was against Ford Aerospace only, and Loral would not assume liability for such claims in its purchase of Ford Aerospace.)

Most of Loral Aerospace's Newport Beach corporate finance staff positions were eliminated in 1992, including Marks'.   New accounting departments, however, were being created at seven other locations across the country.   While Loral Aerospace had no authority to direct any other division to employ any particular individual, the company's Newport Beach human resources officer tried to help Marks find a position at one of the other locations by revising his resume, informing other divisions that Loral would pay his relocation costs, sending his resume to other divisions, and allowing him to use company computers, resume services, fax machines and telephones after his termination.  (Marks' own efforts to find work at the new locations appear to have been minimal;  his attorney would later argue to the court that, because he was a member of a protected class, he need not show that he applied for any specific openings.)   Ultimately, all members of the corporate finance staff willing to relocate found new positions, except for Marks and one other, who was also over 40 years old.

Meanwhile, in May 1992, the EEOC stated that its investigation had not uncovered evidence establishing his claims, and informed him of his right to sue.   Marks, then age 49, was laid off in August 1992.   He brought this suit pursuant to state and federal age discrimination laws, contending that his age was a factor in his not being able to secure another position with the company, particularly a position in Colorado Springs where several accounting positions were open.   The case went to trial on claims of age discrimination and retaliation.   After a 16-day trial, the jury returned a 12-0 defense verdict on the age discrimination claim and a 9-3 defense verdict on the retaliation claim.   Marks then filed this appeal.

III-VIII**

IX

The Salary Instruction

The court instructed the jury that:  “An employer is entitled to chose employees with lower salaries, even though this may result in choosing younger employees.   If the choice is based on salary, there is no age discrimination.”   Marks now argues that the salary instruction was error because of the “high correlation” between age and salary.   He raises the spectre that if the law allows employers to make decisions on the basis of salary, many age discrimination claims are simply going to disappear.

We will begin our analysis by granting, for the sake of argument, Marks' premise that there is a “high correlation” between compensation and age generally, so that compensation based decisions would have a disparate impact on older workers generally.   Commentators of various persuasions have accepted the premise,4 as have a number of federal courts in the specific facts of cases before them.5

We would be remiss, though, not to note that the proffered high correlation is somewhat simplistic, and perhaps even itself a reflection of a stereotype.   Census bureau statistics, for example, show a decline in income for older workers who reach a certain age.6

As we have mentioned, there is no consensus in the federal courts on the question.   An employer's decision based on salary which disproportionately affected older workers because of the high correlation between age and salary would be actionable age discrimination under a number of relatively earlier federal circuit court decisions (see authorities collected in Caron v. Scott Paper Co. (D.Me.1993) 834 F.Supp. 33, 36) as well as a few later ones.  (See Camacho v. Sears, Roebuck de Puerto Rico, supra, 939 F.Supp. 113.7 )  On the other hand, federal courts which have examined the issue more recently, particularly in the wake of the United States Supreme Court's Hazen Paper Co. v. Biggins, supra, 507 U.S. 604, 113 S.Ct. 1701, 123 L.Ed.2d 338, have tended to hold that economic decisions do not give rise to liability for age discrimination, despite the disparate impact of such decisions on older workers.  (See Ellis v. United Airlines, Inc. (10th Cir.1996) 73 F.3d 999, 1009 [“of those courts that have considered the issue since Hazen, there is a clear trend toward concluding that the ADEA does not support a disparate impact claim”].)  (We discuss the impact of Hazen Paper to this case below.)

The core of the split may be traced to two fundamentally differing views about the goal of the age discrimination statutes.   If the goal of the age discrimination statutes is to preclude decisions based on generalities about older workers which may have no basis as to individuals, then they certainly do not extend to decisions based on relative compensation rates between individual workers.8  In this view, age discrimination statutes were enacted to prevent employers from assuming that just because an individual attained a certain age, he or she no longer could do the job, or do it as well.

The other view is that age-discrimination statutes were enacted to protect older workers because of their status as older workers, since older workers, generally speaking, face unique obstacles late in their careers.   Age discrimination law is thus seen as a kind of protective legislation designed to improve the lot of a people who are vulnerable as a class.   If this view is correct, then holding that decisions based solely on salary may contravene laws precluding discrimination based on age makes sense.9

Three reasons demonstrate the former view should prevail:  (1) The text of both the federal and state statutes indicates that price-based decisions are not within their ambit;  (2) the legislative history is devoid of any intent to impose disparate impact analysis on age discrimination claims rooted in compensation differentials in either set of statutes;  and, in fact, indicates an opposite intention;  and (3) disparate impact analysis, properly understood, is fundamentally inapplicable to age discrimination claims based on compensation differentials.

A

First, the texts of the federal and state statutes show an intention that price-based business decisions should not be held to constitute illegal age discrimination.

1

The Federal Statute

One of the important things about the federal age discrimination law is that it contains an explicit statement that an action based on “reasonable factors other than age” is not illegal age discrimination.  (See 29 U.S.C. § 623, subd. (f)(1).) 10  There is no counterpart to the statement in Title VII of the 1964 Civil Rights Act. (See Note, Age Discrimination and the Disparate Impact Doctrine (1982) 34 Stan. L.Rev. 837, 845 [“There is no provision in Title VII equivalent to ADEA section 4(f)(1)”];  cf.   Washington v. Gunther (1981) 452 U.S. 161, 170, 101 S.Ct. 2242, 2248, 68 L.Ed.2d 751 [rejecting reasonable factor defense in Title VII case].)

We must note in passing (because it is necessary in order to make sense of certain court decisions and federal regulations) that the presence of the express exception for “reasonable factors other than age” presents a problem for those who would try to divine a tidy model of the law on this point.   Does the specific mention of “reasonable factors” mean that they constitute an exception to a general rule that disparate analysis is normally applicable to age discrimination claims?   Or does the mention mean that the law-givers simply wanted to make doubly sure that courts would not end up second guessing bona fide business decisions under the guise of the age discrimination laws?   For purposes of this case, we need not decide.11  A differentiation based on salary is as “reasonable” a factor as is imaginable in a market economy.12

Unlike other facially neutral factors which might fall disproportionately on older workers,13 decision-making by cost-reliance on relative prices if you will-goes to the very core of the operation of a market economy.   (United States v. Socony-Vacuum Oil Co. (1940) 310 U.S. 150, 224, fn. 59, 60 S.Ct. 811, 845, fn. 59, 84 L.Ed. 1129 [price fixing banned because of “actual or potential threat to the central nervous system of the economy”];  see also Fisher v. City of Berkeley (1984) 37 Cal.3d 644, 717, 209 Cal.Rptr. 682, 693 P.2d 261 (dis. opn. of Lucas, J.) [“Price fixing, whether privately or publicly inspired, thus endangers the free economic system to which Congress has entrusted the prosperity of the entire nation.”].)

All pricing, of course, results in “discrimination.”   Buyers “discriminate” against Brand X when they purchase the cheaper Brand Y because Brand X is cheaper.   Compensation levels are nothing more than the price of individual services in the labor market.   Prices, both in terms of what is paid for and what is received, go to the very core of operating any enterprise, be it profit, nonprofit, or governmental.

An objection to the use of price as a “reasonable factor” is that profitability has not been allowed to justify discrimination in other civil rights contexts.  (E.g., Wilson v. Southwest Airlines (N.D.Tex.1981) 517 F.Supp. 292, 304 [struggling airline could not restrict flight attendant jobs to females despite evidence that restriction was vital to airline's marketing campaign].)   Such cases have given rise to what some commentators call the “Anti-Cost Rule Under Title VII.” (E.g., Kaminshine, The Cost of Older Workers, Disparate Impact, and the Age Discrimination in Employment Act, supra, 42 Fla. L.Rev. 229, 240.)

Salary differentials, however, present a matter qualitatively different from the usual disparate impact situation in a Title VII context.   An action based on price differentials represents the very quintessence of a legitimate business decision.  “In a for-profit enterprise,” wrote Judge Gary Taylor in a recent federal decision, “the essence of employment decisions is whether an employee's salary is justified by that employee's productivity.”  (U.S. E.E.O.C. v. Newport Mesa Unif. Sch. Dist. (C.D.Cal.1995) 893 F.Supp. 927, 932.)   As the dissent pointed out in the Metz case, “wages correspond precisely to the costs of doing business, and hence to profitability.”   (Metz, supra, 828 F.2d at p. 1219 (dis. opn. of Easterbrook, J.).)   And, as one law review commentator has noted-and we think the proposition is irrefutable-“Cost-based layoffs often constitute perfectly rational business practices, grounded in employers' concern for economic viability.”  (Comment, Disparate Impact in the Age Discrimination in Employment Act:  Will the Supreme Court Permit It ?, supra, 1995 Wis. L.Rev. at p. 510.)

Decisions based on salary therefore must, as Justice Rehnquist said in his dissent from the denial of a hearing of an early Second Circuit decision, come within the “reasonable factors other than age” language of the federal age discrimination statute.  (See Markham v. Geller (1981) 451 U.S. 945, 101 S.Ct. 2028, 68 L.Ed.2d 332 (dis. opn. of Rehnquist, J.)) 14

The main “textual” argument which is advanced against the use of salary in the context of age discrimination claims is the phrase “otherwise adversely affect” as it appears in the federal age discrimination statute, 29 U.S.C. section 623, subdivision (a)(2).15  Some courts have concluded that the phrase means “any policy having a more harmful effect on older people than on their co-workers.”  (Camacho v. Sears Roebuck de Puerto Rico, supra, 939 F.Supp. 113, 120;  Caron v. Scott Paper Co., supra, 834 F.Supp. at pp. 37-38 [“The phrase ․ implies that an employment practice may constitute illegal discrimination even if not intended or directed specifically at age.”].)

There are two flaws in the “adversely affect” argument.   The first is that it is based on a grammatically nonsensical reading of the federal text.   (The complete text is set out in footnote 15 below.)   Admittedly, the statute was not written by Hemingway.   Nevertheless, it is not so convoluted that it cannot be understood.   The text does not say, “It shall be unlawful for an employer-․ to otherwise adversely affect an employee because of such individual's age.”   It says, “It shall be unlawful for an employer 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.”  (Emphasis added.)   We emphasize the words “his status as an employee” because those words show that the words “adversely affect” pertain to the verbs “limit, segregate or classify,” and do not stand on their own.   To read the phrase the way the Camacho and Caron courts did would mean that the “his” in the phrase, “his status as an employee,” would refer to the employer, which makes no sense at all.   The words “adversely affect” refer to actions which “affect” an employee's “status as an employee” because of “such individual's age.”

The second flaw in the adverse affect argument is that it ignores the balance of the language from the federal age discrimination statute, all of which contradicts the idea that the statute was enacted to provide special protection for older workers as a group.   In fact, the balance of the language favors the idea that the statute was enacted to protect individuals from being discriminated against because of their age, not because they share a characteristic with a protected class.   The word “individual” appears no less than five times in the course of one sentence, delineating the nature of age discrimination.   Here is the complete text of section 623, subdivision (a):

“It shall be unlawful 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;  or [¶] (3) to reduce the wage rate of any employee to comply with this chapter.”  (Emphasis added.)

The theme of this language is the protection of individuals from discrimination because of their age, not the protection of “older workers” by virtue of their status as older workers.   The surrounding context of the phrase “adversely affect” deals with the impact of the “adverse” decision on “any individual.” 16

Such a reading of the text is confirmed by two United States Supreme Court decisions, each of which-though they have not probed the issue of disparate impact as such-have directly addressed the very nature of age discrimination as it is outlawed in the federal statutes.   According to the court's unanimous decision in Hazen Paper Co. v. Biggins, supra, 507 U.S. 604, 113 S.Ct. 1701, 123 L.Ed.2d 338, age discrimination is action based on a stereotype about age, not action to cut costs which has a disproportionate collateral effect on older workers.   In particular, the basis of age discrimination is an “inaccurate and stigmatizing” stereotype of the older worker as someone who cannot do the job as well as a younger worker.  “It is the very essence of age discrimination for an older employee to be fired because the employer believes that productivity and competence decline with old age․  Congress' promulgation of the ADEA was prompted by its concern that older workers were being deprived of employment based on inaccurate and stigmatizing stereotypes.”  (Id. at 610, 113 S.Ct. at 1706.).   Elsewhere, the Hazen Paper court stated that age discrimination is a wrong rooted in “an inaccurate and denigrating generalization about age.”  (Hazen Paper, supra, 507 U.S. at p. 612, 113 S.Ct. at 1707.) 17

More recently, another unanimous opinion, O'Connor v. Consolidated Coin Caterers Corp. (1996) 517 U.S. 308, 116 S.Ct. 1307, 134 L.Ed.2d 433, reiterated the point that age discrimination is something which protects individuals, not protected groups qua groups.   Indeed, that case required the court to directly decide the question of whether the age discrimination statutes protected individuals as individuals, or individuals as members of favored groups.   The issue in O'Connor was whether a 56-year-old plaintiff could show a prima facie case of age discrimination even though he was replaced by someone who was also in the protected class (see 29 U.S.C. § 631, subd. (a)).  The answer was yes-age discrimination is, to put it plainly, the act of holding an individual's age against him or her, not in doing something which has a disproportionate effect on older workers generally.   The court declared:  “Because the ADEA prohibits discrimination on the basis of age and not class membership, the fact that a replacement is substantially younger than the plaintiff is a more reliable indicator of age discrimination than the fact that the plaintiff was replaced by someone outside the protected class.”   (--- U.S. ---, 517 U.S. at p. ----, 116 S.Ct. at p. 1310.)

Another possible textual argument, albeit one which has received less attention in the cases and literature, might be built on the prohibition set forth in 29 U.S.C. section 623, subdivision (a)(3), which states that “It shall be unlawful for an employer-[¶] (3) to reduce the wage rate of any employee to comply with this chapter.”   If an employer cannot cut costs by reducing the wages of older workers, it might be reasoned, then surely an employer cannot prefer lower paid workers when making layoff decisions.

But the statute does not say that an employer cannot reduce wage rates to reduce costs.   It merely forbids reducing wage rates to comply with the age discrimination laws.   The simple and plain meaning is that an employer may not reduce an older worker's wage rate on the ground that it is required by age discrimination laws.   The anti-wage reduction provision was clearly enacted simply to prevent the passage of the age discrimination laws themselves from precipitating wage reductions based on the idea that pay differentials between younger and older workers had to be equalized.   In that sense the provision buttresses the general theme in the text of the federal statute that workers should be considered on their individual merits, and not as members of some age cohort.   Thus even courts which have concluded that use of adversely impacting salary differentials are improper have, at the same time, stated that age discrimination may be avoided by offering older workers the opportunity to work at the same job for reduced pay.  (See Rivas v. Federacion de Asociaciones Pecuarias (1st Cir.1991) 929 F.2d 814, 822;  Abbott v. Federal Forge, Inc. (6th Cir.1990) 912 F.2d 867, 876;  Metz, supra, 828 F.2d at pp. 1208-1210.)

2

The State Statute

We have spent considerable time on the federal text because it has been the established practice of California courts to look to federal decisions-particularly the decisions of the United States Supreme Court-for assistance in state age discrimination cases.  (E.g., Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 66, 53 Cal.Rptr.2d 741 [“Because the antidiscrimination objectives and relevant wording of ․ the Age Discrimination in Employment Act (ADEA) ․ [is] similar to those of the FEHA, California courts often look to federal decisions interpreting those statutes for assistance in interpreting the FEHA.”];  Cummings v. Benco Building Services (1992) 11 Cal.App.4th 1383, 1386, 15 Cal.Rptr.2d 53 [“The language, purpose and intent of California and federal antidiscrimination acts are virtually identical.   Thus, in interpreting FEHA, California courts have adopted the methods and principles developed by federal courts ․ under the federal Age Discrimination in Employment Act․”];  Los Angeles County Dept. of Parks and Recreation v. Civil Service Com. (1992) 8 Cal.App.4th 273, 280, 10 Cal.Rptr.2d 150 [“In employment discrimination cases, California courts have frequently adopted the standards set by the United States Supreme Court for proving intentional discrimination under title VII of the federal Civil Rights Act, 42 United States Code section 2000e et seq.”];  Stephens v. Coldwell Banker Commercial Group, Inc. (1988) 199 Cal.App.3d 1394, 1399, 245 Cal.Rptr. 606 [“Because the language and objectives of California's Fair Employment and Housing Act as it relates to age discrimination closely parallel the language and objectives of the federal Age Discrimination in Employment Act ․ we refer to federal decisions where appropriate.”];  Levy v. Regents of University of California (1988) 199 Cal.App.3d 1334, 1343, 245 Cal.Rptr. 576 [“To guide us in our analysis of appellant's claim under both the FEHA and the ADEA, we look at federal law․”].)  Indeed, as Justice Spencer wrote more than 15 years ago in Kubik v. Scripps College (1981) 118 Cal.App.3d 544, 552, 173 Cal.Rptr. 539, California's legislative scheme “has been modeled on the federal act throughout its developing history.”

A little more explication is needed though, because of certain outward dissimilarities in the two sets of statutes.   Like the federal law, California's core age discrimination statute is set out in a different code section than other antidiscrimination legislation.   Federal law has its Title VII and the separate ADEA;  California's Fair Employment and Housing Act prohibits most forms of discrimination in Government Code section 12940.   Age discrimination, however, is covered by a separate statute, Government Code section 12941.

Section 12941, subdivision (a) makes it unlawful “for an employer to refuse to hire or employ, or to discharge, dismiss, reduce, suspend, or demote, any individual over the age of 40 on the ground of age, except in cases where the law compels or provides for such action.”   The statute then states that it shall not be “construed to make unlawful the rejection or termination of employment where the individual applicant or employee failed to meet bona fide requirements for the job or position sought or held, or to require any changes in any bona fide retirement or pension programs or existing collective-bargaining agreements ․ nor shall this section preclude ․ physical and medical examinations ․ to determine fitness for the job.”

In the next paragraph the statute states that “[p]romotions within existing staff, hiring or promotion on the basis of experience and training, rehiring on the basis of experience and training, rehiring on the basis of seniority and prior service with the employer, or hiring under an established recruiting program from high schools, colleges, universities, and trade schools shall not, in and of themselves, constitute a violation” of the section.

The third and final paragraph, subdivision (b), next states a more general exception:  “This section shall not limit the right of an employer, employment agency, or labor union to select or refer the better qualified person from among all applicants for a job.”   The statute ends with the imposition of the burden of proving a violation on the person claiming it occurred.   The absence in the California text of the exact words “reasonable factors other than age” thus merits some discussion.

There is nothing in the language of section 12941 which directly indicates that use of salary to differentiate between employees was intended by the Legislature to constitute age discrimination if by some chance it disproportionately affected older workers as a group.   Moreover, there is nothing which indicates that specific practices not otherwise enumerated may be held to constitute a violation of the statute just because those practices have a disproportionate impact on older workers generally.

To the degree that there is any doubt, that doubt should be resolved against any such construction, for three reasons.   First, the use of price is basic to any functioning economic system, and marks the classical difference between a command and a free market economy.   A law which precludes price itself as a decision-making basis is not just a run-of-the mill regulation-the kind of regulation which, say, merely adds to a price or restricts the production of certain goods.   Rather, such a law, to the extent of its sphere of influence, prohibits the very operation of any kind of market.   Price lies at the core of all economic decision-making.   Given the absolute basic and fundamental role of prices in any viable economic system, the natural presumption is the Legislature would have plainly said that any use of price which had a disproportionate impact on workers over the age of 40 was unlawful, rather than leaving it to the courts to say so.   In light of the absence of any textual basis on which to predicate liability for price-based decisions, a court should certainly not extend the statute to read into it attributes more appropriate to a command rather than a market economy.

Second, the focus of the California text is still on the individual worker, albeit here only one over age 40, who is being discriminated against “on the ground of age.”   As we have seen, similar language (“because of ․ age”) has been construed by the United States Supreme Court in O'Connor v. Consolidated Coin Caterers Corp., supra, 517 U.S. at page ----, 116 S.Ct. at page 1310, to refer to discrimination against individuals, not afford protection to a class.   Again, if our state Legislature had wanted to say that it is unlawful “to use in the decision regarding an individual worker a criterion which has a disproportionate impact on older workers generally,” it could have said so, as we just did.   It didn't.

Third, while “reasonable factors other than age” does not appear in the text, an equivalent does:  the right of the employer to choose “the better qualified person from among all applicants.”   While the phrase “better qualified” naturally applies to the individual qualifications such as skills, experience and ability, it would be unrealistic to confine the idea of qualification to just those things.   Marketplace reality, as every consumer knows, is based on value-the combination of quality and price.   It is not possible to divorce the ability to do a job from the wage demanded.  (See Metz, supra, 828 F.2d at p. 1213 (dis. opn. of Easterbrook, J.).)   To use an example from the Metz dissent:  A welder may be good enough to work on simple sheet metal at $10 an hour, but not good enough to work on a bridge at $30.  “In business the question is not ‘is Jones qualified?’ but ‘can Jones do the job well enough to cover his wage?’  ․ There is no qualified welder in the abstract.”   (Ibid.) 18

B

Second, the intent of the federal and state age discrimination statutes was to prevent employers from basing decisions on generalities, not to prevent employers from making perfectly sound economic decisions which have a disproportionate effect on older workers as a group.

1

The Federal Statute

The idea that a disproportionate effect on a group can be discriminatory is judge made, originating in the 1971 decision in Griggs v. Duke Power Company (1971) 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158. (See Gelb and Frankfurt, California's Fair Employment and Housing Act:  A Viable State Remedy For Employment Discrimination (1983) 34 Hast. L.J. 1055, 1068 [“The second theory, disparate impact, is wholly court-developed.”].) Since the disparate impact doctrine was developed after the enactment of the federal age discrimination statute, that history, not surprisingly, does not exactly radiate an intent to outlaw practices merely because they have a disproportionate impact on older workers.   What is remarkable, though, is the degree to which the legislative history eschews any attempt to establish liability for otherwise neutral, price-based decisions.

The legislative history of the federal statute has been set out in EEOC v. Wyoming (1983) 460 U.S. 226, 229-233, 103 S.Ct. 1054, 1056-59, 75 L.Ed.2d 18.   Essentially, rather than include age within the Civil Rights Act of 1964, Congress commissioned the Secretary of Labor to do a report.

The report, entitled “The Older Worker:  Age Discrimination in Employment, Report of the Secretary of Labor to the Congress Under Section 715 of the Civil Rights Act of 1964” (hereafter, “Labor Secretary's Report”), was issued in June 1965.   The salutation to Vice President Hubert H. Humphrey and House Speaker John W. McCormack notes that it was based on “special studies” conducted in response to the 1964 congressional directive, as well as “extensive research done earlier, including the work of the President's Council on Aging.”

The report itself is a remarkably readable and poetic document for something published by the U.S. Government Printing Office.   It opens with lines from Browning,

The best is yet to be

The last of life, for which the first was made

and closes with lines from Tennyson,

Knowledge comes, but wisdom lingers

and along the way manages to work in some references to Frost and H.G. Wells, as well as some very lilting phrases of its own.  (See Labor Secretary's Report at p. 1 [“․ a new age of man ․ the perfectibility of life with the human competence ․ life's bruising mystery․”].)  The Labor Secretary's Report is, in many ways, a meditation of the problem of age and employment.

After its poetic opening, the Labor Secretary's Report settles down to make several points relevant to understanding the intent behind the federal age discrimination statute.   First-a point made with particular rhetorical strength in the introduction-is the absence of a parallel with other kinds of discrimination.   One cannot just extrapolate the law of, say, race discrimination to the problem of age discrimination;  the report specifically declares that to do so would be wrong.19  Old age is, after all, “one minority group in which we all seek, sometimes desperately, eventual membership.”  (Labor Secretary's Report at p. 3.)

Structurally, the report subdivides factors which “might tend to result in discrimination because of age” into four groups:  (1) discrimination arising from dislike or intolerance;  (2) arbitrary discrimination;  (3) the forces of certain “circumstances,” and (4) “institutional arrangements that indirectly restrict the employment of older workers.”  (See Labor Secretary's Report at pp. 5-15.)   The report quickly dispenses with the first set:  essentially there was, in 1965, not enough dislike or intolerance of older workers to even “warrant public concern.”  (See Labor Secretary's Report at p. 6.)

Of the other three sets of factors, the second, arbitrary discrimination, is defined essentially as an application of an age limit “without consideration of a particular applicant's individual qualifications.”  (Labor Secretary's Report at p. 6.) The third factor, “circumstances,” involves the impact of technological change and location of industry as it affects older workers, which the report saw (in 1965, one must remember) as disproportionately undereducated and immobile.   Thus much of the section is devoted to the problem of older workers in smokestack industries who are laid off when those industries relocate, and the need for such workers to retrain to meet “technological changes.” 20  This portion of the report, however, carries through with the theme of the need to judge workers on an individual rather than group basis.   After reviewing certain evidence showing wide individual variation within every age group in productivity, the report concludes that “[T]hese findings show the injustice of judging workers by the average for the group rather than on the basis of their individual abilities.”  (Id. at pp. 14-15.)

The final set of factors concerned “institutional arrangements” which “indirectly restrict” the employment of older workers.   To the degree that the report addresses the issue of compensation differentials, it does so in this section.   Ironically, however, the focus of this portion of the report is nowhere concerned with the disproportionate effect on higher-paid older workers when layoff decisions are made based on salary, but on the reluctance of employers to consider older workers for lower and entry-level jobs.21  The Secretary further stated, in a single two-paragraph section, that requiring workers' compensation coverage where there is a pre-existing condition (such as arthritis or other degenerative diseases) meant some employers had become reluctant to hire older workers.   Noting that “[n]either the operation of the workmen's compensation laws nor of the unemployment insurance systems can be expected to lessen employer concerns about such costs,” the Secretary characterized the problem of one of a “gap in coverage for disabilities that are not job related.”  (Id. at pp. 15-16.)   The report similarly pointed out that pension, health and insurance plans could discourage employers from hiring older workers, because funding plans for such workers could cost more.   (See id. at p. 16.)   However, the Secretary then went on to point out that portability of pension rights and vesting requirements could narrow the “cost advantage” that otherwise favored younger workers.  (Id. at p. 17.)

Besides identifying four factors bearing on the problem of discrimination against older workers (of which three were thought to be worthy of some governmental action), Secretary Wirtz recommended “four types of programs.”   The four recommendations do not exactly correspond to the four problems, but-significant in understanding the Secretary's intent-the problems of “arbitrary age discrimination” and “institutional arrangements which work to the disadvantage of older workers” each get their own set of recommendations.22  The Secretary called for a statutory means to combat arbitrary age discrimination.  (See id. at pp. 21-22.)   The idea was to promote “a national policy with respect to hiring on the basis of ability rather than age.”  (Id. at p. 22.)

But the report did not call for a statutory solution to the problem of institutional arrangements which indirectly work to the disadvantage of older workers.   Rather, the Secretary proposed four things:  portable pension credits, new forms of annuity coverage to reduce the cost of hiring older workers, further review of the existing workers' compensation and disability insurance systems, and the development of methods in collective bargaining to “open opportunities for hiring unemployed workers with long industrial service” but at the same time protecting existing seniority rights.  (Id. at p. 22.)

Additionally, the Secretary proposed programs to increase the opportunities for older workers (such as job counseling, job-finding programs, and retraining, see id. at p. 23) plus encourage older workers to return to school.  (See id. at pp.   24-25 [“The time when a person could, before he was sixteen or eighteen, acquire a set of skills, or ideas, and make do with them for life, is gone.”].)

We have explained the Labor Secretary's Report in considerable detail, not only because it is-to the degree that the statutory text is ambiguous-the best indicia outside the statutory text of what Congress intended when it enacted the age discrimination statutes-but to show that the document which originated the federal age discrimination statute, if actually read, supports the common sense proposition that the age discrimination statutes were never intended to prohibit employers from making price-based decisions.

As we have noted, Secretary Wirtz called for a statutory prohibition against “arbitrary age discrimination,” not against factors which “indirectly” work to the disadvantage of older workers.   More importantly, the Secretary implicitly recognized the legitimacy of market and price-based decisions in his discussion of pensions, insurance and worker compensation costs.   His remedy, significantly, was not to suppress the magic of the marketplace, but to develop measures consistent with a market economy by ameliorating cost differentials (or studying ways to ameliorate those cost differentials).  (See Labor Secretary's Report at p. 22.)

Cases holding to the contrary have simply given the Labor Secretary's Report superficial treatment.   The post-Hazen decision in Caron, supra, 834 F.Supp. 33, gave only the most superficial, conclusory treatment to the legislative history of the federal age discrimination statutes.  (See id. at p. 38 [stating it reviewed the report and found no references to, as the unsuccessful defendant had characterized it, “ ‘employment practices which quite unintentionally lead to age limits' ”].) 23  The post-Hazen decision in Camacho, supra, 939 F.Supp. 113, simply brushed off the legislative history as being “hardly dispositive” of the debate.  (See id. at pp. 120-121.)

The Labor Secretary's Report is also crucial to understanding the preamble to the federal Act. (See 29 U.S.C. § 621.)   The preamble is structured by four findings, followed by a statement of what the Act seeks to do.   As to the findings, it notes that “in the face of rising productivity and affluence, older workers find themselves disadvantaged in their efforts to retain employment and regain employment when displaced from jobs.”  (29 U.S.C. § 621, subd. (a)(1).)   The preamble next finds the existence of “arbitrary age limits” has become a “common practice.”  (29 U.S.C. § 621, subd. (a)(2).)   The preamble then says that “certain otherwise desirable practices may work to the disadvantage of older persons.”  (Ibid.) Consequently, there is disproportionately higher unemployment among older workers.  (29 U.S.C. § 621, subd. (a)(2)-(3).) 24  The preamble ends by finding that arbitrary discrimination in “industries affecting commerce” has the effect of itself “burden[ing] commerce and the free flow of goods in commerce.”

One might derive from the phrase “certain otherwise desirable practices” the thought that compensation differentials were intended.   What is clear from the Labor Secretary's Report, is that Congress meant no such thing.   The report's discussion of institutional arrangements on pages 15 through 17 shows that Congress meant the very existence of standardized personnel policies, seniority systems, broad coverage under workers' compensation laws, and private pension, health and insurance plans-all good things, the Secretary said, but which could have the unintended effect of discouraging the reemployment of older workers.  (See Labor Secretary's Report at p. 15.)

Moreover, it is also significant that the preamble, consistent with the Labor Secretary's Report (see id. at pp. 18-20 [consequences on the national economy] ), stresses the free flow of commerce.   The free flow of commerce is never promoted by outlawing the very mechanism-price-by which transactions are conducted in the marketplace.   Like the Labor Secretary's Report, the preamble to the federal age discrimination laws stresses solutions within the confines of the operation of the free market, not in direct contradiction to it.

2

The State Statute

California's age discrimination statute predates the federal.   California has had an age discrimination statute since 1961, when former Unemployment Code section 2072 was enacted as part of a chapter entitled “Employment for Older Workers.”  (Jennings v. Marralle (1994) 8 Cal.4th 121, 130-131, 32 Cal.Rptr.2d 275, 876 P.2d 1074.)   The current statute, Government Code section 12941, may be traced back to the 1961 legislation.   Basically, the statute began in the Unemployment Insurance Code (see Stats.1961, ch. 1623, ch. 1, p. 3518), was transferred to the Labor Code in 1972 (see Stats.1972, ch. 1144, § 1, p. 2211) and then in 1980 was placed in the Government Code (see Stats.1980, ch. 992, § 4, p. 3140.)

Interestingly enough, the statement of purpose behind the original legislation has survived to this day, remaining in effect as Unemployment Insurance Code section 2070.25  That statement of purpose reflects the same themes we have already covered.  (Cf. Kubik, supra, 118 Cal.App.3d at p. 552, 173 Cal.Rptr. 539 [“The goals of the state and federal acts are presumptively the same.”].) The purpose of prohibiting age discrimination is to eliminate, in the words of the statute, the “rigid and unsound rules that operate to disqualify significant portions of the population from gainful and useful employment.”   In other words, the statute was to cover what the Labor Secretary's Report characterized as “arbitrary discrimination,” not the normal operation of a business.   Moreover, what is targeted is not practices which simply have a disproportionate impact, but “arbitrary and unreasonable rules which bar or terminate employment on the ground of age.”   As we have seen, the normal preference of businesses, consumers and even government agency department heads not to pay any more money than necessary for goods or services is anything but arbitrary and unreasonable.

C

The first principles of “disparate impact analysis,” as articulated by the United States Supreme Court, do not apply to differentiations based on salary.

Because legal ideas are necessarily expressed in words, they sometimes take on a life of their own independent of their origins or intentions.   Marks' argument suggests that such a process has taken place over the years with regard to the idea of “disparate impact” discrimination.   Taking the phrase in the abstract, it is easy to see why Marks has challenged the salary instruction given here:  Given that older workers are generally higher paid than younger workers, preferring lower paid to higher paid workers can show age discrimination because the preference has a “disparate impact” on older workers generally.

The error in the logic is reliance on an incomplete understanding of the legal idea of discrimination when discrimination is based on “disparate impact analysis.”   Disparate impact discrimination by definition involves a requirement or criterion which does not have a business justification.   An examination of the original 1971 disparate impact case, Griggs v. Duke Power Company, supra, 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158, shows that the idea of disparate impact discrimination was never intended to include purely economic business decisions.

Griggs involved a North Carolina power company which, right up to the day that Title VII of the 1964 Civil Rights Act became effective, “openly” discriminated on the basis of race.  (See Griggs, supra, 401 U.S. at pp. 426-427, 91 S.Ct. at 851-852.)   During that time the company restricted blacks to the “labor” department, which was the only department in the company that did not require a high school diploma.   On the day after Title VII became effective, the company required new employees seeking employment outside the labor department to register satisfactory scores on two professionally prepared aptitude tests.   About two-and-one-half months later the company also required incumbent employees lacking a high school education seeking transfer from the labor or coal handling departments to an “inside” job to pass two tests, one purporting to measure general intelligence, the other mechanical comprehension.  “Neither test,” the court would later note, “was directed or intended to measure the ability to learn to perform a particular job or category of jobs.”  (Id. at pp. 427-428, 91 S.Ct. at 852.)   Thirteen black employees challenged both the high school diploma requirement, as well as the test requirements, claiming that because the requirements rendered “ineligible a markedly disproportionate number of Negroes, they were unlawful under Title VII unless shown to be job related.”  (Id. at p. 429, 91 S.Ct. at 852, emphasis added.)   The United States Supreme Court granted a hearing on the claim, eventually reaching the conclusion that the diploma and test requirements contravened Title VII.

In analyzing Griggs, it is too easy to become diverted by the employer's purported lack of intent to discriminate.   The federal trial court had concluded that there was “no showing of racial or invidious intent” in the adoption of the diploma or general intelligence test requirements,26 and from that innocence leapt to the conclusion that the sin of the requirements was their disproportionality as such.

Not so.   The leitmotif of the Griggs opinion is the lack of relationship between the requirements and the “employment at hand.”  (See id. at p. 431, 91 S.Ct. at 853-853.)   It is a theme to which the court returned again and again:  “Both [of the requirements] were adopted ․ without meaningful study of their relationship to job-performance ability.”   (Id. at p. 431, 91 S.Ct. at 853.)  “Congress has placed on the employer the burden of showing that any given requirement must have a manifest relationship to the employment in question.”  (Ibid.) “History is filled with examples of men and women who rendered highly effective performance without the conventional badges of accomplishment in terms of certificates.”  (Id. at p. 432, 91 S.Ct. at 854.)  “What Congress has forbidden is giving these devices and mechanisms [testing or measuring procedures] controlling force unless they are demonstrably a reasonable measure of job performance.”  (Id. at p. 436, 91 S.Ct. at 856.)

Similarly, the court characterized the problem of the test and diploma requirements not as to their effect on a group qua group, but as to their effect on individuals who otherwise could do the job.  “ ‘Indeed, the very purpose of title VII is to promote hiring on the basis of job qualifications, rather than on the basis of race or color.’ ”  (Id. at p. 434, 91 S.Ct. at 855, quoting a memorandum from the floor managers of the legislation in 110 Cong. Rec. 7247.)  “What Congress has commanded is that any tests used must measure the person for the job and not the person in the abstract.”  (Id. at p. 436, 91 S.Ct. at 856.)

A portion of the opinion which is sometimes taken to suggest that disproportionality of burden on a given group was the essence of the opinion belies that suggestion when considered in its entirety.   Confronting the problem that the trial and intermediate appellate courts had concluded the employer had not intended to discriminate, the Griggs opinion stated:  “The Court of Appeals held that the Company had adopted the diploma and test requirements without any ‘intent to discriminate against Negro employees.’   [Citation.]  We do not suggest that either the District Court or the Court of Appeals erred in examining the employer's intent;  but good intent or absence of discriminatory intent does not redeem employment procedures or testing mechanisms that operate as ‘built-in headwinds' for minority groups․”  (Id. at p. 432, 91 S.Ct. at 854.)

But one should not stop reading at that point.   The sentence ends with the key words, “and are unrelated to measuring job capability.”  (Ibid., emphasis added.)

The point is unmistakable that disproportionality alone could not establish discrimination.   The necessary glue to make the newly built “disproportionate impact” doctrine hold together was a lack of relationship to the job.   Hence the court, in an oft-quoted phrase, juxtaposed the idea that a practice can be discriminatory in operation with its lack of business justification:  “The Act proscribes not only overt discrimination, but also practices that are fair in form, but discriminatory in operation.   The touchstone is business necessity.”  (Id. at p. 431, 91 S.Ct. at 853, emphasis added.)

Given the emphasis on job relatedness, job performance, individualized assessment of ability to do a job, and business necessity, it is unfathomable that disparate impact analysis should apply to differentiation on the basis of salary.   Such differentiation goes to the very essence of any enterprise.

Like the phrase “better qualified” in Government Code section 12941, the phrase “business necessity” as used in Griggs should not be given an artificially narrow, economically unreasonable meaning.   Someone looking for a way to apply disparate impact might, of course, try to distinguish between back-to-the-wall, brink-of-bankruptcy “necessity” and a situation in which an employer has a little more latitude.   The Camacho court, for example, asserted that in evaluating the “reasonableness of certain employment practices” bankrupt employers “will almost always win motions for summary judgment,” implying that sometimes an across-the-board wage reduction will not meet that test, presumably some point beyond bankruptcy.  (See Camacho, supra, 939 F.Supp. at pp. 122-123.)   The model of the law inherent in the distinction is that only businesses which are on the brink of ruin are allowed to make decisions based on cost.

We perceive no intent on the Legislature to distinguish between companies that are failing, companies which are just keeping their heads above water, and companies which are rolling in money in this regard.   There is not one age discrimination law for the marginally profitable, and another for the highly profitable.   Parsing “business necessity” from the normal conduct of any business is unpersuasive in the extreme.   Most fundamentally, all businesses, indeed all enterprises including government and nonprofit entities, have a legitimate interest in saving money-from the bankrupt to the most profitable.   Companies once thought, like the Titanic, to be unsinkable have come close, and even sunk into bankruptcy because they did not control costs.   It may be easy for judges, looking at one year's income statement, to assert that a salary restructuring violates age discrimination laws because the company was making too much money at the time, but that is an extremely short-sighted and unrealistic view of “business necessity.” 27  Similarly, the question of how much profitability is “too much” and therefore takes a company out of some strict-necessity rule involves courts in determinations for which they are manifestly ill-equipped.   Business people, rather than judges, are presumed to know what is best for their own businesses.   As the court in Dale v. Chicago Tribune Co. (7th Cir.1986) 797 F.2d 458, 464, wrote in another context, a court “does not sit as a super-personnel department that reexamines an entity's business decisions.”

Additionally, a strict-necessity element in disparate impact analysis would make absolutely no sense in the context of a government entity or department.   What member of the Legislature is going to stand up and make a speech in which he or she says that state and local governments have so much money to burn that they should avoid cost-cutting measures because they are not under a strict “necessity” to save the taxpayers' money?

X-XI***

XII

Conclusion

We find no error, particularly in the jury instruction allowing employers to make decisions based on salary differentials.   The key words in the salary instruction were “based on salary.”   As worded, there is no question that the instruction was correct:  An employer is entitled to chose employees with lower salaries, even though this may result in choosing younger employees, if the choice is indeed based on salary.   We must hasten to add, however, that in deciding whether the particular instruction at issue here was error, we have been spared the conceptually tougher question of when salary might be only a pretext for a decision really based on age.   For example, if an older worker made his or her willingness to take a pay cut known, yet the employer insisted on replacing that worker with a less-experienced younger one, would that be evidence on which a jury could reasonably conclude that there was a deliberate attempt to get rid of the older worker not because he or she was costlier, but simply because he or she was older?   That precise issue has not been presented in this appeal and may be left for another day.28

We are also not unmindful of the pain attendant with the loss of any job, particularly when the loss is sustained by an older worker for whom, as Labor Secretary Wirtz noted in his 1965 report, retraining may be more difficult.   There is a poignancy in such situations, such that the Metz court was moved to quote Arthur Miller's Death of a Salesman (“You can't eat the orange and throw the peel away-a man is not a piece of fruit!”) 29 and Secretary Wirtz to quote Robert Frost's The Death of the Hired Man (“nothing to look backward to with pride, nothing to look forward to with hope”).30  Conversely, we are not unmindful that the image of some newly-minted whippersnapper MBA who tries to increase corporate profits-and his or her own compensation-by across-the-board layoffs is not a pretty one.   Even so, neither Congress nor the state Legislature ever intended the age discrimination laws to inhibit the very process by which a free market economy-decision-making on the basis of cost-is conducted and by which, ultimately, real jobs and wealth are created.

The judgment is affirmed.

FOOTNOTES

FOOTNOTE.   See footnote *, ante.

4.   E.g., Comment, Disparate Impact in the Age Discrimination in Employment Act:  Will the Supreme Court Permit It ? (1995) 1995 Wis. L.Rev. 507, 510 (“neutral cost criteria often correlate with age”);  Kaminshine, The Cost of Older Workers, Disparate Impact, and the Age Discrimination in Employment Act (1990) 42 Fla. L.Rev. 229, 232 (“Seniority and longevity often influence salary and fringe benefit levels.   Because these factors correlate with age, older workers can become more costly to compensate than their younger counterparts.”);   Note and Comment, “Overpaid” Older Workers and the Age Discrimination in Employment Act (1996) 71 Wash. L.Rev. 769, 782-783 (“The sheer number of cases involving highly paid older workers who alleged that they were fired or not hired because of their salary argue for close examination of the issue.”).

5.   E.g., Geller v. Markham (2d Cir.1980) 635 F.2d 1027, 1033 (“we agree with Judge Blumenfeld's finding that the high correlation between experience and membership in the protected age group ․ would render application of the ‘sixth step’ policy discriminatory as a matter of law”);  Rose v. Wells Fargo & Co. (9th Cir.1990) 902 F.2d 1417, 1423 (after “a statistical analysis of Well Fargo's employment decisions” an expert concluded that “the single most important factor in predicting retention or termination” in a certain division of the bank or at the vice presidential level “was age”);  Camacho v. Sears, Roebuck de Puerto Rico (D.Puerto Rico 1996) 939 F.Supp. 113, 115, fn. 2 & 123 (because plaintiff showed a disproportionate impact on older workers of across-the-board imposition of new salary structure, summary judgment was not available for defendant employer).

6.   Metz v. Transit Mix, Inc. (7th Cir.1987) 828 F.2d 1202, 1217-1218 (dis. opn. of Easterbrook, J.).   At least for the moment, the view of the dissent in Metz has prevailed.   The dissent's position was explicitly adopted in Anderson v. Baxter Healthcare Corp. (7th Cir.1994) 13 F.3d 1120, 1125-1126.

7.   Camacho is a not a pure disparate impact case, however.   In that case there was some evidence of actual age animus independent of any impact which an across-the-board salary restructuring may have had on Sears' older workers.   Specifically, one declaration (which precluded summary judgment in favor of the employer) indicated that the employer periodically instituted salary restructures just to get rid of older workers because they were older, not necessarily because they were higher paid.  (See id. at p. 115 (plaintiff declared that she was led to believe by two Sears managers that “Sears regularly instituted such dramatic salary restructurings in order to induce the older employees to resign.”).)

8.   The position was probably best articulated by the dissent in Metz:  “The Act prohibits adverse personnel actions based on myths, stereotypes, and group averages, as well as lackadaisical decisions in which employers use age as a proxy for something that matters (such as gumption) without troubling to decide employee-by-employee who can still do the work and who can't.”  (Metz, supra, 828 F.2d at p. 1213 (dis. opn. of Easterbrook, J.).)

9.   See Comment, Disparate Impact in the Age Discrimination in Employment Act:  Will the Supreme Court Permit It ?, supra, 1995 Wis. L.Rev. at page 521 (“the law's stated purpose of protecting older workers ․ the ADEA's stated policy goal of protecting workers from the obstacles they face competing in the labor market late in their careers”);  see also Kaminshine, The Cost of Older Workers, Disparate Impact, and the Age Discrimination in Employment Act, supra, 42 Fla. L.Rev. at page 257 (proponents of a certain view of the age discrimination statutes “would point ․ to indications that the Act was passed, in part, out of concern that unemployed older workers face unique obstacles in finding employment late in their careers”).

10.   29 U.S.C. section 623, subdivision (f)(1) provides in pertinent part:  “It shall not be unlawful for an employer ․ [¶] to take action otherwise prohibited ․ where the differentiation is based on reasonable factors other than age.”   The provision is sometimes referred to by the shorthand acronym “RFOA.” (E.g., Disparate Impact in the Age Discrimination in Employment Act:  Will the Supreme Court Permit It ?, supra, 1995 Wis. L.Rev. at p. 513.)   We will use the English “reasonable factors.”   The last thing civil rights law needs is another Pentagonesque acronym.  (Cf. ibid. (noting the “BFOQ” and “RFOA” exceptions to the “ADEA”).)

11.   One case has suggested that the latter view is the better one, because otherwise it would mean that a prima facie case of age discrimination could be established anytime an employer made an across-the-board cut in wages.  (See Finnegan v. Trans World Airlines, Inc. (7th Cir.1992) 967 F.2d 1161, 1165 (“We could accept the plaintiff's approach to the extent of finding a disparate impact, and then rule that the employer's business justification was compelling.   But that would not be a satisfactory approach.   It would mean that every time an employer made an across-the-board cut in wages or benefits he was prima facie violating the age discrimination law.   Practices so tenuously related to discrimination, so remote from the objectives of civil rights law, do not reach the prima facie threshold.”).)In any event, it would be a classical error of circular logic to conclude, as the federal district court did in Camacho (see 939 F.Supp. at pp. 122-123), that the existence of Equal Employment Opportunity Commission (EEOC) regulations taking the position that disparate impact analysis is the rule require that such analysis be applied to decisions based on salary differentials.   The reason for the regulations was the specific exception for reasonable factors, so even if disparate impact analysis is the rule, one must still ascertain whether price-based decisions fall within the exception.  (See also our discussion of Commacho in footnote 16 below.)

12.   In 1991 Congress added a disparate impact cause of action to Title VII of the Civil Rights Act of 1964, but added no parallel provision to the Age Discrimination in Employment Act. (See Ellis v. United Airlines, supra, 73 F.3d at p. 1008.)   The Tenth Circuit Ellis court thought the omission indicative of congressional intent (see ibid.), while the federal district court in Camacho dismissed the point as a “makeweight” because the issue of disparate impact in age discrimination cases was not on Congress' agenda at the time.  (See Camacho, supra, 939 F.Supp. at p. 120.)   The important thing from our point of view is that the reasonable factor language in 29 U.S.C. section 623 was unaffected by the 1991 legislation.

13.   Suppose, for example, that an employer had a rule against hiring anyone whose natural hair color was gray, or who was bald or balding.

14.   The same principle which protects the goose protects the gander in other contexts.   Justice Rehnquist argued that the error of the intermediate appellate court in Geller was to apply an EEOC regulation (29 C.F.R. § 860.103(h))-to the effect that an employer cannot refuse to hire an older worker because the “average cost of employing older workers as a group” is higher-to a case where a school district had a policy of recruiting teachers below a salary step level reached by teachers with more than five years experience.   The application of the regulation may have been wrong, but the idea behind the regulation as worded is perfectly sensible.   Just as an employer is free to make decisions based on salary even though those decisions have a disproportionate effect on older workers generally, so is an employer not free to blanketly refuse to hire an individual older worker because older workers are generally more highly compensated.   Both Rehnquist's dissent and the regulation are consistent in abhorring the application of generalized stereotypes to real, live, flesh-and-blood human beings.

15.   29 U.S.C. section 623, subdivision (a)(2) provides, in its entirety:  “It shall be unlawful for an employer-[¶] (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.”  (Emphasis added.)

16.   It is interesting that in Camacho v. Sears, Roebuck de Puerto Rico, supra, 939 F.Supp. 113, a case in which the federal district court was required to confront the problem of the reasonable factor language in the context of an across-the-board salary restructuring, and in which the court held that such a restructuring could indeed be age discrimination, the court was unable to directly refute the obvious reasonableness of using price.   The Camacho court never said, for example, that doing what consumers, buyers and employers have been doing from time immemorial, i.e., making decisions based on price, was unreasonable.  (See id. at p. 122.)   Rather, the court rejected the idea that an across-the-board wage reduction constituted a “reasonable factor” under 29 U.S.C. section 623 because (a) the Equal Employment Opportunity Commission (EEOC) had adopted the position that the “reasonable factor” language itself provided for disparate impact analysis (see ibid.) and (b) the controlling authority in the First Circuit was that disparate analysis was the rule, even though that authority predated Hazen Paper.  (See id. at p. 123.)   As to the statements in Hazen Paper concerning the nature of age discrimination, the Camacho court merely dismissed them as “not the stuff on which a trial court may base its interpretation of the law.”  (Id. at p. 121.)The error in Camacho's analysis is at least twofold.   First, as we have already touched on in footnote 11 and accompanying text, the reasonable factor language gives rise to two models as far as disparate impact analysis is concerned:  The first model is that disparate impact analysis is the normal rule, but an employer can take itself outside the operation of the normal rule by showing a reasonable factor other than age.   The second model is that disparate impact analysis is not the normal rule at all.  Camacho fails to realize that, even if the first model is the correct one, the only way that one can read disparate impact analysis into the statute because of the “reasonable factors” exception is precisely because it is an exception.   So even if disparate impact analysis is the “normal” rule, that does nothing to show that price-based decisions are not reasonable, particularly in the context of a market economy.The second of the Camacho errors was simply to ignore the clear implication of what the Supreme Court said about the individual, as distinct from collective, focus of the age discrimination laws.   Camacho's “not the stuff” rationale is most unconvincing-basically it amounts to a conclusory declaration that the court did not want to deal with the implications of the high court's point about the real nature of illegal age discrimination.

17.   The court was thus impliedly recognizing a point made by Judge Easterbrook in his Metz dissent several years earlier:  that the wrong prohibited by age discrimination is treating an individual as a member of a collective to which “myths, stereotypes and group averages” are applied, rather than as an individual to be evaluated on his or her own individual merit.  (See Metz v. Transit Mix, Inc., supra, 828 F.2d 1202, 1213-1214 (dis. opn. of Easterbrook, J.).)

18.   One commentator has noted courts of law, unlike private employers, are generally not faced with the consequences of incorrect decisions, and so may not be appropriately sensitive to the needs of employers in a competitive economy to hire the “optimum” person.  (See Schuman, The Politics of Presumption:  St. Mary's Honor Center v. Hicks and the Burdens of Proof in Employment Discrimination Cases (1993) 9 St. John's J. Legal Comment. 67, 89.)   The point is all the more reason for courts to take a realistic view of the phrase “better qualified” as it appears in the statute.

19.   The Labor Secretary's Report states at page 1:  “The Nation has faced the fact-rejecting inherited prejudice or contrary conviction-that people's ability and usefulness is unrelated to the facts of their race, or color, or religion, or sex, or the geography of their birth.   Having accepted this truth, the easy thing to do would be simply to extend the conclusions derived from it to the problem of discrimination in employment based on aging, and be done with the matter.   This would be easy-and wrong.”  (Emphasis added.)

20.   There is a certain irony in the 1965 report's focus on the problem of older industry, technological progress, and older, less educated and immobile workers.   Age discrimination claims are often brought by highly-educated workers in Sunbelt-based high tech industries.

21.   Under the heading of personnel policies which establish “an orderly system for assignment and promotion of already employed workers,” the text states:  “Starting the older worker at a low-level job involves not only age balance, but questions of pay.   For the experienced worker an entry job often means a reduction in earnings level.   Resistance to such cuts in earnings has been found to limit reemployment opportunities in several case studies of displaced workers.”  (Labor Secretary's Report at p. 15.)

22.   The report states in part III, conclusions and recommendations:“Such an effort will include four types of programs.  [¶] First:  Action to eliminate arbitrary age discrimination in employment.  [¶] Second:  Action to adjust institutional arrangements which work to the disadvantage of older workers.  [¶] Third:  Action to increase the availability of work for older workers.  [¶] Fourth:  Action to enlarge educational concepts and institutions to meet the needs and opportunities of older age.”  (Id. at p. 21, original emphasis.)

23.   The Caron court's error is the classic fallacy of trying to prove one's point by tearing down a straw figure.  Caron simply excerpted a phrase from a litigant's argument, then reviewed the report and announced that because it did not find any reference to that exact phrase in the report, the litigant's argument was “unpersuasive.”  (See id. at p. 38.)   The Caron court gave no indication that it ever considered the different programs proposed for “arbitrary age discrimination” and “institutional arrangements.”

24.   The word “disproportionate” is not used.   The text of 29 U.S.C. section 621, subdivision (a)(3) speaks of “the incidence of unemployment” being “relative to the younger ages, high among older workers․”  (Emphasis added.)

25.   The statute provides in its entirety:  “It is the public policy of the State of California that manpower should be used to its fullest extent.   This statement of policy compels the further conclusion that human beings seeking employment, or retention thereof, should be judged fairly and without resort to rigid and unsound rules that operate to disqualify significant portions of the population from gainful and useful employment.   Accordingly, use by employers. employment agencies, and labor organizations of arbitrary and unreasonable rules which bar or terminate employment on the ground of age offend the public policy of this State.”

26.   One is, however, entitled to be somewhat skeptical of this innocence when one remembers that the test requirements were adopted the day after Title VII became effective.

27.   The Camacho model also represents an extremely short-sighted view of judicial administration.   For firms which are barely profitable, it would merely encourage companies to file for bankruptcy so as to demonstrate a “business necessity” which otherwise might not be accorded a “downsizing” decision.

FOOTNOTE.   See footnote *, ante.

28.   Apropos of our discussion of 29 U.S.C. section 623, subdivision (a)(3), and to be consistent with our rationale, that we think it would be a perverse error indeed to hold that the provision in the federal age discrimination statute which precludes employers from reducing wage rates “to comply” with the age discrimination statute itself should be used to inhibit market transactions that would otherwise take place.   As we have shown above, that is not the purpose of section 623, subdivision (a)(3).   It would be ludicrous to hold that the statute prohibited an employer and older employee from reducing the older employee's wage rate so as to allow the older employee to be competitive in the labor market.  (Cf. Comment, “Overpaid” Older Workers and the Age Discrimination in Employment Act (1996) 71 Wash. L.Rev. 769, 790-792.)

29.   Metz, supra, 828 F.2d at page 1205, footnote 6.

30.   Labor Secretary's Report at page 1.

SILLS, Presiding Justice.

WALLIN and RYLAARSDAM, JJ., concur.

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