United States: Seventh Circuit Holds Distressed County Did Not Violate ADEA When It Terminated Rehired Retirees To Preserve Supplemental Health Insurance Coverage And Avoid Additional Costs

Executive Summary: On July 26, 2017, the United States Court of Appeals for the Seventh Circuit in Carson v. Lake County, Indiana affirmed the district court's order granting summary judgment to the employer on the plaintiffs' Age Discrimination in Employment Act (ADEA) and Fourteenth Amendment Equal Protection claims, finding that they were not terminated because of their age, but because the employer needed to preserve supplemental insurance coverage for retirees and avoid incurring additional costs. The Court of Appeals found that the plaintiffs failed to establish a prima facie case of age discrimination under a disparate treatment theory since they did not identify younger employees who received more favorable treatment. The court also rejected the plaintiffs' age discrimination claim based on a disparate impact theory since they failed to demonstrate that a "specific, facially neutral employment practice caused a significantly disproportionate impact based on age." Finally, the Court of Appeals rejected the plaintiffs' Equal Protection claim under the Fourteenth Amendment, finding the employer's decision "was rationally related to a legitimate state in­terest: preserving supplemental insurance coverage for its re­tirees while avoiding further financial hardship."

Background of the Case

The employer, Lake County, Indiana, began to experience "an emergency cash shortage" in 2008, which turned into a deficit in 2009 that continued to get worse. By 2013, the employer's general fund had a deficit of more than one million dollars and its self-insurance fund had been "wiped out." In 2008 and 2010, the employer responded by offering "retirement incentives to employees age 65 or older." One package offered retir­ees "five years of supplemental health insur­ance (secondary to Medicare coverage)" and permitted them to return to work part-time. Several em­ployees elected to take the package and elected to retire, but were hired back as part-time at-will employees. In 2013, the company providing the Medicare supplement advised the employer that current em­ployees were ineligible for supplemental insurance cover­age and that the plan would lose its special exemption under federal law if the retired, but rehired, part-time employees remained on the plan. In that event, insurance costs would go up substantially, which the employer could not afford. The employer's benefits attorney confirmed the predicament, and the employer terminated "all rehired retirees who were covered by both Medicare" and the supplement. The employer, in a letter to the affected employees, announced the termination decision and stated they "were selected because they met each of four criteria: (1) they had retired from County service and were later rehired part-time; (2) they were age 65 or older; (3) they were receiving Medicare as their pri­mary insurance; and (4) they were enrolled in the ... supplement."

The terminated employees then sued the employer claiming their termination violated the ADEA and Equal Protection clause. The lower court ruled in favor of the employer, and the plaintiffs appealed the court's ruling to the Seventh Circuit.

The Seventh Circuit's Decision

The Court of Appeals began its analysis by briefly reviewing the federal laws applicable to health insurance plans. The court noted that "retiree only" plans (that pay benefits secondary to Medicare) enjoy a special exemption from many of the requirements of HIPAA and the Af­fordable Care Act that apply to primary health insurance policies. The court further noted that "each plaintiff at the time of termination was employed part-time and was covered by both Medicare" and sup­plemental insurance. However, a larger group of employees age 65 or older (approximately ten percent of the total workforce) were not enrolled in the supplemental plan and continued working for the employer.

The Court of Appeals next considered the legal framework and standards of proof applicable to ADEA claims, focusing first on the plaintiffs' disparate treatment claim and their argument that the "termination decision was discriminatory on its face ... since all part-time employees who were terminated on October 1, 2013 were age 65 or older, and since age was one of the criteria listed in the termination letter." The plaintiffs argued that since age "was a necessary condition for the defendant's decision to terminate them" that "age was a but-for cause" of the adverse employment decision. However, the Seventh Circuit rejected their position, finding that while "age over 65, [was] a characteristic common to all terminated employees, [age was] not the impetus for the County's decision." The Court of Appeals further stated:

The County did not terminate these employees because of their ages. It termi­nated them because they were enrolled in a retiree-only insur­ance plan in which current employees could not participate. If these rehired retirees had kept their jobs and remained on the ... supplemental health insurance plan in violation of federal law and the County's insurance contract, they would have—in attorney Larry Grudzien's words—blown the plan apart.

The court also rejected the plaintiffs' further argument that eligibility for Medicare (and a Medicare supplement plan) "may function as a proxy for age" and that a decision to terminate "based on such insurance coverage is a form of implicit age discrimination." After reviewing the Supreme Court's decision in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), which left open the possibility of "treating pension status as a proxy for age" where "the employer ... suppose[d] a correlation between the two fac­tors and act[ed] accordingly," the Court of Appeals found that the employer did not "suppose a correlation between Medicare status and age and act accordingly." Specifically, the court found the employer only fired employees who were enrolled in the supplement, "leaving unaffected a large number of employees age 65 or older who had not en­rolled in the supplement." The Court of Appeals further stated that "[t]he combination of current employ­ment and supplemental insurance participation — not age — was the decisive factor that distinguished the population of terminated employees from the larger County workforce." The court also noted that the undisputed facts showed that "economic and regulatory pressures — not generalizations about the capabilities of el­derly employees — drove the County's decision." In fact, the court reasoned that the employer would have made the same decision absent the "65 or older criterion" in that "[e]xactly the same group of rehired retirees would [have] be[en] terminated." The Court of Appeals further noted that "[o]ther employees of a similar age who were not enrolled" in the supplement kept their jobs.

Moreover, the court found that the plaintiffs failed to establish a prima facie case of age discrimination since they failed to show they were "treated less favorably than similarly situated employees outside their pro­tected class, that is, younger employees." Without identifying "an appropriate com­parator group" the court found that the plaintiffs "cannot prevail under the McDonnell Douglas framework."

Next, the Court of Appeals rejected the plaintiffs' age discrimination claim under a disparate impact theory, finding they failed to "show that a 'specific, facially neutral employment practice caused a significantly dispropor­tionate adverse impact based on age.'" quoting Karlo v. Pittsburgh Glass Works, LLC, 849 F.3d 61, 68 (3d Cir. 2017) (emphasis added). The court further found that the plaintiffs failed to offer "statistical evidence that the policy caused a significant age-based disparity."

Finally, the court rejected the plaintiffs' claim under the Equal Protection Clause of the Fourteenth Amendment, finding that they did "not identif[y] a suitable comparator group." The Court of Appeals further reasoned that even if a comparator group had been identified, the employer had a rational basis for the termination decisions – "continued employment would have imperiled the County's already fragile financial situation or jeopardized an insurance plan that benefited plaintiffs and many other retirees."

Employers' Bottom Line: The Seventh Circuit's decision in Carson aptly illustrates the difficulty plaintiffs encounter in ADEA cases with the "but-for" standard of causation. Carson also underscores the importance of employers not making or acting on "stereotypical assumptions" about the capabilities of older employees based on their enrollment in Medicare or a Medicare supplemental insurance plan or pension eligibility or using age as the determining factor in employment decisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions