Petition — Baltimore & Ohio Railroad v. Equal Employment Opportunity Commission
Supreme Court brief1981
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Office Supreme Court, U.S.
FiLe Dp
8 Qc 929
MAY 161981
IN THE 1
Supreme Cuurt ut the United Alp
OCTOBEk TERM, 1980
BALTIMORE AND OHIO RAILROAD COMPANY AND
THE CHESAPEAKE AND OHIO RAILWAY COMPANY,
Petitioners,
Ve
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
THOMPSON POWERS
(Counsel of Record)
RONALD S. COOPER
MorGAN D. HopGson
PAUL J. ONDRASIK, JR.
STEPTOE & JOHNSON
1250 Connecticut Avenue, N.W.
Washington, D.C. 20036
(202) 862-2195
JOSEPH B. GEYER
BALTIMORE & OHIO RAILROAD
COMPANY AND THE
CHESAPEAKE & OHIO
RAILWAY COMPANY
100 North Charles Street
Baltimore, Maryland 21201
Attorneys for Petitioners
QUESTIONS PRESENTED
1. Whether the Companies, faced with an “overriding
business necessity” to reduce their work force and a lack
of feasible alternatives, violated section 4(a) of the Age
Discrimination in Employment Act (“ADEA”) when
they: (a) retired certain employees entitled to a full pen-
sion before normal retirement age; and (b) lowered the
mandatory retirement age, in an effort “to reduce the
[economic] impact upon employees who were let go“?
2. Whether the Companies failed to “observe the
terms” of their pension plans within the meaning of the
section 4(f) (2) ADEA exemption in retiring employees
prior to normal retirement age, where the Companies:
(a) “always had the power,” as the district court found,
“to involuntarily retire their employees under the con-
sistent application of their plans,” despite ambiguous
plan language on the issue; and (b) had based their re-
tirement decisions on the retirees’ entitlement to full
pension benefits under the plans and actually had paid
them such benefits?
3. Whether the Companies’ post-ADEA lowering of
the mandatory retirement age constituted “a subterfuge
designed to evade the purposes of [the ADEA]” so as
to render section 4(f) (2) inapplicable, despite the busi-
ness justifications for such action as part of a broader
work force reduction, the pension plans’ pre-ADEA exis-
tence and operation, and the substantiality of benefits
paid thereunder?
4. Whether the court of appeals erred in reversing
the district court’s finding that the Companies had re-
lied in good faith upon, and acted in conformity with,
official Department of Labor interpretations uf the ADEA,
and thus had established a “good faith reliance” defense
under section 7(e) of the ADEA?
(i)
ii
5. Whether the court of appeals violated Rule 52(a),
Fed. R. Civ. P., when it failed to credit crucial fac-
tual findings of the district court without holding such
findings clearly erroneous?
PARTIES TO THE PROCEEDING
Baltimore and Ohio Railroad Company *
The Chesapeake and Ohio Railway Company *
Equal Employment Opportunity Commission
* The Baltimore and Ohio Railroad Company (“B&O”) is a sub-
sidiary of the Chesapeake and Ohio Railroad Company (“C&O”) ;
C&O is a wholly owned subsidiary of CSX Corporation. The follow-
ing companies are non-wholly owned subsidiaries of CSX, C&O,
or B&O:
The Baltimore and Philadelphia Railroad Company ;
The Cleveland Terminal & Valley Railroad Company ;
The Dayton and Michigan Railroad Company ;
The Dayton and Union Railroad Company ;
The Western Maryland Railroad Company ;
The Chicago South Shore and South Bend Railroad ;
Fruit Growers Express Company ;
Richmond-Washington Company ;
Richmond, Fredricksburg and Potomac Railroad Company ;
10. Richmond Land Company;
11. Eastern Hardwoods, Incorporated:
12. James Center Development Company ;
18. Mid Allegheny Corporation;
14. New Gauley Coal Corporation;
15. Littleton Fuel Company;
16. Western Maryland Company;
17. Atlanta and West Point Railroad Company;
18. Columbia, Newberry and Laurens Railroad Company;
19. Durham and Southern Railway Company ;
20. Monon Coal Company, Inc.;
21. Louisville, Henderson & St. Louis Railway Company:
22. Nashville & Decatur Railroad Company ;
23. North Charleston Terminal Company ;
24. Park-N-Shop, Inc.;
25. The South Carolina Pacific Railway Company ;
26. The Western Railway of Alabama.
WRNOAS SP
TABLE OF CONTENTS
QUESTIONS PRESENTED .
PARTIES TO THE PROCEEDING .............. 8
TABLE OF AUTHORITIES .
— ² —T—T— = —ABw
%%FCTPTT—TVTPGVG0TGT0TGG0T00VT0T—T——
CONSTITUTIONAL AND STATUTORY PROVI-
H ———T—T—T———
REASONS FOR GRANTING THE WRIT ................
1. The Fourth Circuit’s decision raises important
questions of first impression in this Court as
to a plaintiff’s burden of proof under section
4(a) of the Age Discrimination in Employ-
0 ee en
2. The Fourth Circuit’s refusal to credit historical
practice in determining whether an employer
has observed the terms of his pension plan
within the meaning of section 4(f) (2) is in-
compatible with decisions of this Court and
L
3. The decision below raises important questions
left open by this Court in United Air Lines, Inc.
v. McMann as to the proper interpretation of the
term “subterfuge” in section 4 (f) (2) of the
ADEA and conflicts with decisions of other
courts of appeals on this issue?:et
(iii)
10
15
iv
TABLE OF CONTENTS—Continued
Page
4. The Fourth Circuit’s analysis of the “good faith
reliance” defense available under section 7 (e)
of the ADEA raises an important question of
federal law not previously considered by this
Court and is in conflict with at least two other
— / —T—T———— C OE 22
5. The Fourth Circuit’s flagrant disregard of the
district court’s findings of fact demands an ex-
ercise of this Court’s supervisory powers 24
Vv
TABLE OF CASES AND AUTHORITIES
Cases Page
Addison v. Huron Stevedoring Corp., 204 F.2d 88
(2d Cir.), cert. denied, 346 U.S. 877 (1953) ..23, 24, 25
Aldendifer v. Continental Air Lines Inc., 26 Empl.
Prac. Dec. f 31,535 (5th Cir. 1971) .................... 16, 17
Benzel v. Valley National Bank, 633 F.2d 1325
r 17. 22
Bishop v. Jelleff Associates, 398 F. Supp. 579
TͤTTT—T—T—VTZ—JT—T—T—T———— 12
Board of Trustees of Keene State College v.
Sweeney, 489 U.S. 24 (1978) 13, 14
Carpenter v. Continental Trailways, 635 F. 2d 578
— 0 ²˙ AAA ⁵˙ wGh6o(6o(6(0 19, 21
City of McKeesport v. International Association of
Firefighters, 399 A.2d 798 (Pa. Commw. Ct.
PVC AAV 14
Cova v. Coca-Cola Bottling Co., 574 F. 2d 958 (Sth
1 c 10
Craig v. Bemis Co., 517 F. 2d 677 (5th Cir. 1975) 17
Day & Zimmerman, Inc. v. Reid, 168 F.2d 356 (8th
TTTT—C0TC0 25
Earle v. W.J. Jones & Son, 200 F.2d 846 (9th
Ey EL CD ew SPER ae NASER et a Med 24
EEOC v. Baltimore & Ohio Railroad, 632 F.2d 1107
(Cee eS passim
EEOC v. Consolidated Edison Co., No. 80-1292,
slip op. (S.D.N.Y. Jan. 21, 1981) 22
EEOC v. Home Insurance Co., No. 78-6242, slip
Körne 21, 23, 24
EEOC v. Liggett & Myers, Inc., C-74-163 (M.D.
n,. ene 22
EEOC v. Shell Oil Co., 637 F.2d 683 (9th Cir.
T—— AAA 16, 17
EEOC v. Sandia Corp., 23 Fair Empl. Prac. Cas.
R,, ceteris 3
Furnco Construction Corp. v. Waters, 488 U.S.
TTTT——T—T—TCVTͥe e RE Sones CADE 13
Gonsalves v. Caterpillar Tractor Co., 684 F.2d
1065 (7th Cir. 1980), cert. denied, 49 U.S.L.W.
8782 (Apr. 21, 1981) 18,19
vi
TABLE OF CASES AND AUTHORITIES—Continued
Page
Hodgson V. Miller Brewing Co., 457 F.2d 221 (7th
r 25
Houser v. Sears, Roebuck & Co., 627 F.2d 756 (5th
„ eee 10
International Brotherhood of Teamsters v. United
e, 431 UB. SBE (1GTT) ..cccorccssscccccssescscssesccaes 11
Jensen V. Gulf Oil Refining & Marketing Co., 623
e 19
Kam Koon Wan v. E. E. Black, Ltd., 188 F.2d 558
/// —— ͤ KV. 23
Laffey v. Northwest Airlines, Inc., 567 F.2d 429
(D.C. Cir. 1976), cert. denied, 434 U.S. 1086
—— A 24, 25
Laugesen v. Anaconda Co., 510 F.2d 307 (6th Cir.
MUTI "ihc ebiih ich nc sciesatdsindnpibatasaanpenbdieatebiebidantdcaaataaatel 10, 12
Lassiter v. Guy F. Atkinson Co., 176 F.2d 984
T 25
Loeb v. Textron, Inc., 600 F.2d 1003 (Ist Cir.
7 d 10, 11
Marshall v. American Motors Corp., 475 F. —
875 (E.D. Mich. 1979) .. 22
Marshall v. Atlantic Container ‘Line, G. J. E., 470
F. Supp. 71 (S. D. N. V. 1979) . . . 21, 22, 23, 24
Marshall v. Baltimore & Ohio Railroad, 461 F.
III passim
Marshall v. Eastern Airlines, Inc., 474 F. Supp.
e checsnteicetsoethstorciasiennshoivcszsscnssebe 21
Marshall v. Goodyear Tire & Rubber Co., 554 F.2d
,,, . 12
Marshall v. Hawaiian Telephone Co., 575 F.2d 763
t 19
Marshall v. Westinghouse Electric Corp., 576 F.2d
, c 15
Massachusetts Board of Retirement v. Murgia,
, T 12,
McMann v. United Air Lines, Inc., 542 F.2d 217
(4th Cir. 1976), rev’d, 434 U.S. 192 (1977)
vii
TABLE OF CASES AND AUTHORITIES—Continued
Page
McDonnell Douglas Corp. v. Green, 411 U.S. 792
141114 10, 13, 15
Nolde Bros. v. Local 858 Bakery & Confectionary
Workers Union, 480 U.S. 248 (1977) 16
Sexton v. Beatrice Foods Co., 680 F.2d 478 (7th
„ eee 17, 18
Smith v. University of North Carolina, 682 F.2d
e, ̃ 10
Spagnuolo v. Whirlpool Corp., 25 Fair Empl. Prac.
e 11
Texas Department of Community Affairs v. Bur-
dine, No. 79-1764, slip op. (March 4, 1981) ........ 13
United Airlines, Inc. v. McMann, 434 U.S. 192
Wanne cas passim
United States v. National Association of Real
Estate Boards, 389 U.S. 485 (19500) 25
United States v. United States Gypsum Co., 333
r 24
United States v. Yellow Cab Co., 338 U.S. 338
111111 25
United Steelworkers of America v. Warrior & Gulf
Navigation Co., 363 U.S. 574 (1960) ............ 3 16
Vance v. Bradley, 440 U.S. 93 (19799 12
Zenith Radio Corp. v. Hazeltine Research, Inc.,
, . easancatetbcenessnchonce 25
Zinger v. Blanchette, 549 F.2d 901 (3d Cir. 1977),
cert. denied, 484 U.S. 1008 (1978) 18, 19, 20, 23
Statutes and Regulations
,, .. 2
Portal- to-Portal Act, 29 U.S.C. § 255, et seq. (1976
and Supp. III 1979)
39, 29 U.S.C. § 268 (1976) .............................. 24
§10, 29 U.S.C. 6 259 (1976) .......................... 2, 7, 21
8 10 (b) (1), 29 U.S.C. § 259 (b) (1) (1976). 4
$11, 29 U.S.C. § 260 (1976) 24
viii
TABLE OF CASES AND AUTHORITIES—Continued
Page
Age Discrimination in Employment Act, 29 U.S.C.
§§ 621, et seg. (1976 and Supp. III 1979)
§ 4(a), 29 U.S.C. § 623 (a) (1976) . passim
§ 4(f) (1), 29 U.S.C. § 623 (f) (1) (1976) ..... 14
§ 4(f) (2), 29 U.S.C. § 623 (f) (2) (1976 and
T passim
§7(e), 29 U.S.C. § 626 (e) (1976) 2, 4, 7, 21
Age Discrimination in Employment Act Amend-
ments of 1978, Pub. L. No. 95-256, 5 2 (a),
92 Stat. 189 (1978) (as codified at 29 U.S.C.
§ 628(£) () (Supp. III 197900) . 2, 7
Title VII of the Civil Rights Act of 1964, 42 U.S.C.
§§ 2000e, et seg. (1976 and Supp. III 1979)........ 10
Bile i Mle MINED |... edinasinnedittepddercitcionontiainiaiinineoel 2, 25, 26
aan. i Aeeenerrs 5
Journals
Note, The Age Discrimination in Employment Act
of 1967, 90 Harv. L. Rev. 380 (1976) 12
Miscellaneous
Age Discrimination in Employment: Hearings on
S. 830 and S. 788 Before the Subcommittee on
Labor of the Senate Committee on Labor and
Public Welfare, 90th Cong., Ist Sess. (1967)....... 17
Age Discrimination in Employment: Hearing on
H.R. 3651, H.R. 3768 and H.R. 4221 Before the
Subcommittee on Labor of the House Committee
on Education and Labor, 90th Cong., Ist Sess.
—ͤͤ AAA ( 12
Opinion Letter of Wage-Hour Administrator
. y — A 6
S. Rep. No. 723, 90th Cong., Ist Sess. (1967) 13
H.R. Rep. No. 805, 90th Cong., Ist Sess. (1967) 13
S. 830, 90th Cong., Ist Sess. §4(f) (2) (1967) 17
IN THE
Supreme Court of the United States
OCTOBER TERM, 1980
No. 80-
BALTIMORE AND OHIO RAILROAD COMPANY AND
THE CHESAPEAKE AND OHIO RAILWAY COMPANY,
Petitioners,
v.
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
The Baltimore and Ohio Railroad Company and the
Chesapeake and Ohio Railway Company hereby petition
for a writ of certiorari to review the judgment of the
United States Court of Appeals for the Fourth Circuit
in this case.
OPINIONS BELOW
The opinion of the United States Court of Appeals
for the Fourth Circuit (Appendix A) is reported at 632
F.2d 1107. The opinion of the United States District
Court for the District of Maryland dismissing the com-
plaint (Appendix B) is reported at 461 F. Supp. 362
(D. Md. 1978). The opinion of the United States Dis-
2
trict Court for the District of Maryland denying plain-
tiffs’ motion for reconsideration (Appendix C) is also
reported at 461 F. Supp. 362, beginning at page 377.
JURISDICTION
The judgment of the court of appeals (Appendix D)
was entered on September 23, 1980. A timely petition
for rehearing (Appendix E) was denied December 17,
1980. The jurisdiction of this Court is invoked under 28
U.S.C. 1254 (1) (1976).
CONSTITUTIONAL AND
STATUTORY PROVISIONS INVOLVED
The relevant statutory provisions are set forth in Ap-
pendix F. Those provisions are section 4(a) of the Age
Discrimination in Employment Act (“ADEA”), 29 U.S.C.
623 (a) (1976); section 4(f)(2) of the ADEA, 29
U.S.C. § 623 (f) (2) (1976 & Supp. III 1979), both as
enacted and as amended by section 2(a) of the Age
Discrimination in Employment Act Amendments of
1978, Pub. L. No. 95-256, §2(a), 92 Stat. 189; section
7(e) of the ADEA, 29 U.S.C. § 626 (e) (1976); section
10 of the Portal-to-Portal Act, 29 U.S.C. § 259 (1976);
and Rule 52(a) of the Federal Rules of Civil Procedure.
STATEMENT OF THE CASE
A. Factual Background
In 1971, petitioners Baltimore and Ohio Railroad Com-
pany (“B&O”) and the Chesapeake and Ohio Railway
Company (“C&O”) (collectively “the Companies“) faced
a grave financial crisis. This crisis was rooted in the
pervasive economic ills of the railroad industry and was
precipitated by the first national coal strike in twenty-
two years.’ It forced the Companies to make an imme-
1 Since coal shipments constituted 50% of the Companies’ traffic
and accounted for 85%-40% of their operating revenues, the coal
strike had a devastating impact upon the Companies who were
diate and substantial reduction in their entire work force,
including their non-contract management employees.“
The Companies’ management sought to accomplish this
non-contract force reduction in a responsible, humane
way and in accordance with legal requirements. The task
was very difficult. The non-contract force was dispro-
portionately composed of persons in the forty to sixty-
five age group then protected by the ADEA. It contained
some junior persons whose skills were essential to busi-
ness operations.“ The Companies were able to achieve
only a small percentage of the reduction needed through
the elimination of all poor performers and those whose
functions could be entirely eliminated.* Most of the re-
duction had to be achieved through selection among those
whose jobs were being consolidated. The Companies had
no performance evaluation system in place on which to
base such selections, and ad hoc subjective judgments,
even if feasible, would have been difficult to defend.“ A
already suffering from the excess trackage and overstaffing prob-
lems that ultimately led to the demise of the Penn Central Trans-
portation Co. Indeed, the strike forced the Companies to pass a
dividend for the first time in nearly 50 years. See Marshall v.
Baltimore & O. R. R., 461 F. Supp. 362, 366-67 (D. Md. 1978), App.
B at 16a-19a; EEOC v. Baltimore & O. R.R., 682 F.2d 1107, 1109
(4th Cir. 1980), App. A at 2a-3a. (Hereinafter, all references to
the lower court opinions will be by citation to the Appendix).
2 In addition to reducing their non-contract work force, the Com-
panies reduced their contract employees in a manner that is not in
dispute. All told, approximately 18% of the Companies’ 45,000
employees were separated involuntarily in the force reduction.
5 For example, many employees with technical skills that could
not be developed quickly, such as computer programming, fell out-
side the protected age group.
Indeed, the elimination of all poor performers resulted in only
a one percent reduction in the non-contract work force. App. B
at 17a.
5 The Department of Labor has viewed ad hoc performance rank-
ings made in the face of an urgent force reduction as inherently
suspect, See EEOC v. Sandia Corp., 28 Fair Empl. Prace. Cas. 799
(10th Cir. 1980).
4
lottery was impractical because of differences in job re-
quirements and employee skill and experience.
Given this lack of feasible alternatives the Companies
decided to retire those persons below the normal retire-
ment age who were entitled to an actuarially unreduced
pension and whose services were not needed for efficient
operations.“ This decision was made specifically to miti-
gate the economic “impact upon employees who were let
go,“ and was implemented at significant cost to the
Companies.* Before reaching this decision, however, the
Companies considered the legality of such retirements un-
der the ADEA. They concluded that even if subject to
the ADEA, the proposed retirements were exempt under
section 4(f) (2) of the Act, 29 U.S.C. § 623 (1976), on
the basis of the statute and an interpretative bulletin and
opinions of the Wage-Hour Administrator“ which indi-
cated that section 4(f) (2) “authorized involuntary retire-
* Substantial numbers of non-contract employees aged sixty to
sixty-five were retained, either because they lacked pension entitle-
ment or because of reasons of operating efficiency.
7 App. B at 18a. The Companies’ pension plans were among the
most generous 10% in American industry and provided those
retired with benefits equal to or near their pre-retirement disposable
income. In contrast to such benefit entitlements, employees in their
forties and fifties, many of whom had substantial family and other
obligations, would have received no or only significantly reduced
benefits later if they were not retained.
Not only did the Companies incur the full pension costs of those
retired and the salary costs of those retained, they also carried a
number of persons aged 59 on their payrolls at full pay for up to
one year until they could be eligible for an unreduced pension.
At all times relevant to this lawsuit, the Administrator of the
Wage-Hour Division of the Department of Labor had authority to
issue regulations and bulletins interpreting the ADEA. See 29
U.S.C. § 259 (b) (1) (1976), incorporated under 29 U.S.C. § 626 (e)
(1976). This authority was later transferred to the Equal Employ-
ment Opportunity Commission (“EEOC”). See 29 U.S.C. § 259
(Supp. III 1979).
5
ment irrespective of age . . pursuant to the terms” of a
bona fide pension plan that was not a subterfuge to evade
the Act’s purposes. See 29 C.F.R. § 860.110 (1978).
App. B at 19a; App. A at 9a.
At issue in this litigation are one hundred forty-two
employees who were retired on the basis of pension en-
titlement between the ages of sixty and sixty-five. Sig-
nificantly, however, even including pension-entitled re-
tirements, a smaller percentage (15.4%) of the ADEA-
protected age group (forty to sixty-five) was terminated
in the force reduction than of the non-protected employ-
ees below age forty (24.4%). The employee group most
adversely affected was that under age twenty-five, of
which nearly two-thirds was terminated. By contrast,
the age group with the lowest termination rate (7%)
was the forty to fifty-nine age group. Indeed, because
of the advanced age of the non-contract work force, a
random termination program would have eliminated
more ADEA-protected employees and pulled within its
grasp many older employees whose pension entitlement,
if any, would have been minimal.
While the 1971 force reduction enabled the Companies
to withstand the immediate economic crisis, it did not
cure their more deep-rooted overstaffing difficulties. More-
over, the legality of these pension-based retirements had
been questioned by the Department of Labor (“DOL”)
on the ground that the Companies’ pension plans did not
explicitly permit involuntary early retirement. To
meet these concerns, the Companies amended their pen-
sion plans in October 1972, effective January 1, 1974, to
lower the normal retirement age from age sixty-five to
sixty-two. App. A at 3a; App. B at 19a-20a. Before
doing so, the Companies once again reviewed the legality
of their actions under the ADEA. Once again, they con-
cluded that the proposed action was exempt under section
4(f) (2). Among the administrative interpretations re-
lied upon was a published opinion of the Wage-Hour
Administrator which specifically stated:
The lowering of the retirement age from 65 to 62
years for employees participating in a bona fide re-
tirement plan would not affect the applicability of
the exception specified in section 4(f) (2) of the Act.
Opin. Letter of Wage-Hour Administrator, September 6,
1968. See App. B at 19a-20a, 39a-40a; App. A at 12a.
The DOL was aware of the proposed changes to the
plans in January 1973, a full year before they went into
effect. As late as February 1974 its representatives in-
formed the Companies that the amendments would cut
off any further liability. It was not until three weeks
before suit and months after the changes’ effective date
that DOL raised any question as to their legality under
the ADEA. When DOL brought this suit on June 19,
1974, however, it challenged both the pension-entitled
retirements and the reduction of the mandatory retire-
ment age as violative of section 4(a) of the ADEA,
which prohibits employment discrimination “because of
an individual’s age.”
B. Decisions Below
On September 6, 1978, the United States District
Court for the District of Maryland dismissed the com--
plaint following a bench trial. The court first deter-
mined that the challenged actions had constituted prima
facie violations of section 4(a), even though the Com-
panies “had an overriding business necessity to re-
duce their work force,” pension entitlement had been
used as a selection criterion only to minimize the eco-
nomie consequences upon their employees, and “other
methods of reduction were infeasible.” App. B at 17a-
18a, 35a. The court went on to hold that the Com-
panies’ actions were exempt under section 4(f) (2),
which permits an employer to “observe the terms of any
bona fide employee benefit plan . . which is not a sub-
terfuge to evade the purposes of [the ADEA].” App. B
7
at 30a-35a, 36a-37a."° The court concluded, alternatively,
that the Companies’ actions had been taken in conformity
with, and in good faith reliance upon, official DOL inter-
pretations of the ADEA, and thus were exempt from
liability under section 7(e) of the ADEA, 29 U.S.C.
§ 626(e) (1976). App. B at 37a-40a.
The district court’s dismissal was predicated on several
key factual determinations. In holding section 4(f) (2)
applicable to the 1971 retirements, the court specifically
rejected DOL’s contention that the exemption was un-
available because the terms of the Companies’ pension
plans did not authorize involuntary early retirement.
Rather, interpreting the plans’ language in light of
their historical operation, the court found that “[t]here
is no question that [the Companies] have had the power,
exercised over the years, to involuntarily retire em-
ployees.” App. B at 32a-38a. As for the retirement age
reduction, the court disposed of DOL’s subterfuge claim
on the ground that:
(a) the plans pre-dated the statute and paid sub-
stantial retirement benefits;
(b) the plans’ benefit levels had been improved in
connection with the age reduction; and,
(c) the reduction was a mere codification of the
Companies’ historic “power to involuntarily retire
1 Prior to its amendment in 1978, section 4(f) (2) had been con-
strued to authorize involuntary retirement. See United Air Lines,
Inc. v. McMann, 434 U.S. 192 (1977). However, in 1978, Congress
overruled the McMann holding by adding the following language to
Section 4(f) (2):
[N]o such seniority system or employee benefit plan shall re-
quire or permit the involuntary retirement of any individual...
because of the age of such individual.
Pub. L. No. 95-256, f 2(a), 92 Stat. 189.
1! Section 7 (e) incorporates section 10 of the Portal-to- Portal
Act, 29 U.S.C. § 259 (1976).
8
their employees under the consistent application of
their plans.”
Id. at 36a-37a. Finally, with respect to the good faith
reliance defense, the court concluded that as an “objec-
tive matter” the Companies “could and did reasonably
rely” on the various DOL publications supporting their
actions. Id. at 39a.
On appeal, the United States Court of Appeals for the
Fourth Circuit upheld the trial court’s findings of prima
facie violations of section 4(a).’* In its view, age was
“a determinative factor” in the Companies’ action in
the sense that “but for” age, the affected employees would
not have been selected for retirement. App. A at 5a.
Without suggesting any lawful alternatives to the Com-
panies’ action, the court then rejected the lower court’s
conclusion that those actions were exempt and that the
Companies had established a good faith reliance defense
to liability.
As to the pension-based retirements, the court held
that the absence of unambiguous plan language permit-
ting early retirement at the Companies’ option pre-
cluded the Companies from “observ[ing] the terms”
of their plans as required by section 4(f) (2). Id. at 6a-
7a. In so doing, the Fourth Circuit implicitly rejected,
without finding “clearly erroneous,” the district court’s
factual finding that the Companies had the authority to
require early retirement “under the consistent applica-
tion of their plans.” Rather, in the court of appeals’
view, such retirements had been made solely as a preroga-
tive of management. Id. at 6a-7a. Apparently, the court
felt that such management discretion rendered the sec-
tion 4(f)(2) exemption inapplicable: “A successful
4(f)(2) defense requires that the termination be pur-
After briefing on appeal, the EEOC was substituted as a party
for the Secretary of Labor because of the transfer of enforcement
responsibilities for the ADEA to that agency.
9
suant to the pension plan’s design—not to a discretionary
act of management.” Id. at 7a.
The district court’s finding that the mandatory retire-
ment age reduction was not a “subterfuge” was likewise
overridden. Jd. at 10a-12a. Since the age reduction had
been made in response to the Companies’ need to reduce
their work force, the court reasoned that such action had
the inevitable effect of eliminating ADEA-protected em-
ployees on the basis of their age. Accordingly, the court
held that the age reduction was a “subterfuge designed
to evade” the ADEA’s goal of promoting the employment
of older citizens. Id. at 12a.
The Fourth Circuit’s reversal of the “good faith reli-
ance” holding was based on much the same reasoning.
Since it had concluded that the Companies’ plans did not
authorize involuntary early retirement, the court deter-
mined that the Companies could not have relied reason-
ably on DOL interpretations indicating that such retire-
ments were permissible. Jd. at 9a-10a. As for the retire-
ment age reduction, the court held that the Companies
could not have relied in good faith on the pertinent opin-
ion because of their awareness of the ongoing DOL inves-
tigation of the 1971 force reduction. Id. at 12a-13a."
Significantly, however, the Fourth Circuit at no point held
“clearly erroneous” the district court’s determination
that, as an objective matter, the Companies had under-
taken both actions in good faith reliance on pertinent
DOL statutory interpretations.
REASONS FOR GRANTING THE WRIT
The decision below is in conflict with opinions of this
Court and decisions of other courts of appeals. It rejects
a common sense reading of the ADEA and that statute’s
18 In so holding, the court apparently assumed incorrectly that
the 1972 plan amendments had been called into question in the DOL
investigation. This was not the case. See p. 6, supra.
10
legislative history. It also flagrantly disregards the facts
as found by the trial court.
The result is a decision which ignores economic reality
and the nature of the employment relationship and which
distorts statutory intent, administrative action and the
appellate process. It holds management liable for actions
taken in good faith for which there was no feasible alter-
native. Especially in its denial of a good faith reliance
defense in the reduction of the mandatory retirement age,
the decision raises substantial questions of due process.
It permits government regulators to change their legal
interpretation of controlling law without even acknowl-
edging that change and to apply those changes retroac-
tively to the prejudice of those who have specifically relied
on those interpretations.
1. The Fourth Circuit’s condemnation of the Com-
panies’ reasoned response to their economic dilemma
raises important questions of first impression con-
cerning a plaintiff’s burden of proof in establishing that
an employer has subjected him to disparate treatment
“because of.. . age” in violation of section 4(a) of the
ADEA. Without this Court’s guidance, the courts of
appeals have grappled with this issue with standards
developed under title VII of the Civil Rights Act of 1964,
42 U.S.C. §§ 2000e, et seg. (1976 and Supp. III 1979),
most notably, the prima facie case standards enunciated
in McDonnell Douglas Corp. v. Green, 411 U.S. 792
(1973). Utilizing these standards, the Fourth Circuit
found the Companies guilty of age discrimination even
14 See, e.g., Houser v. Sears, Roebuck & Co., 627 F.2d 756, 757
(5th Cir. 1980); Smith v. University of North Carolina, 632 F.2d
316, 332-37 (4th Cir. 1980); Loeb v. Textron, Inc., 600 F.2d 1003,
1014-17, 1019 (1st Cir. 1979) ; Cova v. Coca-Cola Bottling Co., 574
F.2d 958, 959 (8th Cir. 1978). But see Laugesen v. Anaconda Co.,
510 F.2d 307, 312 (6th Cir. 1975) (title VII standards should not
be applied automatically due to differences in statutes).
11
though it had been stipulated that the Companies’ ac-
tions had been based, not on the employees’ age as such,
but on the employees’ entitlement to a pension and a
continued source of income. Moreover, there was no
evidence suggesting that the Companies’ actions had been
motivated by age animus or a preference for a younger
work force.” Rather, the court required no more than
a demonstration that age was “a determinative factor”
in the sense that “but for“ age, the employees would not
have been entitled to a pension and thus subject to the
job action; the Companies’ actual motivation in taking
those actions was irrelevant.“
Whatever the propriety of this analysis under title
VII.“ it has no place in the ADEA context. Unlike title
15 Indeed, any conclusion that age is an impermissible factor is
particularly incongruous in the instant case because age was rele-
vant only as a condition of eligibility for a substantial fringe bene-
fit, the receipt of which was indisputably the basis for the Com-
panies’ actions. See p. 14 & n. 28 infra.
16 In this regard, the decision below would appear to conflict with
the First Circuit’s decision in Loeb v. Textron, Inc., supra. While
that court also employed a “but for” analysis, it expressly required
evidence of discriminatory intent by focusing on the employer's
discriminatory motives, and not simply on the employees’ age:
[Flor plaintiff to prevail he had to prove .. that his age was
the “determining factor“ in his discharge in the sense that,
“but for“ his employer’s motive to discriminate against him
because of age, he would not have been discharged.
600 F.2d at 1019 (emphasis added). See also Spagnuolo v. Whirl-
pool Corp., 24 Fair Empl. Prac. Cas. 376 (4th Cir. 1981) in
which the Fourth Circuit purported to apply the Loeb “but for”
analysis, but affirmed a finding of discrimination on the basis of
evidence that, in the dissent’s view, demonstrated no more than that
age was “a factor” contributing to the plaintiff’s demotion. Id. at
380-81 (Field, J., dissenting).
7 Of course, title VII requires proof of discriminatory in-
tent where, as here, a case proceeds on a “disparate treat-
ment,” as opposed to a “disparate impact” theory. See, e.g., Interna-
tional Bhd. of Teamsters v. United States, 431 U.S. 324, 335 n.15
(1977).
12
VII, the ADEA is not directed at discrimination based
upon immutable human characteristics such as race, sex
and national origin. As this Court has recognized:
While the treatment of the aged in this Nation has
not been wholly free of discrimination, such persons,
unlike, say, those who have been discriminated
against on the basis of race or national origin, have
not experienced “a history of purposeful unequal
treatment” or been subjected to unique disabilities
on the basis of stereotyped characteristics not truly
indicative of their abilities.
Massachusetts Board of Retirement v. Murgia, 427 U.S.
307, 313 (1976); Note, The Age Discrimination in Em-
ployment Act of 1967, 90 Harv. L. Rev. 380, 383-87
(1976). Consequently, the strong presumption of dis-
criminatory intent present whenever an employer sub-
jects an individual protected by title VII to differing
treatment simply does not arise in the age context. Lau-
gesen v. Anaconda Co., 510 F.2d 307, 312 n.4 (6th
Cir. 1975); Marshall v. Goodyear Tire & Rubber Co.,
554 F.2d 730, 736 (5th Cir. 1977); Note, 90 Harv. L.
Rev. at 394-98. This Court therefore should fashion
standards unique for age that will insure that the
ADEA is not applied to “rational business deeision Is]
made in good faith and not actuated by age bias,“ and,
instead, is limited properly to the acts of “arbitrary age
discrimination” at which it is directed.” Cf. Vance v.
18 Bishop v. Jelleff Assocs., 398 F. Supp. 579, 593 (D. D.C. 1974).
19 See 29 U.S.C. §621(b) (1976). Then Secretary of Labor
Willard Wirtz aptly described this “arbitrary discrimination” as
“discrimination which is the result of deliberate disregard of a
worker’s value solely because of age.” Age Discrimination in
Employment; Hearings on H.R. 3651, H.R. 3768 and H.R. 4221 Be-
fore the Subcomm. on Labor of the House Comm. on Education and
Labor, 90th Cong., 1st Sess. 8 (1967) (emphasis in original).
20 Indeed, the creation of such standards is essential to industries,
like the railroad industry, which have a disproportionately large
13
Bradley, 440 U.S. 93 (1979); Massachusetts Board of
Retirement v. Murgia, supra (governmental mandatory
retirement programs constitutional if rationally based).
Moreover, even if this Court were to find title VII
standards applicable, the decision below conflicts with
this Court’s recent interpretations of McDonnell Douglas
Corp., supra—Texas Department of Community Affairs
v. Burdine, No. 79-1764, slip op. (March 4, 1981) ; Board
of Trustees v. Sweeney, 439 U.S. 24 (1978) ; and Furnco
Construction Corp. v. Waters, 438 U.S. 567 (1978).
Those decisions make clear that a “prima facie showing
{of discrimination] is not the equivalent of a factual
finding of discrimination”. Furnco Construction Corp. v.
Waters, 438 U.S. at 579. Rather, it “raises an inference
of discrimination only [on the assumption that the
employer's] acts, if otherwise unexplained, are more
likely than not based on the consideration of impermissi-
ble factors”. Texas Department of Community Affairs v.
Burdine, No. 79-1764, slip op. at 5 (quoting from
Furnco Construction Corp. v. Waters, 438 U.S. at 577).
To rebut that inference, an employer need only “articu-
late some legitimate nondiscriminatory reason“ for his
actions, i.e., he need only “ ‘explain[. . .] what he has
done’ or ‘produc[e. . .] evidence of legitimate nondis-
number of older employees. As the House Report on the ADEA
states:
The committee . . recognizes that in some industries, such as
the railroad industry, a disproportionately high number of
older workers are found in the work force. . . . The committee
does not intend that the legislation be administered in such a
way as to worsen a situation as this, or to prevent an employer
from achieving a reasonable age balance in his employment.
structure.
H.R. Rep. No. 805, 90th Cong., Ist Sess. 7 (1967). See also S. Rep.
No. 723, 90th Cong., Ist Sess. 7 (1967).
21 McDonnell Douglas Corp. v. Green, 411 U.S. at 802.
14
criminatory reasons.“ Id. at 8 (quoting from Board of
Trustees v. Sweeney, 439 U.S. at 25 n.2).”
The courts below misapplied these standards. After
finding a prima facie case, both courts went directly
to the question of whether the Companies had esta-
blished a section 4(f)(2) defense. App. A. at 6a;
App. B at 29a.“ Neither considered whether the non-
discriminatory motive articulated by the Companies
for their pension-based actions—a desire to miti-
gate the consequences of the force reduction upon
their employees as a whole—dispelled the prima facie
showing.** Compare City of McKeesport v. International
22 Indeed, to meet this burden, the employer “need not persuade
the court that it was actually motivated by the proffered reasons.”
Id. at 6.
23 Such analysis ignores the fact that section 4(f) (2) constitutes
an affirmative defense to liability under section 4(a), and not a
congressional determination that any action taken by an em-
ployer to “observe the terms of . . . any bona fide employee benefit
plan . . which is not a subterfuge” otherwise violates that pro-
vision. Thus, for example, prior to its amendment, section 4(f) (2)
exempted the typical, age-based retirements made in the course of a
pension plan’s normal operation which would have otherwise vio-
lated section 4(a) since they were made because of . . . age.“ Here,
however, the retirements were made, not because of age, but be-
cause the Companies faced an overriding business necessity to re-
duce their work force and the retired employees were entitled to a
continued source of income. Accordingly, the courts below should
not have reached the section 4(f) (2) question without first con-
cluding that a section 4(a) violation, rather than simply a prima
facie case, had been established. For this same reason, Congress’
amendment of section 4(f) (2) does not moot the threshold section
4(a) question involved here.
24 The district court expressly treated the Companies’ articulation
of a nondiscriminatory motive under section 4(f) (1) of the ADEA,
29 U.S.C. § 623 (f) (1) (“differentiation based on a reasonable fac-
tor other than age“), as an affirmative defense, and thus as a matter
on which they bore the burden of proof. App. B at 29a, 35a. As a
result, the court viewed the issue as subsumed in the section 4(f)
15
Association of Firefighters, 399 A.2d 798, 799 (Pa.
Commw. Ct. 1979) (layoff of employees on basis of pen-
sion eligibility not “because of age”; rather “because of
fact that [employees] are eligible for pensions and there-
fore will not be without a source of income“) (emphasis
in original). Indeed, the court of appeals apparently con-
sidered the Companies’ motivation irrelevant in the belief
that the Companies could rebut a prima facie case only
by demonstrating the existence of a “business necessity”
for their actions. App. A at Ha, Ga. Thus, the court of
appeals improperly equated a prima facie case with a
finding of discrimination; improperly imposed upon the
Companies a burden far beyond the mere “articulation”
of a nondiscriminatory reason; and improperly ignored
the reasonable, non-age biased ground advanced by the
Companies, all in direct contravention of McDonnell
Douglas Corp. and its progeny.
2. The Fourth Circuit’s refusal to credit historical
practice in interpreting the terms of a pension plan
for purposes of section 4 f) (2)’s “observe the terms“
requirement is incompatible with decisions of this Court
and other courts of appeals. In United Air Lines, Inc. v.
McMami, 484 U.S. 192 (1977), this Court left little
doubt that the “terms” of a plan for purposes of section
4(f) (2) include those created by “established practice.”
There, as here, a claim was made that the defendant had
failed to “observe the terms” of its plan in retiring an
employee at age sixty because the plan did not in unam-
biguous terms authorize mandatory retirement at that,
or any other age. Id. at 196. However, after construing
the plan’s language in light of “the manner in which
the plan [was] operated in practice’ and pertinent
arbitration decisions, this Court determined that the
(2) question and did not accord it separate attention, Id. But see
Marshall v. Westinghouse Elec, Corp., 576 F.2d 588, 590-92 (5th
Cir. 1978) (recognizing that section 4(f)(1), unlike section
4(f) (2), is not a burden shifting defense).
16
plan, in fact, “should be regarded as one requiring
retirement at age 60... .” Id. (quoting McMann v.
United Air Lines, Inc., 542 F.2d 217 (4th Cir. 1976)
rev'd, 434 U.S. 192 (1977) (emphasis supplied by Su-
preme Court) .“ Similarly, in Aldendifer v. Continental
Air Lines, Inc., 26 Empl. Prac. Dec. {| 31,535 (5th Cir.
1981), at 19,201, the Ninth Circuit held that a plan
which did “not expressly provide for mandatory re-
tirement at age 60” was to be considered as such on
the basis of plan language indicating that age sixty was
the “normal retirement age“ and “|the employer’s]
uniform retirement practices.” See also EEOC v. Shell
Oil Co., 687 F.2d 683 (9th Cir. 1981) (interpreting a
plan provision permitting involuntary retirement for “ill
health or other cause” to authorize involuntary, age-
based retirements) .““
2 Any express language requirement would have been incon-
sistent with this Court’s long recognition of the importance of
actual practice to the proper construction of an agreement arising
in the labor context. See, e. ., Nolde Bros. v. Local No, 358, Bakery
& Conf. Workers Union, 430 U.S, 248, 253 (1977); United Steel-
workers of America v. Warrior & Gulf Navigation Co., 368 U.S, 574,
581-82 (1960).
The Companies’ plans contained language on involuntary re-
tirement at least as specific as that found in the decisions cited
above which did no more than identify a “normal” retirement age
(McMann, 434 U.S. at 196; Aldendifer, 26 Empl. Prac, Dec, at
19,201) or empower an employer to require early retirement “for
other cause“ (Shell Oil Co., 687 F.2d at 684). The C&O plan
expressly recognized the Company's right to terminate a non-
contract employee at any time. App. G. at 65a. In addition, it
specifically provided benefits to an employee “whose service is
terminated before his normal retirement date but after he has
attained age 55” and, in language added to make clear that em-
ployees had the option to do so, entitled certain employees to
retire “at their election” at age 60 on an actuarially unreduced
pension, Id. at 64a-65a. Unless these provisions are read to suggest
that an employee retired by the Company between the ages of 60
and 65 lost his pension entitlement, they must be construed, as the
17
The Fourth Circuit’s unambiguous plan language re-
quirement not only runs counter to these decisions,” it is
inconsistent with section 4 (f) (2) 's legislative history.
Contrary to the Fourth Circuit’s apparent belief, Con-
gress did not fashion the “observe the terms” require-
ment to prohibit an employer from separating an em-
ployee involuntarily unless a pension plan expressly au-
thorized him to do so.“ Rather, the “observe the terms”
requirement was designed to insure simply that the
employer actually pays the benefits provided under a
plan. This purpose was implicit in proposed section
4(f) (2) which made it lawful to “separate [an em-
ployee] involuntarily . .. under a retirement policy or
system.” S. 830, 90th Cong., Ist Sess. § 4(f) (2) (1967).
The phrase “observe the terms” was substituted for this
language, not to require explicit employer authorization,
but to broaden the exemption to permit flexibility in
the amount of benefits provided to newly-hired, older
employees. Age Discrimination in Employment: Hear-
ings on S. 830 and S. 788 Before the Subcomm, on Labor
district court found, to authorize early retirement at the C&O's
option. Similarly, although the B&O plan was silent on the com-
pany's authority to require retirement, it set forth various age
and service requirements that triggered pension entitlements be-
ginning at age 55 (Id. at 65a-66a) and had been construed to
authorize involuntary retirement in the same manner as the C & O
plan.
This case is unlike other appellate decisions in which there
was neither plan language nor evidence of past practice supporting
the employer's right to require retirement. See Sexton v. Beatrice
Foods Co., 680 F.2d 478, 484-85 (7th Cir, 1980), (distinguishing
district court decision herein on that basis); compare Benzel v.
Valley Nat'l Bank, 683 F.2d 1825, 1827 (9th Cir, 1980) with
Aldendifer v. Continental Air Lines, Inc., supra, and EEOC v.
Shell Oil Co, supra,
*8 Indeed, it is well established that a pension plan does not
define the employer-employee relationship, and that, in the absence
of an employment contract, the employment relationship is ter-
minable at will, See, ¢.g., Craig v. Bemis Co., 517 F.2d 677 (5th
Cir, 1976).
18
of the Senate Comm. on Labor and Public Welfare, 90th
Cong., Ist Sess. 24 (1967) (statement of Sen. Javits) ;
see also, United Air Lines, Inc. v. McMann, 434 U.S.
at 199-200. As this Court itself recognized in McMann,
the language substitution did not affect the scope of the
proposed exemption for involuntary retirement pro-
grams: “the plain language of the statute shows [the
exemption] is still there, albeit in different terms.”
United Air Lines, Inc. v. McMann, 434 U.S. at 201.
Application of these principles mandates reversal of
the decision below. Here, the district court expressly
found in findings ignored, but never held clearly errone-
ous, that the Companies “always had the power to invol-
untarily retire their employees under the consistent appli-
cation of their plans,” and, in fact, had “exercised [that
power] over the years.” App. B at 32a, 37a. Indeed, the
court of appeals acknowledged that prior to the 1971 re-
duction in force, the Companies had awarded benefits
under the terms of their pension plans to employees sep-
arated involuntarily before mandatory retirement age.
App. A at 7a. Moreover, there is no evidence indicating
that any of the 142 retired employees ever questioned
the Companies’ authority to require their early retire-
ment.“ Thus, both in practice and as understood, the
plans authorized early retirement at the Companies’
option.” Under such circumstances, the Companies ob-
a Indeed, the best evidence that the Companies did “observe
the terms” of their pension plans is the fact that no retired em-
ployee brought an action against the Companies on breach of
contract grounds,
In light of the plans’ historical operation and the employees’
apparent awareness of the Companies’ authority to require retire-
ment, any collateral “notice” function served by the “observe the
terms” requirement was fulfilled in the instant case. See Sexton
v. Beatrice Foods Co., 680 F.2d at 484-85; see also Gonsalves v.
Caterpillar Tractor Co., 684 F.2d 1065, 1067 (7th Cir, 1980), cert.
denied, 49 U.S. L. W. 3782 (Apr. 21, 1981).
19
serve[d] the terms” of the plans, and indeed did so in the
most meaningful way, when they based their retirement
decisions on the availability of benefits under the plans
and paid retirees the benefits provided therein.
Finally, the Fourth Circuit’s conclusion that the dis-
cretion possessed by management under the plans here
involved rendered section 4(f) (2) unavailable is in di-
rect conflict with the five other courts of appeals that have
considered the question. Those five circuits have ruled
unanimously that an employer does “observe the terms”
of a plan within section 4(f) (2)’s meaning in requiring
an employee to retire under a discretionary, as opposed
to a mandatory retirement program. Carpenter v. Con-
tinental Trailways, 685 F.2d 578 (6th Cir. 1980); Gon-
salves v. Caterpillar Tractor Co., 634 F.2d 1065 (7th
Cir. 1980), cert. denied, 49 U.S.L.W. 3782 (Apr. 21,
1981); Jensen v. Gulf Oil Refining & Marketing Co.,
623 F.2d 406 (5th Cir. 1980); Marshall v. Hawaiian
Telephone Co., 575 F.2d 763 (9th Cir. 1978) ; Zinger v.
Blanchette, 549 F.2d 901 (3d Cir. 1977), cert. denied,
434 U.S, 1008 (1978). Thus, the Fourth Circuit notion
that an unambiguous language requirement is essential
to protect employees from “a discretionary act of man-
agement” finds no support in the pertinent section 4(f)
(2) case law.
8. The decision below raises important questions, left
open in United Air Lines, Inc. v. McMann, as to the
proper interpretation of the term “subterfuge” in sec-
tion 4(f)(2). In McMann, this Court held that
the term “subterfuge” was to be given its “ordinary
meaning,” as “a scheme, plan, stratagem, or artifice of
evasion.” 434 U.S. at 208. It therefore concluded that a
pension plan adopted prior to the ADEA’s enactment
could not, as a matter of law, constitute a “subterfuge
to evade the purposes of” the Act. Id. The Court did
not reach the more difficult question of how the
“subterfuge” concept is to be applied in the post-ADEA
context.
20
Without this Court’s guidance, the court below held
that the Companies’ reduction of the mandatory retire-
ment age was a “subterfuge,” because it occurred after
the ADEA’s passage and was contrary to the Act’s stated
purpose “to promote employment of older persons
App. A at lla (quoting 29 U.S.C. § 621(b)). The court
ignored the legitimate business concerns motivating the
Companies’ actions, the pre-Act existence and historical
operation of the plans, and the substantiality of the bene-
fits paid thereunder. However, if consistency with the
ADEA’s purpose of promoting employment of older work-
ers is the subterfuge standard, section 4(f) (2) is a dead
letter in the post-Act context. Clearly, no employer activ-
ity otherwise violative of the ADEA could qualify for the
exemption since such conduct, by definition, would be
contrary to the Act’s goals.
Not surprisingly, the Fourth Circuit’s approach con-
tradicts the existing case law. In Zinger v. Blanchette,
supra, the Third Circuit, in language quoted with ap-
proval in McMann," recognized a clear distinction be-
tween retirement on an adequate pension and outright
dismissal. 549 F.2d at 905. Based on this distinction,
the Third Circuit fashioned a rule under which a plan
could not constitute an impermissible subterfuge so long
as it paid retirees a “reasonable” pension. Id. at 909.
This same distinction formed the basis for Justice White's
conclusion in McMann that any plan paying “substantial
benefits” was within section 4(f) (2)’s scope:
Congress intended to exempt from the Act’s prohibi-
tions all retirement plans—even those whose only
purpose is to terminate the services of older work-
ers—as long as the benefits they pay are not so un-
reasonably small as to make the “retirements” noth-
ing short of discharges.
434 U.S. at 207 (White, J., concurring).
* 434 U.S. at 198.
21
While Zinger and McMann involved pre-Act plans, the
Sixth Circuit recently came to a similar conclusion in
the post-ADEA context. In Carpenter v. Continental
Trailways, supra, the court rejected an employee’s
claim that a post-ADEA plan necessarily constituted a
subterfuge on the basis of evidence indicating “that the
plan was a legitimate instrument created to provide for
the retirement of the company’s employees.” 635 F.2d at
581." No inquiry was made into whether the plan was
consistent with the ADEA’s purposes of promoting the
employment of older citizens as, obviously, it was not.
Accordingly, this Court should grant certivrari to resolve
this conflict and reject emphatically the Fourth Cir-
cuit’s attempt to read section 4(f)(2) out of the
statute.”
CF. EEOC v. Home Insurance Co., No. 78-6242, slip op.
(S. D. N. V. Jan. 21, 1981) (post-Act reduction in mandatory retire-
ment age no subterfuge where legitimate business reasons, and not
intent to disadvantage older workers, motivated change) ; Marshall
v. Eastern Airlines, Inc., 474 F. Supp. 364, 369 (S.D. Fla. 1979)
(post-Act reduction of mandatory retirement age constitutes sub-
terfuge in absence of “business purpose“); Marshall v. Atlantic
Container Line, G.LE., 470 F. Supp. 71 (S. D. N. V. 1979) (post-
Act reduction of mandatory retirement age is not subterfuge where
done for business purpose of, inter alia, providing greater promo-
tional opportunities to employees in no-growth industry).
“The 1978 amendment to section 4(f) (2) does not diminish
the significance of this case. That amendment did not alter the
exemption’s language, but, instead added a clause making it inap-
plicable to age-based, involuntary retirements. Thus the issues
presented herein as to the proper interpretation of the exemption's
“observe the terms” and “subterfuge” language remain for resolu-
tion in connection with any other employer action taken in ob-
servance of a “bona fide seniority system or any bona fide em-
ployee benefit plan such as a retirement, pension, or insurance
plan.” Moreover, even if limited to the involuntary retirements,
there are numerous pending lawsuits which turn on an application
of section 4(f) (2) in its pre-amendment form. Included among
these are government actions seeking massive monotary relief
against some of the country’s major manufacturing and utility
4. The Fourth Circuit’s analysis of the “good faith
reliance” defense available under section 7(e) of the
ADEA raises important questions of first impression in
this Court and is in conflict with at least two other courts
of appeals. Section 7(e) of the ADEA incorporates sec-
tion 10 of the Portal-to-Portal Act which provides that:
[Nlo employer shall be subject to any liability ...
if he pleads and proves that the act or omission com-
plained of was in good faith in conformity with and
in reliance on any written administrative regula-
tion, order, ruling, approval, or interpretation, of
lan] agency of the United States
To date, this Court has not addressed the proper interpre-
tation of this provision, which is of increasing signifi-
cance because of the recent proliferation of ADEA
litigation. See EEOC v. Home Insurance Co., No. 78-
6242, slip op. at 15 (S.D.N.Y. Jan. 21, 1981) ; Marshall
v. Atlantic Container Line, G.I.E., 470 F. Supp. 71, 72
(S.D.N.Y. 1979).
The need for this Court’s guidance is demonstrated by
the unreasonable interpretation placed upon the defense
below. Purporting to apply an “objective good faith”
standard, the court of appeals concluded that the DOL
interpretations of section 4(f) (2) relied on by the Com-
panies in effecting the 1971 retirements were not “spe-
cific” enough to permit good faith reliance. App. A at 9a-
10a.“ However, the Companies’ “unreasonable” interpre-
enterprises—Marshall v. American Motors Corp., 475 F. Supp.
875 (E.D. Mich. 1979); EEOC v. Consolidated Edison Co., No.
80-1292, slip op. (S.D.N.Y. Jan. 21, 1981) ; and EEOC v. Liggett &
Myers, Inc., No. C-74-163 (M. D. N. C., filed May 20, 1974). The in-
stant case undoubtedly will play an important role in the resolution
of these and other pending cases. See Benzel v. Valley Nat’l Bank,
633 F.2d 1325 (9th Cir. 1980).
This holding apparently was based on the government’s conten-
tion that the interpretative bulletin did no more than parrot the
23
tation of those regulations was identical to that reached
by the district court and “quite similar” to that of the
Third Circuit in Zinger v. Blanchette” Similarly, the
court of appeals held that the DOL’s investigation of
the 1971 reduction in force precluded the Companies
from relying in “good faith” upon an opinion which,
in the district court’s view, “sanctioned . . . exactly what
defendants did” in reducing the mandatory retirement
age, and which had not been withdrawn as late as the
trial of this case, some six years after the plan amend-
ments. App. B at 39a-40a. Compare Marshall v. At-
lantic Container Line, G. I. E., 470 F. Supp. at 74 (em-
ployer entitled “to rely on published administrative regu-
lation and not the statements of an agency’s official“).
Taken together, these rulings establish an “objective good
faith” standard under which a defendant must demon-
strate that both his understanding of the administrative
interpretation and the administrative interpretation it-
self are correct. That standard, of course, renders the
defense meaningless since any employer who could satisfy
it would have no need for the defense.
In any event, even if the Court had applied an “objec-
tive” test properly, its decision would conflict with
decisions of the Second and District of Columbia Cir-
cuits.” In Addison v. Huron Stevedoring Corp., 204 F.2d
language of § 4(f) (2), a claim that the government also made in
connection with the opinion letter which directly addressed the
mandatory retirement age reduction issue. See Secretary of Labor’s
Fourth Circuit Brief at 44-49. This contention must be viewed as
disingenuous since both the interpretative bulletin and the opinion
letter in question were issued to provide guidance for employers.
Unless they are to be viewed as traps for the unwary, they must
be considered a proper basis for reliance.
%5 See App. B at 39a; Zinger v. Blanchette, 549 F.2d at 907.
% Like the Fourth Circuit, the Ninth Circuit has adopted an
“objective” good faith Standard. Kam Koon Wan v. E.E. Black,
Ltd., 188 F.2d 558, 562 (9th Cir. 1951).
24
88, 93 (2d Cir.), cert. denied, 346 U.S. 877 (1953),
the Second Circuit rejected the “view that ‘good faith’
[for purposes of the Portal-to-Portal Act] must meet an
objective standard of reasonableness.” Rather, the court
held that a subjective standard governed: “The good
faith of the statute requires... only an honest intention
to ascertain what the... Act requires and to act in ac-
cordance with it.” In Laffey v. Northwest Airlines, Inc.,
567 F.2d 429, 464 (D.C. Cir. 1976), cert. denied, 434 U.S.
1086 (1978), the District of Columbia Circuit came to
the identical conclusion.” Accord, EEOC v. Home Insur-
ance Co., No. 78-6242, slip op. at 15; Marshall v. Atlantic
Container Line, G. I. E., 470 F. Supp. at 72.“ Since
there is no doubt that the Companies' unquestioned
reliance on the DOL interpretations of the ADEA would
satisfy the “subjective” standard applicable in the Sec-
ond and District of Columbia Circuits, this Court should
grant certiorari to resolve the proper interpretation of
the term.
5. The court of appeals’ flagrant disregard for the dis-
trict court’s findings of fact demands an exercise of this
Court’s supervisory powers. Under Rule 52(a), Fed. R.
Civ. P., a court of appeals is required to accept a district
court’s findings of fact “unless clearly erroneous.” See,
e. g., United States v. United States Gypsum Co., 333 U.S.
364, 394-95 (1948). That standard prohibits a court of
appeals from setting aside findings merely because it
7 This conclusion is based on the fact that section 11 of the
Portal-to-Portal Act, unlike sections 9 and 10, contains an explicit
requirement of reasonableness in addition to that of “good faith,
thus making it inappropriate to engraft a “reasonableness” re-
quirement onto the good faith standard. Laffey v. Northwest Air-
lines, Inc., 567 F.2d at 464; Addison v. Huron Stevedoring Corp.,
204 F.2d at 93.
38 Both Home Insurance Co. and Atlantic Container Line used a
subjective standard in applying the “good faith reliance” defense in
the ADEA context.
3® As the district court pointed out, the DOL did not contest the
Companies’ “subjective” good faith. App. B at 39a.
25
“might give the facts another construction, resolve the
ambiguities differently, and find a more sinister cast to
actions which the District Court apparently deemed inno-
cent.” United States v. National Association of Real Es-
tate Boards, 339 U.S. 485, 495 (1950). Accord, e.g., Ze-
nith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,
122-23 (1969). Moreover, it requires an appellate court to
give special deference to a district court’s “[f]indings as
to the design, motive and intent with which men act [be-
cause such findings] depend peculiarly upon the credit
given to witnesses by those who see and hear them.”
United States v. Yellow Cab Co., 338 U.S. 338, 341
(1949). Accord, e.g., Earle v. W.J. Jones & Son, 200
F.2d 846, 847-48 (9th Cir. 1952); see also Fed. R. Civ.
P. 52(a).
The Fourth Circuit grossly departed from these stand-
ards. The district court based its holding on several
key factual findings concerning the actual operation of
the pension plans, the Companies’ motives in engaging
in the challenged actions, and the Companies’ good faith
reliance upon official DOL interpretations of the ADEA.”
The court of appeals at no point held any of these factual
determinations “clearly erroneous.” Rather, it ignored
them and engaged in a de novo evaluation of the evidence
to support its contrary legal conclusions.
While not exhaustive, the foliowing examples demon-
strate the point. In finding section 4(f) (2) inapplicable
to the pension-based retirements, the court of appeals at
4% Regardless of whether an objective or subjective standard gov-
erns, it is well established that a district court’s determination as
to whether an employer has satisfied the “good faith” requirement
of the Portal-to-Portal Act is “a question of fact that will be modi-
fied on appeal only if shown to be clearly erroneous.” Hodgson v.
Miller Brewing Co., 457 F.2d 221, 228 (7th Cir. 1972). Accord,
Laffey v. Northwest Airlines, Inc., 567 F.2d at 464; Addison v.
Huron Stevedoring Corp., 204 F.2d at 93; Lassiter v. Guy F.
Atkinson Co., 176 F.2d 984, 993 (9th Cir. 1949); Day & Zimmer-
man, Inc. v. Reid, 168 F.2d 356, 360 (8th Cir. 1948).
26
no point addressed the district court’s conclusion, based
upon oral and written evidence of the pension plans’ ac-
tual operation, that the Companies did, in fact, have the
option to retire their employees early “under a consistent
application of their plans.” App. B at 37a. Rather, the
court simply recharacterized the evidence as demonstrat-
ing no more than that the Companies historically had
terminated employees prior to mandatory retirement age
and provided them with pension benefits. App. A at 6a-
7a. Likewise, even though the district court heard exten-
sive testimony concerning the Companies’ decision to
lower the mandatory retirement age and their express
reliance upon the DOL interpretations of the ADEA in
doing so, the court of appeals rejected its conclusion that
the Companies had acted in “good faith.” Apparently,
the court of appeals determined that such testimony was
not credible in the face of the DOL investigation of the
1971 force reduction which was ongoing at the time of
the plan amendments, even though the legality of the
age reduction was at no time questioned during the
course of that investigation.“
In short, the court of appeals not only engaged in the
very sort of “appellate trial” that Rule 52(a), Fed. R.
Civ. P., is designed to prohibit, but also did so in a man-
ner far departed from the accepted and usual course of
judicial proceedings. This Court, therefore, should exer-
cise its supervisory powers to insure compliance with a
rule essential to the orderly and proper administration of
justice.
If the court of appeals did, in fact, have some legitimate con-
cerns as to the adequacy of the district court’s fact-finding, it
should have remanded the action, rather than have engaged in a
de novo evaluation of the evidence. Petitioners urge this Court
to follow this course if it concludes that the factual record provides
an insufficient basis for resolution of the issues.
27
CONCLUSION
For all the reasons stated above, this Court should
grant the petition for a writ of certiorari.
Respectfully submitted,
THOMPSON POWERS
(Counsel of Record)
RONALD S. COOPER
MORGAN D. HopGson
PAUL J. ONDRASIK, JR.
STEPTOE & JOHNSON
1250 Connecticut Avenue, N.W.
Washington, D.C. 20036
JOSEPH B. GEYER
BALTIMORE & OHIO RAILROAD
COMPANY AND THE
CHESAPEAKE & OHIO
RAILWAY COMPANY
100 North Charles Street
Baltimore, Maryland 21201
Attorneys for Petitioners
Dated: May 16, 1981
APPENDICES
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No, 79-1210
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,
’ v Appellant,
THE BALTIMORE AND OHIO RAILROAD COMPANY AND THE
CHESAPEAKE AND OHIO RAILROAD COMPANY,
Appellees,
EQUAL EMPLOYMENT ADvisorY COUNCIL,
Amicus Curiae.
EQuAL EMPLOYMENT OPPORTUNITY COMMISSION,
y Appellee,
THE BALTIMORE AND OHIO RAILROAD COMPANY AND THE
CHESAPEAKE AND OHIO RAILWAY COMPANY,
Appellants,
EQUAL EMPLOYMENT ADvisoRY COUNCIL,
Amicus Curiae.
Appeal from the United States District Court
for the District of Maryland, at Baltimore
Edward S. Northrop, Chief Judge
Argued: February 6, 1980 Decided: September 23, 1980
Before BUTZNER, HALL, and SPROUSE, Circuit
Judges.
2a
SPROUSE, Circuit Judge:
This is an appeal by the Secretary of Labor, United
States Department of Labor (Secretary), from a judg-
ment of the district court in favor of the defendants,
Baltimore and Ohio Railroad Company (B & O) and The
Chesapeake and Ohio Railway Company (C & O), whose
management has been consolidated since 1963 (herein-
after collectively railroad companies or companies). The
Secretary brought the action contending the railroad com-
panies violated the Age Discrimination in Employment
Act of 1967, 29 U.S.C. §§ 621 et seg. (ADEA or the
Act), by involuntarily terminating 142 employees based
on their age—related entitlement to a pension and by
amending the railroad companies’ pension plans in 1972
to lower compulsory retirement age for other employees
fram age 65 to age 62. The district court, after a bench
trial, found prima facie violations of the Act. It held,
however, that the companies’ action were a permissible
exception under the Act and found for the defendant
railroad companies. The Secretary appeals the finding of
an exception and the companies cross-appeal the court’s
finding of prima facie violations. We agree there were
prima facie violations of the Act but reverse the court’s
holding in favor of the companies as to the exception.
In 1971 a nationwide coal strike by the United Mine
Workers Union precipitated a financial crisis for the com-
panies, although their financial positions had declined
uniformly for some years prior to that. As a step in
resolving the financial crisis, the railroad companies de-
termined, among other things, to reduce the size of the
1The Equal Employment Opportunity Commission was substi-
tuted as the Appellant-Cross-Appellee after the briefs were filed
in this appeal. The enforcement responsibilities for the Age Dis-
crimination in Employment Act of 1967 have been transferred to
the Equal Employment Opportunity Commission.
8a
work force. First reduced was the number of employees
subject to the collective bargaining agreements. The le-
gality of that action is not involved in this appeal. The
number of workers not subject to collective bargaining
agreements was then reduced.
One hundred forty-two employees from the latter group
were selected for involuntary retirement because they
qualified for pension benefits. Their eligibility under both
the C & O and B & O pension plans was based solely on
age and years of service. They were retired commencing
in October, 1971. At the time of termination they were
either ages 60 to 62 with at least twenty years of service
or ages 62 to 65 with at least ten years of service.
Management considered and rejected several alterna-
tives to reducing the work force by the age-based method,
including the possibility of terminating the youngest em-
ployees or the employees with least seniority. It is not
clear why these alternative were rejected. At one point
in the testimony the companies’ Senior Vice-President
indicated that some younger people had skills with new
technology which could not be developed by older people.
The railroad companies did not attempt to rank their
employees by performance, since such as attempt was not
considered practical. The rairoad companies next
amended both their pension plans in 1972 to provide for
involuntary retirement at age 62 to be effective in 1974.
The Secretary contends that the selection of the 142
employees for forced retirement by age category violated
section 4(a)(1) of the ADEA, 29 U.S.C. § 623 (a) (1).
He argues that the railroad companies again violated the
age discrimination prohibition by amending their pension
plans to require retirement at age 62. The district court
found prima facie violations of the Act but found the
railroad companies’ actions justified under § 4(f) (2) of
the Act. This subsection then permitted involuntary re-
tirement based on age if done to observe the terms of a
da
bona fide pension or retirement plan. We agree the
companies’ actions were prima facie violations of the
Act. We do not agree that the forced retirements were
based on the railroad companies’ pension plans.
I, THE ADEA
Relevant subsections of section 4 of the ADEA
provide:
4(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 individ-
ual’s age
29 U.S.C. 623 (a) (1).
4(f) (prior to its Congressional amendment in 1978)
It shall not be unlawful for an employer
(2) to observe the terms of a bona fide seniority
system or any bona fide employee benefit plan such
as a retirement, pension, or insurance plan, which
is not a subterfuge to evade the purposes of this
Act, except that no such employee benefit plan shall
excuse the failure to hire any individual
29 U.S.C. § 628 (a) (2).
II. THE PRIMA FACIE DISCRIMINATION
An employer is prima facie guilty of discrimination
if its actions are based in part on employees’ ages.
Loeb v. Textron, Inc., 600 F.2d 1003 (1st Cir. 1979).
It is, of course, necessary that age be a determina-
tive factor, but not the sole determining factor. Loeb,
600 F.2d at 1019; Mary Carroll Smith v. University of
North Carolina at Chapel Hill, John H. Schutz; Ruel W.
Tyson, Jr., —— F.2d ——, Nos. 79-1221, 79-1222 (4th
Cir. 1980).
5a
The undisputed facts in this case show that the 142
employees were selected for forced retirement because of
their age and time in service. The railroad companies’
economic crisis precipitated the necessity for reducing
their work force. That factor, however, provided no
incentive for the layoff or retirement of this particular
group: “but for” their age, they would not have been se-
lected for retirement. This establishes a prima facie
violation of the Act. Loeb, 600 F.2d at 1019. This rea-
soning applies with even greater force to the action of
the companies reducing the mandatory retirement age
from 65 to 62.
III. THE PLANS
The C & O plan authorizes compulsory retirement at
the normal retirement age of 65.2 The B & O pension
plan contained no provision concerning normal or “com-
pulsory” retirement.“
Although there were no provisions in either company’s
plan for compulsory or involuntary retirement prior to
age 65, there was uncontradicted evidence that the rail-
road companies had, in the past, involuntarily terminated
some such employees and granted them pension benefits
in accordance with the terms of the plans. Mr. Clarke,
the Vice-President of the railroad companies in charge of
the law department, testified that past terminations were
based on “an inherent right of management in managing
the business—In managing personnel. It has nothing to
do with the plan.” He reiterated, “[t]he company has
4
2 The C & O plan provides in part:
Compulsory Retirement. In order to qualify for a retire-
ment allowance under the Supplemental Plau, a member shall
retire from service not later than the last day of the calendar
month in which he attains age 65, hereinafter referred to as
the “normal retirement date”.
3A published B & O document entitled “Highlights”, however,
included information under a heading entitled “Retirement Dates”
which referred to age 65 as “normal retirement”.
6a
that right irrespective of the plan.” The President of the
railroad companies and other officials gave similar testi-
mony as to management rights.
IV. COMPANIES’ ACTIONS WERE NOT BASED ON
PENSION PLANS
A. THE INVOLUNTARY RETIREMENT OF 142
EMPLOYEES IN 1972.
The Secretary, by showing the involuntary retirement
of the 142 individual employees because of their age and
pension entitlement, proved a prima facie case of age dis-
crimination under the Act. Loeb, supra; Mary Carroll
Smith, supra; Price v. Maryland Casualty Co., 561 F.2d
609 (5th Cir. 1977). It then became the railroad com-
panies’ burden to successfully provide a 4(f) (2) defense.
They were required to show: (1) that the involuntary
retirement was to observe the terms of a (2) bona fide
pension plan and that (3) the plan is not a subterfuge
to evade the purposes of the Act.
Neither the C & O nor the B & O pension plans con-
tained provisions allowing the companies to involuntarily
retire employees under the age of 65. The C & O plan
provides that the “normal” retirement age is 65. The
B & O plan is silent in this respect, but Highlights“,
published in connection with the plan, indicates that the
normal retirement age is also 65 for that plan. It would
be extremely difficult, therefore, to conclude that the
railroad companies involuntarily retired the involved em-
ployees prior to age 65 by observing the terms of a bona
fide pension plan.
The railroad companies concede there is no explicit
language in the plans indicating a company prerogative
to involuntarily retire employees. They contend, however,
that the railroad companies’ right to do so has become an
unwritten part of the plans by the past practice of uni-
7a
laterally terminating employees and providing them pen-
sions if they were eligible at the time of ermination.
There is nothing in the record, however, showing either
the reasons for, or the frequency of, the various termi-
nations. The President of the railroad companies, the
Vice-President in charge of the legal department, and
other officials categorically assert that such right of in-
voluntary termination is an inherent right of manage-
ment having nothing to do with the pension plans.
The record contains no specific examples of these ter-
minations, but it can be assumed they were for reasons
as varied as the world of employer-employee relation-
ships. It is undisputed that all these previous termina-
tions were both unrelated to the pension plans and made
under company authority exclusive of the pension plans.
If such discharged employees were entitled to a pension,
the right was earned by service to the railroad companies
and was vested despite discharge, not because of it. The
mere allowance of a pension at the time of discharge by
virtue of broad management policies is not a defense in-
herent in the scheme of section 4(f) (2). A successful
4(f) (2) defense requires that the involuntary termina-
tion be pursuant to the pension plan’s design—not to a
discretionary act of management.
The Supreme Court, in United Air Lines, Ine. v. Mc-
Mann, 434 U.S. 192, 98 S.Ct. 444, 54 L.Ed.2d 402 (1977),
concluded that United had observed the terms of a con-
cededly bona fide pension plan in retiring an employee
at the “normal retirement” age of 60. The Supreme
Court adopted the Fourth Circuit’s reasoning that, due
to United’s past practice of involuntarily retiring in-
dividuals under the plan at age 60, the term “normal
retirement” meant involuntary retirement at age 60. Id.
at 196, 98 S.Ct. at 447. Similarly, the Court of Appeals
for the Third Circuit, in Zinger v. Blanchette, 549 F.2d
901 (8rd Cir. 1977), cert. denied, 434 U.S. 1008, 98
8a
S8. Ct. 717, 54 L.Ed.2d 750 (1978), (quoted ravorably by
the Supreme Court in McMann), considered a system
which explicitly provided for the involuntary retirement
of any employee between the ages 60 and 65 at the com-
pany’s option. Zinger held that the company was jus-
tified in retiring such employees under the terms of its
retirement plan. The Court of Appeals for the Sixth
Circuit in Thompson v. Chrysler Corp., 569 F.2d 989 (6th
Cir. 1978), likewise considered and allowed retirement
pursuant to a plan containing specific involuntary re-
tirement provisions. See also Brennan v. Taft Broad-
casting Co., 500 F.2d 212 (5th Cir. 1974) (allowing a
subsection 4(f) (2) defense where the involved plan con-
tained an explicit compulsory retirement at age 60). In
all these cases the plans provided for involuntary re-
tirement prior to the age of 65.
The railroad companies maintained pension plans for
many years—paying substantial benefits. The plans are
clearly bona fide. There was no authority, however, in
the plans to involuntarily retire employees prior to the
age of 65. The railroad companies’ actions in forcing
retirement on the 142 individual employees, therefore,
could not have been to observe the terms of the plans.
The plans, for this reason, provide no basis for a section
4(f) (2) defense.
The railroad companies assert that they relied on the
Labor Department’s published opinions in assuming the
legality of the involuntary retirements. They contend,
therefore, that the Secretary’s complaint on behalf of the
142 employees is barred by section 7(e) of the ADEA,
29 J.S.C. § 626(e), which incorporates section 10 of the
Portal-to-Portal Act of 1947, 29 U.S.C. § 259 (a). See-
tion 10(a) provides in part:
In any action or proceeding . . . no employer shall be
subject to any liability or punishment .. . if he
pleads and proves that the act or omission com-
plained of was in good faith in conformity with and
9a
in reliance on any written administrative regulation,
order, ruling, approval, or interpretation, of the
agency of the United States
Railroad company officials insist they relied on several
Wage-Hour opinion letters and an ADEA Interpretative
Bulletin, 29 C.F.R. § 860.110 (1978). This bulletin
states:
(a) [T]he Act authorizes involuntary retirement
irrespective of age, provided that such retirement is
pursuant to the terms of a retirement or pension
plan meeting the requirements of section 4(f) (2).
The fact that an employer may decide to permit cer-
tain employees to continue working beyond the age
stipulated in the formal retirement program does
not, in and of itself, render an otherwise bona fide
plan invalid insofar, as the exception provided in
section 4(f) (2) is concerned.
(b) This exception does not apply o the involuntary
retirement before 65 of employees who are not par-
ticipants in the employer’s retirement or pension
program.
In Pilkenton v. Applachian Regional Hospitals, Inc.,
336 F.Supp. 334, 340 (W.D. Va. 1971), it was said that
“in order for an employer to assert that it relied on and
conformed to an administrative bulletin, the bulletin
must be specific enough to cover the particular employ-
ment situation,” and, in Clifton D. Mayhew, Inc. v. Wirtz,
413 F.2d 658 (4th Cir. 1969), this Court held that an
employer, to take advantage of section 10(a), must prove
a good faith reliance by objective evidence. The inter-
pretive bulletin, on which the defendant railroad com-
panies claim reliance, refers to the terms of the pension
plan itself. The bulletin instructs that involuntary re-
tirement irrespective of age is permissible, if pursuant to
the terms of a pension plan. Assuming, as we have here
10a
held, that the railroad companies’ plans contain no such
authorization, it is circular reasoning to argue that the
railroad companies could involuntarily retire protected
employees on the basis of the Secretary’s interpretive
bulletin directing them to examine their plans. The in-
terpretive bulletin does not have the specificity required
by Pilkenton, nor is there objective evidence that the
railroad companies relied on it in good faith.
B. THE COMPANIES’ 1972 PENSION PLANS PRO-
VIDING FOR INVOLUNTARY RETIREMENT
AT AGE 62.
The railroad companies’ amendments to their pension
plans made in October, 1972, and effective January 1,
1974, reduce the mandatory retirement age from age
65 to age 62. Since 1974 some employees have been in-
voluntarily retired at age 62 under the amended plan.
Although also governed by the Act, the railroad com-
panies’ 4(f) (2) defense of those amendments fails—but
under a different application of the statute.
Subsequent to the 1972 changes in the railroad com-
panies’ plans, Congress amended section 4 f) (2) to ex-
plicitly prohibit its provisions from being utilized as a
defense to involuntary retirement of protected individuals.
The amendment was effective from enactment on April
6, 1978, and provides:
(f) It shall not be unlawful for an employer...
(2) to observe the terms of a bona fide seniority
system or any bona fide employee benefit plan
such as a retirement, pension, or insurance plan,
which is not a subterfuge to evade the purposes
of this Act, except that no such employee bene-
fit plan shall excuse the failure to hire any in-
dividual, and no such seniority system or em-
ployee benefit plan shall require or permit the
involuntary retirement of any individual speci-
lla
fied by section 12(a) of this Act [29 U.S.C.
§ 631(a)] because of the age of such individual.
29 U.S.C. 8 623 (f) (2) (1978 amending language em-
phasized).
The Secretary contends this Congressional amendment
is applicable to the railroad companies’ actions in 1972.
We do not decide this but, even leaving aside the ques-
tion of the possible retroactivity of the 1978 amendment
to section 4(f) (2), the 4(f) (2) defense of the amended
retirement plan is unavailing—the railroad companies’
1972 amendments to the plans, unlike the original plans
and previous amendments, is a “subterfuge to evade the
purpose of this chapter.”
The testimony was unequivocal that the 1971 coal
strike had a devastating impact on the railroad com-
panies, precipitating drastic action to reduce the num-
ber of employees. Terminated were management em-
ployees, inefficient employees, and then those entitled to
pension benefits because of their age and service. Follow-
ing quickly on the heels of those actions, the Board
of Directors approved the amendment to effect continued
forced retirements based on age in October 1972. The
President of the railroad companies testified that he had
long considered reducing the number of employees by
lowering the mandatory retirement age to age 62.
There is certainly nothing sinister about a chief execu-
tive’s design to “cut the cloth to fit the pattern;” drastic
action by the railroad companies were [sic] certainly re-
quired. The ADEA, however, prohibits personnel reduc-
tion on the basis of the age of individuals in the pro-
tected group. Section 2 (b) of the Act states its purposes:
to promote employment of older persons based on
their ability rather than age; to prohibit arbitrary
age discrimination in employment; to help employers
12a
and workers find ways of meeting problems arising
from the impact of age on employment.
29 U.S.C. §621(b). Under the circumstances in which
the pension plans of the railroad companies were
amended, it is clear that the amendments were designed
to evade the ADEA’s goals as expressed in § 2(b).
The railroad companies assert that their actions in
amending the plans were also justified under section 10
(a) of the Portal-to-Portal Act. Vice-President Clarke,
in charge of the law department, apparently read ad-
ministrative interpretations of the Act prior to the adop-
tion of the amendments reducing the mandatory retire-
ment age from age 65 to 62. The material, including a
1968 opinion letter of the Wage-Hour Administrator, is
generally supportive of the railroad companies’ position
that the action did not violate the ADEA. Clarke indi-
cated his opinion as to the legality of the railroad com-
panies’ actions was based on his readings of these in-
terpretations, his conversation with a non-lawyer em-
ployee, and on his own interpretation of the law. He
apparently did not express this opinion to those officers
considering the amendments, but indicated his approval
by not objecting to the amendments.
The requisite for a defense under section 10(a) is
that it be made “in good faith and in conformity with
and in reliance on any written administrative regulation,
order, ruling, approval, or interpretation
The first specific consideration by a company official
to amend the pension plan by reducing the mandatory
retirement age from 65 to 62 was by Vice-President
Clarke in May, 1972. In December, 1971, the Depart-
ment of Labor had initiated an investigation of the rail-
road companies’ practice of involuntarily retiring members
of the ADEA-protected group of 142 individuals prior to
the age of 65. The railroad companies were aware of this
13a
investigation months prior to the first consideration of
possible amendments. In March, 1972, and again prior
to consideration of the amendments, the Secretary’s rep-
resentative advised railroad officials of the results of the
investigation: the companies were in violation of the
ADEA. Yet only a few months afterward—in October,
1972—the Board of Directors finally approved the amend-
ment to the plan.
In light of this sequence of events indicating the rail-
road companies’ specific knowledge of the discriminatory
character of their conduct, they have not proved a section
10(a) defense. They have not established, by objective
evidence, that good faith reliance on an administrative
interpretation as required by Clifton D. Mayhew, Inc.,
supra. See also Marshall v. Emersons Ltd., 593 F.2d 565
(4th Cir. 1979).
That portion of the district court’s decision finding
prima facie violations is affirmed. The decision finding
the violations excused under section 4(f) (2) is reversed
and the case is remanded for action consistent with the
views of this opinion.
AFFIRMED IN PART; REVERSED IN PART.
14a
APPENDIX B
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Civil Action No. N-74-637
RAY MARSHALL, SECRETARY OF LABOR,
UNITED STATES DEPARTMENT OF LABOR
V.
THE BALTIMORE AND OHIO RAILROAD COMPANY and
Tu CHESAPEAKE AND OHIO RAILWAY COMPANY
Filed: September 6th, 1978
NORTHROP, Chief Judge.
This action was filed on behalf of the Secretary of
Labor on June 19, 1974. In the complaint, the Depart-
ment of Labor (Department) charged the Baltimore and
Ohio Railroad Company (B & O) and the Chesapeake
and Ohio Railway Company (C & O) with violating See-
tion 4 of the Age Discrimination in Employment Act of
1967, (29 U.S.C. § 621 et seg.). Counsel for both plain-
tiff and defendant railroads have submitted the follow-
ing issues to this Court for resolution
(1) Whether the Department satisfied the conciliation
requirement of the Age Discrimination in Employment
Act prior to filing his complaint; and if not, the legal
effect of the parties’ subsequent conciliation discussions.
(2) Whether the Secretary’s complaint includes in-
dividuals terminated from non-contract status after
March 1, 1972.
(8) Whether the selection in the force reduction of the
142 individuals at issue on the basis of their entitlement
15a
to an unreduced pension under defendants’ pension plans
constituted discrimination on the basis of age in viola-
tion of Section 4(a) of the Act.
(4) Whether the termination of 142 employees at is-
sue was exempt under the Act by virtue of Section 4(f)
(2).
(5) Whether the lowering of the mandatory retire-
ment age under defendants’ pension plans from 65 to 62
constituted discrimination on the basis of age in viola-
tion of Section 4(a) of the Act.
(6) Whether the retirement of employees at the man-
datory age of 62 under defendants’ pension plans, as
amended in 1972, was exempt under the Act by virtue
of Section 4(f) (2).
(7) Whether, based on their reliance on written in-
terpretations of the Act by the Department, defendants
are exempt from any liability in this action by virtue of
Section 10 of the Portal-to-Portal Act of 1947, 29 U.S.C.
§ 259 (1970).
Issues (1) and (2) were tried on April 27 and 28,
1978. The remaining issues were tried on May 17-25,
1978. Counsel for both plaintiff and defendants have
submitted exhaustive pretrial and post-trial memoranda.
Prior to the disposition of the above issues, the Court
will outline the relevant background facts in this case
in conformance with the mandate of Rule 52 of the Fed-
eral Rules of Civil Procedure. Additional facts will be
added throughout the opinion where necessary.
Facts
Defendant railroads are common carriers engaged in
the transportation of freight by rail. It is clear that they
are employers affecting commerce within the meaning of
Section 11(b) of the Age Discrimination in Employment
Act (ADEA), 29 U.S.C. § 630 (b).
16a
On December 17, 1962, the Interstate Commerce Com-
mission approved the acquisition by C & O of B & O
through the purchase of B & O capital stock, effective
February 4, 1963. Thereafter, the management of the
railroads was consolidated.
In 1971, a nationwide coal strike by the United Mine
Workers Union precipitated several actions by defend-
ants. Since this suit concerns, inter alia, the legality of
defendants’ response to the strike, the facts underlying
the decisions made by defendants’ management must be
explored.
During the years preceding 1971, defendants’ financial
position was declining. During the period 1965-70, the
defendants’ level of traffic had not increased, and their
expenses had increased more rapidly than their revenues.
The defendants’ declining financial position was re-
flective of the general trends in the railroad industry,
particularly in the Northeast. This situation was accen-
tuated by the failure of the Penn Central Railroad which
went into receivership in June 1970.
In April 1971, Mr. Hays T. Watkins became President
and Chief Wxecutive Officer of defendants. Mr. Watkins
believed that the existing economic and financial situa-
tion required that defendants streamline their operations
and eliminate unnecessary expenses. To achieve this goal,
Mr. Watkins established two priorities: the abandonment
of unprofitable branch lines and a reduction in the size of
the work force. Steps were taken immediately to carry
out these objectives.
The goal of reducing the size of the work force was
based upon top management’s belief that defendants had
too many employees relative to their level of traffic. This
overstaffing was present to approximately the same ex-
tent in both the contract (union) and non-contract (su-
pervisory personnel) ranks.
17a
In September 1971, Mr. Norman Halpern became As-
sistant Vice President—Executive Department. In order
to implement the reduction of staff, he ordered that no
new non-contract employees could be hired without the
specific approval of Mr. Watkins. Other methods for
reducing the work force were discussed.
On October 4, 1971, a nationwide coal strike began.
Although defendants were aware that the contract be-
tween the United Mine Workers Union and the coal oper-
ators would expire on September 30, 1971, they did not
anticipate a strike since there had not been a nationwide
coal strike since 1949. Moreover, early indications were
that the parties would be able to agree on a contract and
thus avoid a strike.
The coal strike represented a severe financial threat to
defendants since coal constituted approximately 50% of
defendants’ traffic and 35-40% of their operating reve-
nue. Since it appeared that the strike would be pro-
tracted, defendants believed that they were required to
take immediate action to reduce expenses.
The first step taken by defendants involved a reduction
in their contract work force which comprised 93% of
defendants’ employees. Although defendants furloughed
many employees in order to cut down expenses, defend-
ants also decided to reduce their contract work force by
approximately 20%. Management subsequently decided
that a comparable reduction in the non-contract work
force was necessary.
Meetings by defendants’ top management resulted in a
program for reducing the size of the work force. Pre-
liminarily, all poor performers were eliminated, but this
resulted in only a 1% reduction. The next step was an
attempt to eliminate as many jobs as possible and to con-
solidate the rest.
One of the criteria used to select individuals to be
terminated was “pension entitlement.” Through pension
18a
entitlement, management designated individuals who
were entitled to substantial pension benefits if termi-
nated. Management decided that it would be preferable
to terminate these employees since they would be less
adversely affected by the loss of a job than individuals
who were not entitled to receive pension benefits. In this
way management hoped to reduce the impact upon em-
ployees who were let go. Out of the employees termi-
nated in this reduction, 142 were selected because of
their entitlement to pension benefits.
Although other methods of reducing the size of the
work force were considered, they were rejected either
because they were not suited to a solution of defendants
root problem (overstaffing) or because of the lack of
empirical data necessary to implement them. For exam-
ple, defendants did not attempt to merely furlough many
of their employees since one of defendants’ basic prob-
lems was their overstaffed condition. Neither did defend-
ants attempt to rank their employees by performance
since such an attempt would not have been practical.
During the period of time in which the feasibility of
using pension entitlement as a criterion for selecting
employees for termination was discussed, defendants’ law
department was consulted as to the legality of the pro-
posed reduction. At that time Mr. Owen Clarke was
defendants’ Vice President of Personnel and Labor Re-
lations and an experienced attorney. Mr. Frank House-
holder was an Assistant Vice President in charge of
Equal Employment Opportunity Services. Messrs. Clarke
and Householder discussed the effect of the ADEA upon
the proposed reduction. They concluded that, based upon
published opinions of the Wage-Hour Administrator, the
proposed reduction was exempted from the ADEA under
the provisions of § 4 (f) (2). The determination was re-
layed to Mr. Watkins and relied on by top management
in deciding to go forward with the reduction,
19a
The reduction of employees took place in accordance
with the above plans. During mid-October 1971 to March
1, 1972, most of the employees were terminated, although
some of them were carried on defendants’ payroll for
some time later.
On November 15, 1971, the coal strike ended. Defend-
ants’ Board of Directors advised their stockholders that,
as a result of the coal strike, defendants would not pay
any dividend for the fourth quarter of 1971. This repre-
sented the first occasion since 1922 that defendants had
failed to pay a dividend.
In December 1971, the Department instituted an inves-
tigation into alleged violations of the ADEA by defend,
ants. This investigation was undertaken by Assistant
Area Director Anthony Kiggins.
Mr. Kiggins met with several of defendants’ officers
in early 1972 to talk over the legality of defendants’ re-
duction in force. During the course of several meetings,
information was provided by defendants and both sides
discussed the reduction and defendants’ legal defenses.
After a meeting on March 13, 1972, in which Mr. Kig-
gins informed defendants of his conclusion that they had
violated the ADEA, he referred the investigative file to
his Regiona! Solicitor.
Shortly thereafter, defendants began considering an-
other method of reducing the size of their work force.
Mr. Clarke, who had become defendants’ principal legal
officer on May 1, 1972, undertook consideration of lower-
ing the mandatory retirement age from 65 to 62 under
defendants’ pension plans.
Mr. Clarke was aware of an opinion letter written by
the Wage-Hour Administrator, dated September 6, 1968,
which he interpreted to hold that the reduction in a man-
datory retirement age under a pension plan from 65 to
62 did not affect the availability of the exemption in
20a
Section 4(f) (2) of the ADEA. Accordingly, when de-
fendants’ management consulted the Law Department,
they were advised that such a reduction would be lawful.
On October 16, 1972, defendants’ Board of Directors ap-
proved amendments to the pension plans which lowered
the mandatory retirement age from 65 to 62. These
amendments were to take effect on January 1, 1974.
On January 23, 1973, Mr. Kiggins met with several of
defendants’ officers to obtain further information in ref-
erence to the Department’s investigation. The investiga-
tive file and the additional data were subsequently re-
viewed by the Office of the Regional Solicitor in Phila-
delphia.
No further contact was had between «„ parties until
December 1973. Several meetings between attorneys for
both sides occurred between December 1973 and June
1974. At these meetings, the Department informed de-
fendants that it believed that its investigation disclosed
violations of the ADEA. Defendants responded by as-
serting their legal defenses and offering additional in-
formation. On June 19, 1974, the Department filed the
complaint in this case charging defendants with willful
violations of the ADEA.
Defendants moved to dismiss the complaint on July 22,
1974, alleging that the Department had failed to con-
ciliate the matters alleged in the complaint as required
by law. On November 8, 1974, this Court heard oral
argument on the motion to dismiss. This Court ordered
the parties to engage in further conciliation. The par-
ties did evbsequently attempt to conciliate the claims and
now agree that adequate efforts to conciliate have been
made.
21a
Law
I. The Adequacy of Conciliation and this
Court’s Jurisdiction
Section 7(b) of the ADEA, 29 U.S.C. § 626(b) pro-
vides in pertinent part:
Before instituting any action under this section, the
Secretary shall attempt to eliminate the discrimina-
tory practice or practices alleged, and to effect volun-
tary compliance with the requirements of this chapter
through informal methods of conciliation, confer-
ence, and persuasion.
Almost immediately after the Department filed its com-
plaint, defendants responded with a motion to dismiss
alleging that the Department had failed to satisfy this re-
quirement. This Court then directed the parties to fur-
ther conciliate and they have done so. Defendants have
renewed their previous motion, however, and alleged that
it is “jurisdictional.”
Defendants’ position may be summarized as follows.
Section 7(b) requires the Department to engage in ex-
haustive and thorough efforts to conciliate alleged viola-
tions of the Act prior to filing suit. The Department’s
actions in this case, which consisted of an investigation
followed by months of inaction culminating in three very
short conferences, fails to satisfy this burden. The stay
issued by this Court is ineffective to cure the inadequacy
of the Department’s pre-complaint activities since Section
7(b) is a mandatory provision requiring conciliation as a
jurisdictional condition precedent to suit. Accordingly,
the action should be dismissed or considered timely filed
only as of the date the post-complaint discussions were
completed.
The Department responds that reasonable efforts to con-
ciliate this case were in fact attempted and were met
22a
with rebuffs from defendants. In the alternative, the
Department argues that this Court’s Order staying the
proceedings until conciliation had been effected was the
proper course since Section 7(b) is not jurisdictional.
The facts surrounding the pre-complaint conciliation
efforts are somewhat muddled, although attorneys for
both sides testified. Both sides agree that Mr. Kiggins
had several investigatory meetings with defendants’ of-
ficers. They agree that a closing conference was held
on March 13, 1972 between Mr. Kiggins and defendants’
representatives. The next meeting was held on January
23, 1973 when Mr. Kiggins requested additional informa-
tion from defendants. The parties are in further agree-
ment that on December 26, 1973 a meeting for the pur-
pose of conciliation was held between attorneys for both
sides. The parties followed this meeting with meetings
on February 21, 1974 and May 30, 1974. During this
time defendants agreed to toll the statute of limitations.
This court has determined that it will adopt both as-
pects of the November 8, 1974 decision:
(1) The Department’s pre-complaint conciliation ef-
forts were inadequate to satisfy Section 7(b) of the Act;
and
(2) the Court has the discretion to retain jurisdiction
of the case while adequate conciliation is effected.
The Court cannot agree with the Department’s con-
tention that its pre-complaint actions satisfied the stat-
ute. The chronology of the actions leading up to the fil-
ing of the complaint indicate that after Mr. Kiggins
informed defendants of his opinion that they had violated
the Act, no meaningful discussions were held between
the parties for almost two years. Moreover, despite the
fact that numerous employees were involved, the three
conciliation meetings were very short and the other
correspondence was anything but comprehensive. Al-
23a
though defendants did not agree with the Department’s
legal assessment of the case and raised issues which are
similar to the ones that are to be decided in this opin-
ion, it is significant that they agreed to toll the statute
of limitations while discussions took place. Accordingly,
the Court cannot accept the Department’s assertion that
they were faced with a totally recalcitrant employer who
refused to come into compliance. Conciliation and settle-
ment is a two-way street—the defendants are not re-
quired to either surrender completely or face suit if they
are willing to informally discuss the case and toll the
statute of limitations to prevent prejudice to the De-
partment.
The Department’s citation of Hodgson v. Approved
Personnel Service, Inc., 529 F.2d 760 (4th Cir. 1975) is
also not persuasive. In that case, the Fourth Circuit held
that Section 7(b) was satisfied by five contracts with
defendants over a period of four years. The case,
however, turned on the fact that defendant had made
repeated assurances to the Department that it would obey
the law followed by further violations. In the instant
case, the Department was met with the companies’ legal
defenses, and consequently additional informal methods
of conciliation were required.
Although this Court does not agree with defendants’
assertion that the Department’s conciliation efforts must
be “exhaustive,” it does appear to the Court that they
should at least afford the employer the opportunity to dis-
cuss the individual circumstances surrounding the alleged
violations. A recent opinion by Judge Blumenthal, Mar-
shall v. Hartford Fire Insurance Co., 78 F.R.D. 97
(D.Conn.1978) provides a thorough analysis of the De-
partment’s burden in ADEA cases. Judge Blumenthal
held, inter alia, that a defendant should be given an
opportunity to respond to the Department’s charges, and
to discuss cases individually. If it appears that defend-
24a
ants are using this individual discussion as a tactic to
delay, however, the Department may be justified in tak-
ing other actions. Marshall v. Hartford Fire Insurance
Co., supra at 106-07. The court concluded that the ten
full days of negotiation was an adequate amount of time
to discuss the 72 cases of age discrimination charged by
the Department. This Court accordingly concludes that
the conciliation attempts by the Department, particularly
in a case of this magnitude (coupled with defendants’
willingness to toll the statute of limitations) were inade-
quate to satisfy Section 7(b). See Marshall v. Hartford
Fire Insurance Co., supra and cases cited therein.
The Court is of the opinion, however, that this defect
was cured by the subsequent extensive conciliation under-
taken by the parties. The defendants concede that the
parties’ post-complaint efforts would have been sufficient
to satisfy the statute if they had occurred prior to the
filing of the complaint. They argue that the Department’s
failure to engage in this conciliation prior to the filing of
the complaint deprives this Court of jurisdiction.
There is a split of authority on the question of whether
Section 7(b) is jurisdictional. Compare Usery v. Sun
Oil Co. (Delaware), 423 F.Supp. 125 (N.D.Tex.1976) ;
Dunlop v. Resource Sciences Corp., 410 F.Supp. 836
(N. D. Okl. 1976) (holding requirement is jurisdictional)
with Brennan v. Ace Hardware Corp., 495 F.2d 368 (8th
Cir. 1974) (dictum); Brennan v. Texas Instruments,
Inc., 12 FEP Cases 1724 (E.D.Ky. 1976); Dunlop v.
Sandia Corp., 13 FEP Cases 128 (D.N.M.1975) (staying
actions). Indeed, one case which held that the require-
ment was jurisdictional (Usery v. Sun Oil Corp., supra),
cited as support a case which states that a district court
has the discretion to stay an action while the parties at-
tempt conciliation (Brennan v. Ace Hardware Corp.,
supra).
25a
This Court believes that the more preferable approach
is to stay the action while conciliation is attempted. This
approach prevents the harsh consequences of dismissal
and yet allows the parties to engage in statutorily man-
dated conciliation. Moreover, it finds support in Section
7(b) itself which provides in pertinent part that
The court shall have jurisdiction to grant such legal
or equitable relief as may be appropriate to ef-
fectuate the purposes of this chapter
The Court consequently finds that it has equitable power
to stay the action in order to provide an opportunity for
conciliation to take place.
Defendants’ only argument in contravention of this
holding is that it “excuse[s] gross inadequacies by the
Department in fulfilling its statutory mandate” and
therefore encourages the Department not to comply with
a mandatory prerequisite to filing suit. The Court does
not believe that it is faced with that situation here. It
is true that the Department’s representatives were overly
heavy-handed in the conciliation attempts and that their
attempts were not sufficiently comprehensive. However,
this is not a case where the Department filed suit without
making any attempts to conciliate at all. The Court can-
not acquiesce in defendants’ characterization of the con-
ciliation efforts as “grossly inadequate.” The Court is
confident that the Department in the future will at-
tempt more fully to conciliate alleged violations. More-
over, since extensive conciliation has been achieved in
this case through informal bargaining by both sides, it
is clear that the spirit of the statute has not been vio-
lated. For all of these reasons, this Court finds that it
has jurisdiction over the case and properly stayed the ac-
tion in November 1974.
26a
II. Scope of the Complaint
The Department’s complaint reads in pertinent part:
IV.
Defendants, employers subject to the provisions of
Section 4(a) of the Age Discrimination in Employ-
ment Act, have, since on or about January 1, 1971,
willfully violated and are violating the provisions
of Section 4(a)(1) of the said Act and Section 15
of the Fair Labor Standards Act, by discharging, re-
fusing to hire, demoting, and/or otherwise discrim-
inating against in excess of 300 employees at nu-
merous locations and places of business of the de-
fendants in at least four different states, because
such individuals wore between the ages of 40 and
65.
WHEREFORE, cause having been shown, plaintiff
prays for judgment . . . setting aside the amendment
to the pension requiring retirement at age 62; and
for such other damages as a result of the willful
nature of the violations, and for costs of this action.
Defendants advance two arguments that allegedly pre-
vent the Deparment from challenging the legality of
defendants’ reduction of the mandatory retirement age:
(1) that the total lack of conciliation as to this issue
mandates dismissal under Section 7(b) of the Act; and
(2) that “the complaint does not comprehend these ad-
ditional claims.” These contentions may be quickly dealt
with.
Since this Court has already held that it has discre-
tionary power to order a stay to allow both sides to
effect conciliation, contention (1) is without merit. It is
likewise clear that contention (2) is meritless. The por-
tions of the complaint quoted above satisfactorily put
27a
defendants on notice that the Department was putting
the retirement age reduction at issue. Rule 8, Fed.R.
Civ.P.
The Court is unaware of the details of the extensive
and comprehensive discussions between counsel. Thus,
the Court cannot with certainty determine whether the
Department will allege that other violations of the Act
are encompassed by its somewhat broad complaint. How-
ever, this Court will not find that any acts subsequent to
the 1974 complaint are covered, unless the Department
can show some nexus between the alleged post-complaint
violations and the actions which led to the filing of this
complaint. Consequently, the Court finds that employees
affected by the reduction of the mandatory retirement
age are included with the purview of this complaint, at
least insofar as they contest the companies’ authority to
retire them at age 62 without their consent.
III. Whether the Companies’ Involuntary
Retirement of 142 Employees
Violated Section 4(a)
Section 4(a) of the Act, 29 U.S.C. § 623 (a) (1) pro-
vides that
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.
Defendants assert that the legislative history of the
ADEA shows that Congress only intended to prohibit
“arbitrary, unreasonable decisions based on age.” How-
ever persuasive this argument may be, it is a settled
canon of statutory interpretation that courts will re-
sort to legislative history only when confronted by am-
28a
biguous legislation. It cannot be said that the above
statute is ambiguous, hence this Court must attempt to
enforce the literal language embodied within it.
Defendants next contend that plaintiff must “show
more than simply the fact that he was within the pro-
tected age group and that he was adversely affected by
an employment decision.” Citing Bishop v. Jelleff As-
sociates, 398 F.Supp. 579, 598 (D.D.C. 1974). Defend-
ants concede, however, that recent decisions in the
Fifth Circuit have adopted a more liberal standard for
establishing a prima facie case. See Price v. Maryland
Casulty Co., 561 F.2d 609, 612 (5th Cir. 1977) ; Marshall
v. Goodyear Tire & Rubber Co., 554 F.2d 730 (5th Cir.
1977). For example, in Wilson v. Sealtest Foods Division
of KraftCo. Corp., 501 F.2d 84 (5th Cir. 1974) the
court held that a showing that an employee was within
the protected age group (age 40-65, 29 U.S.C. § 631),
was asked to take early retirement against his will, and
was replaced by a younger person was enough to estab-
lish a prima facie case. Similarly, in Laugesen v. Ana-
conda Co., 510 F.2d 307 (6th Cir. 1975), the Court held
that, if one of the factors which caused the decision to
terminate an employee was age bias, a prima facie case
had been presented.
Defendants argue that Price v. Maryland Casualty Co.,
supra establishes that a prima facie case is made out
where a plaintiff proves: (1) that he was a member
of the protected group; (2) that he was discharged;
(3) that he was replaced with a person outside the pro-
tected group; and (4) that he was qualified to do the job.
Defendants contend that the third criterion of the above
test is missing in this case since most of the employees
were replaced by employees who were younger but still
in the protected group. The Court does not find this to be
a very compelling argument. Accepting this test literally
would prevent even blatant and willful violations of the
Act by an employer as long as he had a replacement em-
ployee who was over 40. Accordingly, this Court will
not adopt defendants’ contention but will find that the
Department has established a prima facie case.
The Court notes that defendants have included in their
argument that the Department did not meet its burden,
arguments which relate to a Section 4(f)(1) defense.
Section 4(f) (1) of the Act provides in pertinent part:
It shall not be unlawful for an employer, employment
agency, or labor organization—
(1) to take any action otherwise probitited ...
where the differentiation is based on reasonable
factors other than age. 29 U.S.C. § 623 (f) (1).
The Court is of the opinion that this section represents
an affirmative defense which defendant has the burden of
proving. In Arritt v. Grisel, 567 F.2d 1267 (4th Cir.
1977), the Fourth Circuit held that the employer has
the burden of proving a Section 4(f)(1) defense. Al-
though Judge Thomsen’s opinion was concerned with an-
other section of 4(f) (1) (the bona fide occupational quali-
fication defense), the principle that the Court gleans
from this case is that the defenses set forth in Section
4(f) are separate from 4(a). Consequently, considera-
tion of whether the Department has met its burden un-
der 4(a) does not involve 4 (f) (1). Cy. Arritt v. Grisell,
supra; McMann v. United Air Lines, Inc., 542 F.2d 217,
219 n. 3 (4th Cir. 1976), rev’d on other grounds 434 U.S.
192, 98 S.Ct. 444, 54 L.Ed. 2d 402 (1977), But see Price
v. Maryland Casualty Co., supra.
In any event, the availability of the 4 (f) (1) defense
is inextricably bound up in the more important question
of whether the defendants have shown a 4 (f) (2) de-
fense since both depend upon the question of pension
entitlement. Accordingly, the Court will deal with this
issue, infra.
*
IV. Whether the Companies’ Involuntary
. Retirement of 142 Employees Is Exempt
Under Section 4(f)
Section 4(f) (2) of the Act, 29 U.S.C. § 623(f) (2) pro-
vides in pertinent part:
It shall not be unlawful for an employer
(2) to observe the terms of a bona fide seniority
system or any bona fide employee benefit plan such
as a retirement, pension, or insurance plan, which is
not a subterfuge to evade the purposes of this
chapter, except that no such employee benefit plan
shall excuse the failure to hire any individual.
Both sides agree that there are three elements to this
exemption, which is available when an employer:
(1) observes the terms
(2) of a bona fide retirement plan
(3) that is not a subterfuge to evade the purposes of
the Act.
The Supreme Court has interpreted Section 4(f) (2)
in United Air Lines, Inc. v. McMann, 434 U.S. 192, 98
S.Ct. 444, 54 L.Ed2d 402 (1977). In that case the
issue before the Court was whether defendant’s forced
retirement of plaintiff at age 60 pursuant to its pension
plan was exempted from the ADEA by Section 4(f) (2).
The High Court held that the plan was not a “subter-
fuge” since it had existed prior to the enactment of the
ADEA. The Court concluded that the exemption was
available to United since it had observed the terms of
a concededly bona fide pension. plan. This Court will
therefore examine the above elements in light of McMann.
31a
A. Observing the Terms“
The Department argues that defendants did not ob-
serve the terms of their plan in terminating these em-
ployees since the plans did not expressly set forth de-
fendants’ right to do so. Defendants counter, and the De-
partment does not dispute, that they have always had
the inherent right to terminate any employee for any
legitimate reason. They argue that should the Depart-
ment's position be accepted, one of two absurd results
would follow. First, between the ages of 60 and 65 an
employee would be guaranteed employment if he chose
not to retire. The other possible interpretation, defend-
ants argue, is that an employee terminated between 60
and 65 would be ineligible for benefits under the plan.
This Court does not find the Department’s position
tenable in light of Marshall v. Hawaiian Telephone Co.,
575 F.2d 768 (9th Cir. 1978). In that case, decided after
McMann, the Department argued that the employer did
not observe the terms of a plan when it retired several
employees because of their age. The plan permitted, but
did not require, the employer to retire employees at age
60.
The Ninth Circuit stated:
The Secretary contends that the section 4(f) (2) ex-
ception for employers acting “to observe the terms
of” a plan does not apply unless the plan requires
retirement at a certain age. According to the Secre-
tary, forced retirements solely at the employer’s op-
tion, though permitted by the plan, do not qualify
for the exception.
The Secretary reasons that an employer “observes”
the terms of a plan only where the employer is
forced by its terms to retire an employee. Where
an employer chooses to retire an employee, accord-
82a
ing to the argument, the employer is not passively
“observing” the plan.
After careful consideration, we reject the Secre-
tary’s position that an employer does not “observe
the terms of” a plan by exercising the option per-
mitted by a plan to force retirement on an employee.
We choose to join the Zinger [Zinger v. Blanch-
ette, 549 F.2d 901 (3d Cir. 1977)] court in reading
the language of Section 4 (f) (2) as permitting an
employer to exercise the option of retiring employ-
ees pursuant to a bona fide retirement plan even
where the plan does not require such retirements.
Marshall v. Hawaiian Telephone Co., supra at 766-67
(citations and footnotes omitted, emphasis in origi-
nal).
This position is in accord with Zinger v. Blanchette, 549
F.2d 901 (8d Cir. 1977), cert. denied, 434 U.S. 1008, 98
S. Ct. 717, 54 L.Ed.2d 750 (1978). That case, cited favor-
ably by the Supreme Court in McMamn, pointed out that
there is a measurable difference between terminations
where substantial benefits are paid and outright dis-
charges. The court noted that:
The primary purpose of the Act is to prevent age
discrimination in hiring and discharging workers.
There is, however, a clear, measurable difference be-
tween outright discharge and retirement, a distinc-
tion that cannot be overlooked in analyzing the Act.
While discharge without compensation is obviously
undesirable, retirement on an adequate pension is
generally regarded with favor. Id. at 905 (footnotes
omitted).
There is no question that defendants have had the
power, exercised over the years, to involuntarily retire
employees. Accordingly, this Court concludes that de-
83a
fendants “observed the terms” of the benefits plan when
they involuntarily retired their employees while provid-
ing them with their pension benefits.
B. “Bona Fide Pension Plan”
This element may be quickly disposed of. It seems
fairly clear that a plan which exists and pays substan-
tial benefits is bona fide. Brennan v. Taft Broadcasting
Co., 500 F.2d 212 (5th Cir. 1974). See United Air Lines,
Inc. v. McMann, 484 U.S. 192, 98 S.Ct. 444, 446, 54
L.Ed.2d 402 (1977). There is no dispute that defend-
ants’ plans have existed for over 25 years and have paid
substantial benefits to retired employees. This Court
concludes that the plans are bona fide.
C. “Subterfuge”
In McMann, the Supreme Court stated that:
In ordinary parlance, and in dictionary definitions as
well, a subterfuge is a scheme, plan, stratagem or
artifice of evasion. In the context of this statute,
“subterfuge” must be given its ordinary meaning
and we must assume Congress intended it in that
sense. So read, a plan established in 1941, if bona
fide, as is conceded here, cannot be a subterfuge to
evade an Act passed 26 years later. United Air
Lines, Inc. v. McMann, 434 U.S. at 203, 98 S.Ct. at
450.
A plan enacted prior to the Act cannot therefore
be a subterfuge to evade it. Since the Department con-
codes, as it must, that both the C & O and B & O pen-
sion plans were in existence long before the promulga-
tion of the ADEA, it appears to this Court that the
plans cannot be a subterfuge to evade the purposes of
the Act.
34a
The Department’s only argument is that the post-Act
amendments to the plan modified it in such a way that
it became a subterfuge. This position is untenable. With
the exception of the reduction in the mandatory retire-
ment age (which will be dealt with infra), the amend-
ments to the plan infringed no substantive rights of the
employees but liberalized and increased the benefits avail-
able under the plan. Thus, it is impossible for this Court
to see how these pre-Act pension plans could be considered
“subterfuges” under the McMann decision.
Since defendants have satisfied the three elements of
Section 4(f) (2), it appears to this Court that their ter-
mination of 142 employees was exempted by the provi-
sions of the Act itself. Only two other matters need to
be briefly noted in this regard.
The Department has argued that McMann and Zinger
should not be expanded since Congress has enacted amend-
ments to the ADEA. See Pub.L. No. 95-256, § 2(a), 92
Stat. 189. The Department cites legislative history of
this amendment for the proposition that “the McMann
decision, insofar as it imputed to Congress an intent to
permit involuntary retirement because of age under some
plans, was in ” Plaintiff’s Post Trial Brief on The
Issues of “Pension Entitlement” and the “Reduction in
the Mandatory Retirement Age,” at 23.
This contention is exactly one of the arguments made
by the dissent in McMann. See McMann at 218-19 (Mar-
shall, J., dissenting). The argument was expressly re-
pudiated by Chief Justice Burger for the majority when
he stated that “Legislative observations 10 years after
passage of the Act are in no sense part of the legislative
history.” McMann at 200 n. 7. Since this argument has
already been disposed of by the Supreme Court, this
Court need not trouble itself with it.
Finally, both sides spent some time arguing over the
availability of a 4(f)(1) defense in this situation, It
seems to this Court that it is clear that defendants had
an overriding business necessity to reduce their work
force. They responded to this business necessity by termi-
nating many employees, some of them based upon the
criterion of pension entitlement. Defendants argue that
“pension entitlement” was a “differentiation based on
reasonable factors other than age” within 4(f) (1), while
the Department argues that it is merely a method for
terminating older workers.
After careful consideration, this Court believes that
the question of whether pension entitlement is a “differ-
entiation based on reasonable factors other than age“
cannot be distinguished in this case from the availability
of a 4(f) (2) defense. Surely if Congress intended for
4(f) (1) to cover the instant situation, there would be
no need to specifically exempt pension plans from the
ADEA pursuant to Section 4(f)(2). The Court con-
cludes that the question of whether the employer’s actions
were reasonable is governed by the availability of the
4(f) (2) defense. Therefore, although the Court agrees
with defendants that (1) they had a clear business nec-
essity to reduce their forces and (2) other methods of
reduction (i.e. relative performances etc.) were infeasi-
ble, the Court finds that the reasonableness of the use of
pension entitlement must be governed by 4(f) (2).
Since defendants did have a denite business necessity
to reduce their work force, this Court finds that they
could reasonably take advantage of Section 4(f) (2) by
retiring workers pursuant to their pension plan.
36a
V. Whether the Reduction of the
Mandatory Retirement Age
Violated Section 4(a)
In Section III above, the Court outlined its analysis of
the Department’s burden in ADEA cases. It seems clear
that the Department’s showing that defendants amended
their pension plans to require employees to retire at age
62 establishes a prima facie case of age discrimination.
The important question again is whether defendants qual-
ify for a 4(f) (2) defense.
VI. Whether the Reduction of the
Retirement Age Was Exempt
Under Section 4(f) (2)
The three elements of a Section 4(f) (2) defense were
discussed in Section IV of this opinion. The Court will
apply the facts surrounding the amendment to the pension
plan to these elements.
It is clear that in retiring their employees mandatorily
at age 62 defendants have been “observing the terms” of
the plan. Indeed, even the Department concedes that a
mandatory provision in a plan satisfies this requirement.
This element has been complied with. United Air Lines,
Inc. v. McMann, supra; Marshall v. Hawaiian Telephone
Co., supra, It is also clear that the plan is “bona fide,”
since it exists and pays benefits. Brennan v. Taft Broad-
casting Co., supra. The first two elements have been
satisfied.
The only element which creates any room for reason-
able argument is the “subterfuge” component. The pen-
sion plans were both created more than 25 years ago.
However, in 1972, defendants enacted amendments which
lowered the mandatory retirement age from 65 to 62.
The Department argues that these post-Act amendments
were a subterfuge to avoid the Act.
87a
Analytically, the Department’s argument is fairly sim-
ple. It contends that the purpose and effect of the 1972
amendments was to reduce the defendants’ work force
at the particular expense of older workers. This pur-
pose, the Department argues, is clearly prohibited by the
letter and spirit of the Age Discrimination Act. There-
fore, the enactment of the 1972 amendments caused the
plan to be used as a “subterfuge to evade the purposes
of” the Act.
Although this argument has some appeal, it is without
merit. The logical conclusion of the Department’s argu-
ments is that any attempt by an employer to avail him-
self of the requirements of Section 4(f) (2) necessarily
renders his plan a “subterfuge.” The Court cannot find
any justification for such a result from the statute, its
legislative history, or the case law construing it. The
Court believes that the correct distinction was drawn by
the Third Circuit in Zinger v. Blanchette, supra, which
held that a plan which provided substantial retirement
benefits could not be considered a subterfuge.
Finally, it is clear that defendants have always had
the power to involuntarily retire their employees under
the consistent application of their plans. It seems to this
Court that the mere codification of this power in 1972
could not operate to somehow convert these pre-Act plans
into Post-Act “subterfuge.” The Court concludes that a
4(f) (2) defense is available to the railroad companies.
VII. The Portal-to-Portal Act
Section 7(e) of the ADEA, 29 U.S.C. § 626(e), in-
corporates Section 10 of the Portal-to-Portal Act, 29
U.S.C. § 259. Section 10 provides in pertinent part:
[N]o employer shall be subject to any liability or
punishment . .. if he pleads and proves that the act
or omission complained of was in good faith in con-
38a
formity with and in reliance on any written admin-
istrative regulation, order, ruling, approval, or in-
terpretation, of [an] agency of the United States
. .. or any administrative practice or enforcement
policy of such agency with respect to the class of
employers to which he belonged. Such a defense, if
established, shall be a bar to the action or proceed-
ing, notwithstanding that after such act or omis-
sion, such administrative regulation, order, ruling,
approval, interpretation, practice, or enforcement pol-
icy is modified or rescinded or is determined by
judicial authority to be invalid or of no legal effect.
Defendants have properly pled Section 10 as a defense
to the Department’s complaint and have introduced vari-
ous opinion letters and an interpretive bulletin as the
basis for this defense. It is undisputed that the inter-
pretations were issued by the Wage and Hour Division
of the Department of Labor and are the proper subject
for reliance if relevant. The publications were all con-
cerned with Section 4(f) (2). Relevant portions are ex-
cerpted below.
[T]he Act authorized involuntary retirement irre-
spective of age, provided that such retirement is
pursuant to the terms of a retirement or pension
plan meeting the requirements of Section 4(f) (2).
29 C.F.R. § 860.110 (First published Aug. 30, 1968).
The lowering of the retirement age from 65 to 62 years
for employees participating in a bona fide retirement
plan would not affect the applicability of provisions
authorizing retirement irrespective of age pursuant
to retirement or pension plans, provided such plans
are not a subterfuge to evade the purposes of the
Act. The statutory exception would not apply to the
involuntary retirement before age 65 of employees
who are not participants in a retirement plan. Opin-
ion Letter of Wage-Hour Administrator, September
6, 1968.
89a
[T]he term “bona fide” given its generally under-
stood meaning, describes a plan established in good
faith to provide certain fringe benefits for employ-
ees, and not as a device or subterfuge to avoid the
purposes of the Act. Opinion Letter of Wage-Hour
Administrator, June 29, 1971.
These documents, and others, were reviewed by defend-
ants’ officers prior to taking the two actions involved
in this complaint. The Court will therefore examine
these two actions to determine whether defendants acted
in good faith and in conformance with the publications.
A. The 1971 Force Reduction
The Department does not appear to dispute the fact
that defendants subjectively relied on its publications,
but instead contends that the standard is an objective
test and that defendants’ actions do not satisfy that test.
This Court, however, has determined that it was law-
ful and reasonable for defendants to terminate the 142
employees since they were entitled to the 4(f) (2) ex-
emption from the Act. Accordingly, it would seem ap-
parent that defendants could rely on interpretations
which appear to support their position. Indeed, the Third
Circuit adopted a position quite similar to defendants in
Zinger v. Blanchette, supra, when it interpreted Section
860.110. The Court concludes that defendants could and
did reasonably rely on these publications and therefore
have presented a meritorious defense under Section 10
of the Portal-to-Portal Act.
B. The 1972 Amendments
Defendants’ position is even stronger in regard to the
1972 amendments. The September 6, 1968 opinion letter
specifically sanctioned lowering the mandatory retirement
age in a benefit plan from 65 to 62. This is exactly what
40a
defendants did. Moreover, the Court cannot accept the
Department’s argument that the filing of suit by the
Department removed defendants’ rights to rely on this
document. Section 10 provides that an interpretation is
no longer a proper subject for reliance if (1) it is re
scinded or modified, or (2) it is determined by judicial
authority to be of no effect. This opinion letter has never
been withdrawn by the Department, despite its present
arguments. Moreover, this Court believes that the De-
partment’s former position, rather than its present posi-
tion in this litigation, was the correct one. Consequently,
the Court finds that defendants have pled and proven a
valid defense under Section 10.
VIII. Conclusion
For the reasons stated in this opinion, the Court finds:
(1) that the Department did not satisfy the concilia-
tion requirement of the Act. This failure, however, was
cured by the subsequent conciliation achieved after a
stay issued by this Court;
(2) the scope of the Department’s complaint includes
individuals terminated because of defendants’ 1972
amendments, but all other ind’ iduals must show a suffi-
cient nexus to pre-complaint violations;
(3) the Department met its burden of proving a vio-
lation of Section 4(a) in regard to the 1971 force reduc-
tion;
(4) defendants’ actions in terminating 142 individuals
in the 1971 force reduction are exempted from the Act
by virtue of Section 4(f) (2) ;
(5) the Department met its burden of proving a vio-
lation of Section 4(a) in regard to the 1972 amendments
to the plan;
4la
(6) the 1972 amendments are exempted from the
Act by virtue of Section 4(f) (2); and
(7) defendants have pled and proven exemption from
liability pursuant to Section 10 of the Portal-to-Portal
Act.
42a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Civil Action No. N-74-637
UNITED STATES DEPARTMENT OF LABOR
RAY MARSHALL, SECRETARY OF LABOR
V.
THE BALTIMORE AND OHIO RAILROAD COMPANY and
THE CHESAPEAKE AND OHIO RAILWAY COMPANY
Filed: December 5th, 1978.
Northrop, Chief Judge.
This action was filed on behalf of the Secretary of
Labor on June 19, 1974. In the complaint, the Depart-
ment of Labor [hereinafter Department] charged the
Baltimore and Ohio Railroad Company [B & O] and the
Chesapeake and Ohio Railway Company [C & O] with
violating section 4 of the Age Discrimination in Em-
ployment Act of 1967, 29 U.S.C. § 621 et seg. (1976)
{hereinafter the Act or ADEA]. Trial was held on
six separate issues on April 27, 28 and May 17-25,
1978. Counsel for both plaintiff and defendants sub-
mitted exhaustive pretrial and post-trial memoranda. At
trial and through these memoranda, the parties litigated,
among other issues, the question of whether the actions
of the defendants in terminating 142 individuals in their
1971 force reduction are exempted from the Act by vir-
tue of section 4(f) (2), 29 U.S.C. § 623 (f) (2) (1976).
On September 6, 1978, this Court issued an opinion in
which it found that the termination of the 142 individ-
uals pursuant to a bona fide employee benefits plan en-
acted prior to 1967 is exempt under section 4 (f) (2) of
43a
the Act. In resolving this issue, the Court relied upon
the Supreme Court’s interpretation of section 4(f) (2) in
United Air Lines, Inc. v. McMann, 484 U.S. 192, 98
S.Ct. 444, 54 L.Ed.2d 402 (1977).' In McMann, the Su-
preme Court examined the statutory language and legis-
lative history of section 4(f) (2) and found nothing to
indicate that Congress intended to invalidate retirement
plans instituted in good faith prior to the enactment of
the Age Discrimination in Employment Act of 1967. Id.
at 203, 98 S.Ct. 444. Therefore, the Supreme Court
concluded that section 4(f) (2) “[was] intended to per-
mit observance of the mandatory retirement terms of
bona fide retirement plans, but that the existence of
such plans could not be used as an excuse not to hire any
person because of age.” Id. at 202, 98 S.Ct. at 449. That
statutory interpretation served as support for this
Court’s determination, in this case, that the defendants’
1971 force reduction satisfied the requirements of section
4(f)(2) and thereby avoided violation of other provi-
sions of the Act.
When the Supreme Court decided the McMann case in
December 1977, it was cognizant of the fact that Con-
gress had several amendments to the ADEA before it.
One of these amendments was to “clarify” the meaning
of section 4(f)(2) to preclude the exemption of the
mandatory retirement of employees pursuant to bona
fide retirement plans for the Act’s requirements. Al-
though this pending amendment presented a contrary in-
terpretation of section 4(f)(2), the Supreme Court
found that it had to limit its review to the statutory
The divided opinions of several United States Courts of Ap-
peals had motivated the Court to grant certiorari on this issue.
434 U.S. at 193, 98 S.Ct. 444; see Zinger v. Blanchette, 549 F.2d
901 (8d Cir. 1977), cert. denied, 484 U.S. 1008, 98 S.Ct. 717, 54
L.Ed.2d 750 (1978); McMann v. United Air Lines, Inc., 542 F.2d
217 (4th Cir. 1976); Brennan v. Taft Broadcasting Co., 500 F.2d
212 (6th Cir. 1974).
44a
language and legislative history of the 1967 Act and
could not consider “[l]egislative observations [made] 10
years after passage of the Act...” Id. at 200 n.7, 98
S8. Ct. at 449.
On April 6, 1978, several months after release of the
McMann decision and several weeks prior to trial in this
case, Congress enacted the amendment to section 4 f)
(2), Pub.L. No. 95-256, 92 Stat. 189 (1978), to clarify
that:
[t]he purpose of this exception was to facilitate the
hiring of older employees by permitting their em-
ployment without necessarily providing equal bene-
fits under employee benefits plans.
S. Rep. No. 493, 95th Cong., 2d Sess. 9, reprinted in
[1978] U.S.Code Cong. & Ad. News pp. 976,984. The
House Conference Report on the amendment addressed
the McMann decision and stated that the conferees spe-
cifically disagreed with the holding and reasoning in
that case. H.R. Conf. Rep. No. 950, 95th Cong., 2d
Sess. 8, reprinted in [1978] U.S.Code Cong. & Ad. News
pp. 1000, 1001.
The Department has moved this Court to partially re-
consider its September 6, 1978 opinion in light of this
amendment. The Secretary argues that the amendment
merely clarifies the original purpose of section 4(f) (2)
as enacted in 1967 and that, since the amendment be-
came law prior to trial in this case, the Court must ap-
ply the new interpretation of section 4(f)(2) to the
defendants’ termination of 142 individuals. Under the
1978 amendment’s interpretation of section 4(f) (2), the
Secretary correctly contends that the defendants’ actions
in terminating 142 employees in their 1971 force reduc-
tion are not exempted from the requirements of the Act.
For the Court to reach that conclusion, however, the
Secretary must show that the amendment should apply
retroactively to the defendants’ conduct.
45a
To support its argument that the 1978 amendment
should govern this action, the Department cites the gen-
eral principle set forth in Bradley v. School Board, 416
U.S. 696, 94 S.Ct. 2006, 40 L.Ed. 2d 476 (1974):
a court is to apply the law in effect at the time it
renders its decision, unless doing so would result in
manifest injustice or there is statutory direction or
legislative history to the contrary.
Id. at 711, 94 S.Ct. at 2016. The Department contends
that the legislative history of the amendment clearly es-
tablishes a Congressional intent to clarify, rather than
alter, the meaning of section 4(f) (2) as enacted in 1967
and to apply the clarified interpretation of the section
retroactively to actions that arose prior to April 6, 1978.
The Secretary also argues strenuously that no manifest
injustice would occur through retroactive application
since age discrimination is an issue of “great national
concern” that the defendants did not have a right to
engage in. Furthermore, the Secretary asserts that the
defendants should have been aware of the possibility that
their interpretation of section 4(f) (2) would not become
the settled law. Therefore, the Secretary concludes, the
1978 amendment to section 4(f) (2) should be applied to
this action to invalidate the defendants’ mandatory re-
tirement of 142 individuals in 1971.
In response, the defendants point out that the Secre-
tary, at trial, raised the same interpretation of section
4(f) (2) as he does now but without submitting the 1978
amendment as support for his position. In its September
6, 1978 opinion, the Court rejected that interpretation
and found that the companies specifically considered, re-
lied on, and acted in conformity with section 4(f) (2)
and the Department of Labor’s official interpretation
thereof. The defendants believe that the Court’s prior
ruling on section 4(f) (2) is sufficient grounds for denial
of this motion. However, if the applicability of the 1978
46a
amendment must be considered, the defendants contend
that Congress must make its intent clear when it retro-
actively affects substantive rights.
Here, defendants argue, Congress intended the new
legislation concerning section 4 (f) (2) to have prospec-
tive effect only. This intent, they assert, comports with
the settled rule that legislation affecting substantive
rights is presumed to operate prospectively only. Under
a contrary rule, they maintain, “private parties would
literally be unable to comply with the law.” See Defend-
ants’ Opposition to Plaintiff's Motion for Partial Recon-
sideration at 9 filed November 1, 1978. They conclude
that such a state of affairs would lead not only to man-
ifest injustice for a party that reasonably relied on prior
settled law, but also to a violation of that party’s right
to due process. Based on this reasoning, the defendants
request the Court to stand on its September 6, 1978
ruling.
This Court approaches the Plaintiff’s Motion for Par-
tial Reconsideration with great concern. The intent that
the Secretary of Labor attempts to ascribe to Congress
in its enactment of the 1978 amendment to section 4(f)
(2) has serious implications for the ability of private
parties to conduct their activities in accordance with law.
This Court refuses to accept the legislative intent as-
serted by the Secretary of Labor without a showing that
Congress carefully considered the impact of the change
in the law on the prior conduct of private individuals
and businesses and clearly stated its intent to rearrange
previous economic relationships.
The language of § 4(f) (2), as enacted in 1967, was
susceptible of two interpretations. See United Air Lines,
Inc. v. McMann, supra, 434 U.S. at 209, 98 S.Ct. 444
(Marshall, J., dissenting). The then Wage and Hour
Administrator of the Departmen’, of Labor issued an in-
terpretive bulletin in 1968 setting forth his opinion that
47a
section 4 f) (2) should be read to exclude mandatory
retirements pursuant to bona fide employee benefit or
retirement plans enacted prior to 1967. See 29 C.F.R.
§ 860.110 (first published Aug. 30, 1968); Marshall v.
B & O and C & O, Opinion, Sept. 6, 1978 at 7-8314-2-
8315-1. The defendants, faced with economic hardship
and the need to reorganize their business operations in
the early 1970's, considered and relied upon the Secre-
tary’s interpretive bulletin as well as the Act itself, in
choosing to require the early retirement of 142 employ-
ees in 1971 in accordance with the terms of their em-
ployee benefits plan. Thereafter, several United States
Courts of Appeals addressed the issue of the proper in-
terpretation of section 4(f)(2) and reached divergent
conclusions. See Zinger v. Blanchette, supra; Brennan v.
Taft Broadcasting Co., supra. Because of that conflict,
the Supreme Court heard United Air Lines, Inc. v. Me-
Mann, supra, and determined, from reading the language
and legislative history of section 4 f) (2), that manda-
tory retirements pursuant to bona fide benefit or retire-
ment plans fall under the exemption and therefore do
not violate other sections of the ADEA. This reading
concurred with the defendants’ interpretation of section
4(f) (2) in 1971 and served as the foundation for this
Court’s opinion in September 1978 that B & O and C & O
did not violate the ADEA by retiring 142 employees dur-
ing their force reduction.
The amendment, which the plaintiff wishes the Court
to apply in this case, first surfaced in Congress after the
Courts of Appeals split in their interpretation of section
4(f) (2) and just prior to the Supreme Court’s decision
in McMann. Congress enacted the amendment as part of
a package of amendments to the ADEA on April 6, 1978.
This Court finds it difficult to believe that Congress
would apply that amendment retroactively to activity
undertaken prior to 1978 without a careful considera-
tion of the extensive litigation over the meaning of sec-
48a
tion 4(f) (2) and the justifiable reliance of many private
businesses on what appears to have been the dominant
interpretation of that section until the 1978 amendment
clarified congressional intent. For that reason, the Court
will scrutinize the legislative history of the 1978 amend-
ments carefully to determine whether the retroactive in-
tent asserted by the Secretary of Labor is clear and un-
ambiguous.
The legislative history of the 1978 amendments to the
ADEA states that the original purpose of section 4(f) (2)
was to ease the difficulty of hiring older employees by re-
laxing the necessity for equal benefits for these workers
under employee benefit plans. See S. Rep. No. 493, supra.
The Joint Explanatory Statement of the Committee of
Conference, in declaring that § 4 (f) (2) prohibits the
mandatory retirement of an employee within the pro-
tected age group pursuant to a bona fide employee bene-
fits plan, makes clear that the interpretation of section
4(f) (2) adopted by the former Wage and Hour Admin-
istrator in his intepretive bulletin, the defendants in their
1971 force reduction, the Supreme Court in McMann, and
this Court in the September 6, 1978 opinion no longer
controls the question of mandatory retirement. Instead,
the Joint Explanatory Statement announces that:
The conferees specifically disagree with the Supreme
Court’s holding and reasoning in [McMann]. Plant
provision in effect prior to the date of enactment are
not exempt under Section 4(f) (2) by virtue of the
fact that they antedate the act or these amendments.
H.R. Con. Rep. 950, supra at 8, U.S. Code Cong. & Ad.
News at 1001.
While these legislative observations clearly set forth
the congressional intent to clarify the original meaning
of section 4(f) (2), they do not touch upon the issue of
whether the clarified intent should be applied retroac-
49a
tively. The plaintiff appears to rely on the clarifying
purpose of § 4(f) (2) as the foundation for his argument
that Congress intended the amendment to have retroac-
tive effect. See Plaintiff's Memorandum of Law in Sup-
port of Motion for Partial Reconsideration, pages 8 and
9, filed October 18, 1978.“ The Secretary does not present
any legislative statements that refer to the retroactive
effect of the amendment. The defendants, however, have
brought to the Court’s attention several legislative obser-
vations that do address that issue. See 123, Cong. Rec.
817304 (daily ed. Oct. 19, 1977); 124 Cong. Rec. 84449
(daily ed. March 23, 1978). In inspecting this aspect of
the legislative history, the Court is convinced that Con-
gress intended the 1978 amendment to section 4(f) (2)
to have prospective effect only.
2 The plaintiff also cites Davis v. Boy Scouts of America, 457
F.Supp. 665 (D. N. J. 1978), as support for his position. In Davis,
the court held that the 1978 amendment applied to a pre-existing
controversy. The district judge found that Congress in passing
the amendment meant to reverse decisions interpreting the ADEA,
so as to allow involuntary or mandatory retirement on the basis
of a “bona fide” pension plan. Id. at 673. Although he initially
felt that the plaintiff sought a retroactive application of the amend-
ment, the district judge concluded the plaintiff actually was re-
questing the court to apply the law which is currently in effect at
the time of the decision. Id. Relying heavily on the congressional
intent to clarify the law, the court found that the amendment con-
trolled the disposition of the case under Bradley v. School Board,
supra. Id. at 678.
This Court does not find Davis dispositive of the issue in this
case. The Davis court does not address directly the timing issue
but, as does the plaintiff in this case, infers from the congres-
sional intent to clarify the law that the legislature meant the
amendment to have both a prospective and retrospective effect.
Without an adequate discussion of the legislative history of the
1978 amendments to the ADEA on this point, the Court does not
find that inference to be persuasive support for the conclusion that
the Bradley principle should be applied in this case.
50a
In a colloquy with Senator Williams, the floor and
conference manager for the 1978 amendments to the
ADEA, Senator Randolph specifically asked whether the
amended Act would have a retroactive effect on manda-
tory retirements previously exempted by § 4(f) (2):
I should like to ask the Senator from New Jersey
(Mr. Williams) whether this bill retroactively cov-
ers a forced retirement at say age 60 or 62 prior to
the effective date of this bill where the individual so
retired is eligible for, and actually receives a pension
under a pension plan which has been qualified with
the Internal Revenue Service.
[Senator Williams responded: ]
The bill is not retroactive. The question of manda-
tory retirements prior to the effective date of this
bill will be determined by the courts’ interpretation
of existing law.
123 Cong. Rec. 817304 (daily ed. Oct. 19, 1977).
Beyond this specific reference to retroactivity, the en-
tire legislative history evinces an entirely different moti-
vation behind the enactment of the 1978 amendments
than that pressed upon this Court by the Secretary of
Labor. Rather than mere clarification of original pur-
pose, the drafters and managers of the 1978 legislation
intended it to reflect the “more comprehensive under-
standing about the desires and abilities of older persons”
gained by social scientists and legislators since the en-
actment of the ADEA in 1967. 124 Cong. Rec. 84449
(daily ed. March 23, 1978). Consistent with that overall
purpose, the amendments were drafted to “insure that
the act (ADEA) provides a full measure of meaningful
protections for older workers.” Id. As one of those meas-
ures, the mandatory retirement age was raised from 65
to 70. The amendment to section 4(f) (2), while intended
to clarify the original purpose of the section, was also
51a
passed to insure that other parts of the 1978 amendments,
such as the increase in the mandatory retirement age,
would retain their full force under the amended act. The
interrelationship between section 4(f)(2) and other
amended sections is clearly set forth by Senator Williams:
The conference agreement also clarifies the existing
law to insure that pension plans or seniority systems
which require mandatory retirement may no longer
be applied to employees covered by the Act.
lrlaising the act’s upper age limit would be mean-
ingless if the Court’s interpretation of §4(f) (2) was
allowed to stand. The conference agreement assures
that this loophole in the present law will be closed.
Id. The Court interprets this statement to suggest
strongly that section 4(f) (2) should not be severed from
other amended sections and that Congress intended the
entire legislative package represented by the 1978 amend-
ments to the ADEA to have prospective effect only.“
The defendants have stressed the “may no longer be applied”
language in Senator Williams’ remarks as support for their posi-
tion that Congress intended the amendment to apply prospectively.
The Court agrees with the defendants and finds that that refer-
ence, when combined with the prior statement of Senator Williams
on the question of retroactivity, presents a consistent indication
of the intent of the floor and conference manager of the legislation
to have the amendment apply to future acts only.
The Court also observes that other statements in the legislative
history provide further support for a finding of a prospective effect.
In a discussion with Senator Javits, Senator Percy expressed his
grave reluctance in voting for the amendments :
.. . I have never voted on a bill which I have more reserva-
tions and questions about than this bill . . . I have serious
reservations, because I wonder whether we really know all of
the ramifications of what we are doing today.
128 Cong. Rec. 817304 (daily ed. Oct. 19, 1977). Senator Javits
replied that supporters of the bill had taken certain precautions,
such as the deferral of the effective date of some sections of the
52a
The Court’s reading of the legislative history of the
1978 amendments is consistent with the general rules of
statutory interpretation. Amendatory statutes, especially
those that reflect a change in knowledge or societal atti-
tudes, should operate prospectively only. See Hospital
Employees Labor Program v. Ridgeway Hospital, 570
F.2d 167, 169-70 (7th Cir. 1978). Unlike other statutes
that courts have construed to apply to pre-existing events
or actions, see Usery v. Turner Elkhorn Mining Co., 428
U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976) (Coal Mine
Health and Safety Act of 1969); Gates v. Collier, 559
F.2d 241 (5th Cir. 1977) (Civil Rights Attorney’s Fees
Awards Act); White v. Estelle, 556 F.2d 1366 (5th Cir.
1977) (Federal Magistrates Act), the 1978 amendments
are not accompanied by a strong indication of legislative
intent to apply them retroactively. See Greene v. United
States, 376 U.S. 149, 84 S.Ct. 615, 11 L.Ed.2d 576 (1964) ;
Hospital Employees Labor Program v. Ridgeway Hos-
pital, swpra; NLRB v. St. Luke’s Hospital Center, 551
F.2d 476 (2d Cir. 1976); Weise v. Syracuse University,
522 F.2d 397 (2d Cir. 1975). Therefore, the Court con-
cludes, on the basis of legislative history and general
interpretive rules, that the 1978 amendments to the
ADEA, including the amended section 4(f) (2), were in-
tended by Congress to operate prospectively to provide
statutory protection for older workers that reflects soci-
ety’s more comprehensive understanding, in the year
1978, of the desires and abilities of those workers.
bill, in response to those questions. Id. During the same meeting,
Senator Williams, in answering Senator Randolph’s inquiry, stated,
in substance, that the amendment to section 4(f) (2) would not be
applied retroactively. Id. In viewing Senator Z erey's questions,
Senator Javits’ assurances, and Senator Williams’ statement to-
gether, as they occurred during the same meeting, this Court infers
from the legislative history that the retroactivity issue was specifi-
cally considered by the conference committee and that the decision
to apply the amendment prospectively evolved, in part, from the
conferees’ emphasis on the need for precautionary meesures.
53a
Even if Congress did not clearly express an intent 0
apply the amended section 4 f) (2) prospectively, this
Court would find that the facts and circumstances present
in this case require that the 1978 amendruent not be
applied to the defendants’ termination of 142 employees
during their 1971 force reduction. The Court recognizes
the general principle established in Bradley v. School
Board, supra, that existing law must control a decision,
but concludes that manifest injustice would result if that
rule were followed in this case.
In Bradley, the Supreme Court stated that the court
must look to three factors in determining whether cur-
rent law may be justifiably applied to pre-exsting con-
troversies. Those factors are: (1) the nature and iden-
tity of the parties; (2) the nature of their rights; and
(3) the nature of the impact of the change in the law
upon those rights. Bradley, supra at 717.
Under the first prong of the Bradley test, the Court
must judge whether the present controversy more closely
resembles a “mere private [case] between individuals,”
id. 416 U.S. at 718, 94 S.Ct. 2006, or an issue of “great
national concern.” Jd. at 718-19, 94 S.Ct. 2006; see
United States v. Schooner Peggy, 5 U.S. (1 Cranch) 103,
110, 2 L.Ed. 103 (1801). The Court agrees with the
plaintiff that age discriminatica is an issue of great na-
tional concern but feels that there is an additional issue
of equal importance in this case—the ability of private
individuals and businesses to justifiably rely on current,
reasonable interpretations of existing law in arranging
their activities and relationships. This private interest is
a cornerstone of a just and orderly society that should be
given no less weight than the need to eradicate age dis-
crimination in employment. In judging the nature and
interests of the parties, then, it is clear that the present
case contains ingredients of both public and private con-
cern. This mixture of interests distinguishes this case
54a
from cases such as Bradley, supra, and United States v.
Hinds County School Board, 560 F.2d 619 (5th Cir.
1977), which involved the issue of school desegregation
and little, if any, justifiable reliance on the part of the
public officials named as defendants.
Under the second factor in weighing manifest injustice,
the Court must determine whether the application of cur-
rent law will unreasonably infringe upon a “right that
had matured or become unconditional.” Bradley, supra,
416 at 720, 94 S.Ct. at 2020; see Greene v. United States,
supra. The plaintiff contends that, under traditional case
law, see, e.g., Greene v. United States, supra; Claridge
Apartments Co. v. Commissioner, 323 U.S. 141, 65 S.Ct.
172, 89 L.Ed. 189 (1944) ; Union Pacific R.R. v. Laramie
Stock Yards Co., 231 U.S. 190, 34 S.Ct. 101, 58 L.Ed. 179
(1913), the scope of those rights that are mature or un-
conditional is narrow. The plaintiff also asserts that the
defendants’ right to engage in age discrimination cer-
tainly would not fall within those boundaries. See Plain-
tiff’s Memorandum at 12. Therefore, the plaintiff would
have the Court conclude that the retroactive withdrawal
of the defendants’ right to engage in age discrimination
pursuant to the terms of their pension plan would not
work a manifest injustice.
The Court disagrees with the plaintiff’s reading of the
scope of those rights which are mature or
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