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SANTA ANA, Calif.-California employers now will have a freer hand in firing higher-paid employees after a state appellate court decision that says companies can replace those employees with younger, lower-paid workers for economic reasons without violating age discrimination laws.
The decision in Michael J. Marks vs. Loral Corp. means "employers can breathe a little easier now," said employer attorney Angela Bradstreet of San Francisco law firm Carroll Burdick & McDonough.
The recent decision by the 4th Appellate District in Santa Ana already has generated significant publicity and could have a wide impact, observers say.
"The case is significant in the sense it's the first published California decision on the question of whether or not age discrimination can be established by showing that employees are terminated primarily, or solely, because of their high salaries," said attorney William Quackenbush of San Mateo, Calif.-based Quackenbush & Quackenbush, who represents employees.
Employer attorney Jeffrey Wohl of San Francisco-based Orrick Herrington & Sutcliffe in San Francisco said, "I think it's a fair shot that the Supreme Court of California or even the U.S. Supreme Court will grant review of this case."
The 42-page decision upholds jury instructions issued in the case of Mr. Marks, who lost an age discrimination and retaliation lawsuit against his former employer, the New York-based Loral Corp. (BI, Aug. 4). The court instructed the jury that "an employer is entitled to choose 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."
Mr. Marks' attorney, James J. Guziak, an Orange, Calif.-based solo practitioner, said shortly after the ruling was issued that it will be appealed, though he and his client have not decided whether to ask for a rehearing before the appellate court or to petition the California Supreme Court for review.
Employer attorneys applaud the decision, saying it permits employers to make sound economic decisions without fear of being accused of age discrimination.
Attorneys who represent employees complain the decision will make it more difficult to prove legitimate cases of age discrimination.
These attorneys also point out that while this decision may have relatively little impact in today's vibrant economy, the ruling could have a devastating effect on the large number of aging "baby boomers" in the workforce when the economy changes.
A key element in the decision is the concept of "disparate impact," which refers in this case to the unequal effect on older employees of letting workers go for economic reasons.
"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," says the decision.
This decision says, however, "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."
Federal and state statutes "show an intention that price-based business decisions should not be held to constitute illegal age discrimination," the decision states.
Furthermore, these statutes' intent "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."
The decision also states that the "first principles of disparate impact analysis, as articulated by the United States Supreme Court, do not apply to differentiations based on salary."
The decision also says a company's financial status has no bearing. "There is not one age discrimination law for the marginally profitable and another for the highly profitable," it states.
There is a "poignancy" in situations where older workers are let go, acknowledges the decision, and "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."
"It basically affirms the employer's right to make sound, economic, cost-based decisions without the fear of being sued," said Ms. Bradstreet. "Up until now, employers have sometimes been between a rock and hard place," when it came to the issue of dismissing higher-paid employees.
"They've been paranoid about doing anything for fear of getting sued, and I think this decision brings some common sense back to the workplace . . . and discrimination laws by affirming the right to make neutral, economic-based decisions."
Catherine A. Evans, of Irvine, Calif.-based Assayag, Mauss & Evans, who represented Loral in the litigation, said, "I think it is a well-reasoned, carefully researched decision, and I do believe it is a correct reflection of both federal and state law."
Even presuming salary correlates with age, and older workers cost more, "neither the federal nor state statutes ever intended to keep businesses from making business decisions that were necessary," she said. "They intended to eliminate discrimination on the basis of age and other biases."
Mr. Wohl said, "It really turns the law on its head if you tell employers they must hold on to higher-priced employees even if it does not make economic sense, because we will hold you liable for age discrimination" if the employee happens to be older.
The issue is not employers that are "hell-bent on getting rid of older workers," added Mr. Wohl. The issue for employers trying to cut costs is whether they "have the right to eliminate those people whose salaries have exceeded their actual contribution to the business" or whether they are stopped because of a concern about violating age discrimination law.
Kent Jonas of San Francisco-based Graham & James, who represents employers, said, "I certainly couldn't say it never happens, but I don't think there are that many employers out there who are interested in getting rid of 'old people,' especially when you consider the fact the law considers you old once you're over 40" and you are protected under age discrimination laws.
However, attorneys representing employees say the impact on older workers should be taken into consideration as well. "It's troubling that the decision doesn't. . .balance the interest of older workers as a group in society as a whole against the economic interest of employers," said Mr. Marks' attorney, Mr. Guziak.
"There are substantial societal impacts when older workers are laid off or let go," including unemployment compensation and potential welfare claims, as well as the detrimental impact upon the worker's families, Mr. Guziak said.
The decision "sends a message to employers that if they announce that they are cutting the workforce by focusing on higher-paid employees that they will be able to do that with no risk of a lawsuit," said Mr. Quackenbush.
High salary "is very often used to disguise age discrimination," according to Cliff Palefsky of McGuinn, Hillsman & Palefsky in San Francisco.
One of the factors lost in the appellate court's analysis is "what is truly said behind closed doors," said Mr. Palefsky. The decision "ignores the reality of the situation. I think many companies are smart enough" to not say they want to bring in younger, more energetic people, "but we all know that's the motivation, and I think it will be incumbent upon employment lawyers to find different ways to establish that reality."
Mark Rudy of San Francisco-based Rudy, Exelrod, Zieff & True, who represents employees, said the decision already has "caused a lot of hysteria" among his clients.
"It's so hard to prove discrimination," added Mr. Rudy. Usually this is done circumstantially. "There are not that many smoking guns out there," and this decision "really critically injures those who are trying to get their rights vindicated," though it is not necessarily the death knell of their efforts.
Mr. Rudy predicted more decisions on this issue. "I think there's going to be a lot more activity before we have a definitive, final decision on what the law is," he said.
Michael J. Marks vs. Loral Corp. et al., Court of Appeal of the State of California, Fourth Appellate District, Division Three; G017833