# Petition — Baltimore & Ohio Railroad v. Equal Employment Opportunity Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2118%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1981 - **Citation:** 454 U.S. 825 ## Text 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2118%3A1. Public record. Not legal advice.