Petition for Writ of Certiorari — Illinois Human Rights Commission v. Babcock & Wilcox Co.
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Supreme Court, U.S. |
FILED
O17 04 MAY 1 1990
> JOSEPH F. SPANDOL, JR
In The | CLERK |
Supreme Court of the United States
October Term, 1989
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ILLINOIS HUMAN RIGHTS COMMISSION, et al.,
Petitioners,
W,
BABCOCK & WILCOX COMPANY,
Respondent.
_
4
PETITION FOR WRIT OF CERTIORARI
TO THE ILLINOIS APPELLATE COURT,
SECOND JUDICIAL DISTRICT
a
4
ROsALYN B. KapLAn* New F. HarticAN
DrsporaH L. AHLSTRAND Attorney General
Assistant Attorneys General State of Illinois
100 West Randolph Street
12th Floor
Chicago, IL 60601
(312) 814-3698 100 West Randolph Street
12th Floor
Ropert J. Ruiz
Solicitor General
SAMUEL J. CASTREE, JR. :
WILLIAMS AND McCartity Chicago, IL 60601
2 i 2
321 West State Street (312) 814-3312
Rockford, IL 61101 Attorneys for Petitioners
(815) 987-8900
Of Counsel
*Counsel of Record
N
QUESTIONS PRESENTED
Whether, under the Employee Retirement Income Se-
curity Act, partial pre-emption of state anti-discrimi-
nation laws in the interests of uniform plan
administration is warranted when benefits are paid
either pursuant to one-time local contracts or non-
disclosed management policies and where regulatory
concerns are absent?
Assuming pre-emption does apply, whether §4(f)(2)
of the Age Discrimination in Employment Act -
which exempts certain discriminatory action taken
pursuant to an employee benefit plan from violation
of the Act — permits an employer upon plant closure
to provide severance benefits to all discharged em-
ployees except those eligible to retire?
il
LIST OF PARTIES
The Petitioners in this matter are the Illinois Humpn
Rights Commission, the Illinois Department of Human
Rights, and sixteen (16) individuals, namely: Edmund
Henkelman, Oleta Britt, Elden Amans, Florence Maycraft,
Dwight Van Fleet, Gerald Stahl, James Breseman, Charles
Rewerts, Godfrey Farrell, Thomas Ivy, John Downing,
Arthur Helgerson, Roland Berglund, Margaret Dreesen,
John Campbell and Walter Pierce.
The Respondent is the Babcock & Wilcox Company.
iil
TABLE OF CONTENTS
Page
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eisai soa bas sive nes ee eens 1
oe ee ecb sph ees cere reuse 2
SE POUL PW CIM, 5 ccc ee eee e eer ceeseces 2
0 et 3
REASONS FOR GRANTING THE WRIT ........... 7
I. An unresolved conflict in principle over ERISA
pre-emption exists (1) among the decisions of
this Court and (2) between those decisions and
the purposes of ERISA, which detrimentally af-
fects the State’s interest in enforcing its fair em-
I ee 7
II. The unsettled construction of the ADEA as to the
denial of severance pay for retirement-eligible
employees presents an important and reoccur-
eee ere eee 12
ae ining asec eckecenscnesccuvecsss 17
APPENDIX
Opinion and Judgment of the Illinois Appellate
is a sys 6 6 ne v4 dks da oe ene ees App. 1
Administrative Decision of the Human Rights
Re eer cre s be vasseecse cases App. 40
iv
TABLE OF CONTENTS - Continued
Page
Order of the Illinois Supreme Court denying leave
to appeal. .......... cece ee cee reer e cer rescess App. 58
Statutes Involved ..........--s eee cree eeceeeees App. 59
TABLE OF AUTHORITIES
Page
Cases:
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 506,
SOS. ik) Ce ROD 6 hE Kade ae eters teen en ene 8
Arnold v. Babcock & Wilcox, Co., 154 Ill. App. 3d
863, 507 N.E.2d 218 (2nd Dist. 1987) aff’d 123 Ill.
as GF, Fae PAB. OP MUGGOR s odecs cece ecnsidedss 11
Betts v. Hamilton County Board of Mental Retarda-
tion and Developmental Disabilities, Nos. 86-3676
& 86-4034, __ ~F2d __, 1990 U.S. App. LEXIS
4281 (6th Cir. March 26, 1990)............. 13, 14, 15
Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 95
AA EE GOTT NS 6 nce Ceak eecrime ens tierce reread 7
EEOC v. Borden’s, Inc., 724 F.2d 1390 (9th Cir. 1984).... 13
EEOC v. Westinghouse Electric Corp., 725 F.2d 211
(3rd Cir. 1984) cert. den. 469 U.S. 820 (1984)....... 13
EEOC v. Westinghouse Electric Corp., 869 F.2d 696
(3rd Cir. 1989) vacated and remanded _ US. __,
FES DRA. Oe COMMON oi oo as eed ecneii cee ee eee 13
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107
DEA MUD CHER cos ce vervivecesecastes 5, 8, 9, 10, 11
Gilbert v. Burlington Industries, Inc., 765 F.2d 320
(2nd Cir. 1985) summ. aff'd, 477 U.S. 901, 106
Tae A SUPE 0 Feb kd encases chloe went ooves 11, 14
Public Employees Retirement System of Ohio v. Betts,
ens ey SP SO RUE ov elie oes 5, 03
vi
TABLE OF AUTHORITIES - Continued
Page
Shaw v. Delta Air Lines, Inc., 463 U.S. 89, 103 S.Ct.
fo, | Pre seer rwrs eos torre te or 9
Trans World Airlines, Inc. v. Thurston, 469 U.S. 111,
Be BAF. GIS CIDE) ow cnc ecce cer evervesseseeenuies 15
STATUTES AND REGULATIONS:
LS a 7. errr i tre eer tt 2
RR REG pho vase ns sueuvwauncss ¥tavweeee easanees 13
BE RENE) 5 cass ce ecudenbhecereveve¥ 4s ye a
Loe a). nr eer herr ie re rere ei or er 15
reer ORs 105) 1008-4918 on ck os ces nee 8
BM, US yogi cccaeccdevaseexewyseasereunaees 16
RN MUU, evsic cece ceesenrseesa tau eere eee een z, 8
Ra Bk) 6 | eres ee ci. 15
Ill. Rev. Stat. ch. 68, 92-104(5)(a)(1987) .......-. 2, 4, 13
LEGISLATIVE MATERIAL:
Displaced Older Workers: Hearings Before the Select
Committee on Aging of the U.S. House of Represen-
tatives, 99th Cong., 1st Sess. 3 (1985)............-- 12
Te
No.
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In The
Supreme Court of the United States
October Term, 1989
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ILLINOIS HUMAN RIGHTS COMMISSION, et al.,
Petitioners,
BABCOCK & WILCOX COMPANY,
Respondent.
4
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PETITION FOR WRIT OF CERTIORARI
TO THE ILLINOIS APPELLATE COURT,
SECOND JUDICIAL DISTRICT
>
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The petitioners respectfully pray that a writ of cer-
tiorari issue to review the judgment and opinion of the
Illinois Appellate Court for the Second Judicial District,
entered in the above-entitled proceeding on October 13,
1989.
a
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OPINIONS BELOW
The opinion of the Illinois Appellate Court is re-
printed in the appendix hereto, p. App. 1, infra, and is
reported sub nom. Babcock & Wilcox Co. v. Illinois Human
i)
Rights Commission, et al., at 189 Ill. App. 3d 827, 545
N.E.2d 799 (2nd Dist. 1989).
The administrative decision of the Illinois Human
Rights Commission is not reported, but is reprinted in the
appendix. (p. App. 40).
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JURISDICTION
The judgment of the Illinois Appellate Court, Second
Judicial District was entered on October 13, 1989, revers-
ing the order of the Human Rights Commission, finding
age discrimination violations by the respondent under
the Illinois Human Rights Act. On January 31, 1990, the
Illinois Supreme Court denied a timely petition for leave
to appeal. (p. App. 58). The jurisdiction of this Court is
invoked under 28 U.S.C. §1257(a).
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STATUTORY PROVISIONS
Section 514 of the Employee Retirement Income Secu-
rity Act (ERISA), 29 U.S.C. §1144.
Section 4(f)(2) of the Age Discrimination in Employ-
ment Act (ADEA), 29 U.S.C. §623(f)(2).
Section 2-104 of the Illinois Human Rights Act, III.
Rev. Stat. ch. 68, 92-104(5)(a)(1987)
The above statutes are reproduced in the appendix
beginning at p. App. 59.
5
STATEMENT OF THE CASE
The individual petitioners are 16 former employees
of the respondent Babcock & Wilcox Company (“B & W”)
at its Rockford, Illinois plant. B & W ceased its operations
at the Rockford plant on October 31, 1983, and all em-
ployees (including the 16 named herein) were terminated
from employment on or before that date. Upon plant
closure, B & W granted severance pay to all laid-off
workers except those employees “eligible” to retire - a
class which included the 16 employees before this Court.
With one exception, these petitioners were eligible for
early or special early retirements under B & W’s two
pension plans maintained for hourly (or union) employ-
ees and for salaried employees. Neither of the pension
plans in force at the time provided for severance pay
offsets against deferred vested pensions or for mandatory
retirement applicable to these employees.
B & W’s severance pay decisions stemmed from dif-
ferent sources. The hourly employees (through their
union) and B & W entered into a Memorandum of Agree-
ment, upon B & W’s decision to close the plant. (Ex. B at
1).' Pursuant to the Memorandum, B & W agreed to pay a
lump sum “separation allowance” to all of the soon-to-be
terminated employees, except those who were “eligible
for a normal, early, special early or disability retirement.”
(Ex. B at 2).
! A citation to the unpaginated Supplemental Record on
appeal, containing exhibit documents, will refer to the exhibit
and a page reference where necessary, as above. All other
needed citations will indicate the record page number pre-
ceded by “R.” as in R. 100.
In denying severance to the salaried employees, B &
W relied on administrative policy #1414-A1, relating to
termination allowances. Although termination al-
lowances were payable upon discharge due to a plant
closure, allowances were not payable: “under the follow-
ing types of separation: . . . 3. Retirement where the em-
ployee is immediately eligible under the Employee
Retirement Plan...” (Ex. L at 2) (emphasis supplied).
Considering policy #1414-A1 to be a “guide” for manag-
ers and not part of the terms of employment, B & W did
not distribute the policy to employees nor tell them of the
benefit. (R. 151, 154).
During November of 1983, the former B & W employ-
ees filed charges of age discrimination with the petitioner
Illinois Department of Human Rights (“Department”), an
agency which investigates civil rights violations under
the Illinois Human Rights Act (“HRA”). In March of 1985,
the Department, on behalf of itself and the employees,
filed a Complaint against B & W with the petitioner
Human Rights Commission (“Commission”), the adjudi-
catory agency under the HRA. The matter was heard on
cross-motions for summary judgment before a Commis-
sion administrative law judge who ruled against B & W in
a recommended decision.
Before the Commission panel, B & W raised objec-
tions to the recommended decision which, as here rele-
vant, included its contention that its severance decisions
fell under the protection of the HRA’s “Merit and Retire-
ment System” exception to the Act’s discrimination pro-
hibition. Similar to §4(f)(2) of the Age Discrimination in
Employment Act (“ADEA”) (p. App. 61-62), the HRA’s
§2-104(5)(a) allows for certain differential treatment when
applying the terms of a merit or retirement plan, as long
as such system is not a subterfuge for or does not have
the effect of unlawful discrimination. (p. App. 63-64). The
Commission rejected B & W’s claim of protection under
the exception provision on two grounds: (1) the severance
decision to exclude older workers did not meet the age-
related “cost-justification” criterion in accord with the
federal case law and regulation at the time; and (2) by not
providing severance income to ease the unemployment
period, the complainants were forced to choose between
receiving no income or taking their early retirement
(which also precluded normal retirement with higher
benefits at a later date). (R. 477-485).
In August, 1988, B & W appealed the Commission’s
order to the Illinois Appellate Court. After briefing and
oral argument on the points of error raised by B & W, this
Court issued its decision in Public Employees Retirement
System of Ohio v. Betts, __ U.S. __, 109 S.Ct. 2854 (1989),
rejecting the prior construction of ADEA’s §4(f)(2) protec-
tion as requiring an age-related cost justification. Without
supplemental briefing and in a 2-to-1 decision, the Appel-
late Court sua sponte determined that the severance prac-
tices at issue were “employee welfare benefit plans”
under the Employee Retirement Income Security Act
(“ERISA”), which pre-empted the HRA to the extent it
differed from the ADEA. (p. App. 17-23). The Appellate
Court ruled that the severance policies were not shown to
be a subterfuge for discrimination under Betts, nor did
they have the effect of unlawful discrimination since all
employees received some compensation from B & W’s
“age-neutral” action. (p. App. 28-30). The dissent dis-
agreed that ERISA pre-emption applied, relying on Fort
ieee: i
Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211
(1987), and further concluded that B & W’s severance
decisions constituted unlawful discrimination where age
alone determined whether similarly situated employees
with vested pensions received severance and pension
rights, or merely received their pensions. (p. App. 31-39).
Jurisdiction and Presentation of the Questions
The issue of ERISA pre-emption of a cause of action
under the HRA was addressed and denied by the admin-
istrative law judge. (See. p. App. 44). B & W did not
advance the issue before the Commission or Appellate
Court. Involuntary retirement was one basis for the Com-
mission’s decision under state law only, since pre-emp-
tion was not then an issue. (p. App. 52-54). After the
Appellate Court decided, without briefing by the parties,
that pre-emption applied, petitioners sought review by
the Illinois Supreme Court on this point. The Supreme
Court denied leave to appeal. (p. App. 58).
The Appellate Court’s reversal of the Commission’s
summary ruling remanded the matter for further pro-
ceedings. Having been denied review of the federal ques-
tions by the Illinois Supreme Court, petitioners seek
review at this time despite the remand order. The finding
of ERISA pre-emption of state law is conclusive at this
time and both would not be affected by subsequent pro-
ceedings and thereafter would not be appealable. If state
law was correctly pre-empted to the extent it is broader
than ADEA’s prohibitions, then the federal question of
whether the employment practice constituted involuntary
retirement under ADEA (as was found by the Commis-
sion under the HRA) would survive and require decision
despite remand to the Commission. See Cox Broadcasting
Corp. v. Cohn, 420 U.S. 469, 478-81, 95 S.Ct. 1029 (1975).
4
v
REASONS FOR GRANTING THE WRIT
‘
AN UNRESOLVED CONFLICT IN PRINCIPLE OVER
ERISA PRE-EMPTION EXISTS (1) AMONG THE DECI-
SIONS OF THIS COURT AND (2) BETWEEN THOSE
DECISIONS AND THE PURPOSES OF ERISA, WHICH
DETRIMENTALLY AFFECTS THE STATE’S INTEREST
IN ENFORCING ITS FAIR EMPLOYMENT LAWS.
The well-settled pur>»ose of ERISA is to promote and
safeguard the interests of employees in their employee
benefit plans, while at the same time, through pre-emp-
tion of state law, protect employers from conflicting state
regulations. However, certain employer practices should
not constitute a “plan” and are not being administered
under ERISA. Such is the case with severance benefits
provided: (1) under a one-time, local contract; or (2)
pursuant to a non-disclosed policy, not kept in compli-
ance with ERISA standards. Classifying these types of
employer practices as “plans” for pre-emption purposes
is at cross-purposes with ERISA. In the absence of plan
administration under ERISA, the justification for federal
pre-emption of state law fails. When federal pre-emption
occurs in these instances, an employer is not subject to
ERISA nor subject to the full scope state fair employment
laws. This Court's attention is necessary to address the
appropriateness of pre-emption with respect to employ-
ment activities such as are presented in this case.
This Court recently has stated that the congressional
intent of ERISA’s pre-emption provision, 29 U.S.C. §1144
(p. App. 59), is to protect employers from inconsistent
state and local regulation of employee benefit plans and
to afford employers the advantage of a single set of
standards. Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S.
1, 107 S.Ct. 2211, 2216-17 (1987). In distinguishing be-
tween “plans” and “benefits” for pre-emption purposes,
Fort Halifax pointed out that:
Only a plan embodies a set of administrative
practices vulnerable to the burden that would be
imposed by a patchwork scheme of regulation.
482 U.S. at 11-12, 107 S.Ct. at 2217 (emphasis supplied).
There, this Court declined to pre-empt a Maine statute
requiring a one-time, lump-sum severance payment upon 7
plant closure. Fort Halifax emphasized that the focus of
ERISA is “on the administrative integrity of benefit
plans” — such as the requirements of reporting, disclosure
and fiduciary responsibility. 482 U.S. at 15, 107 S.Ct. at
2219. See also 29 U.S.C. §§1021-1031, 1101-1114 (describ-
ing the uniform standards required of an employer in
establishing a welfare plan).
ERISA’s pre-emption provision has been enforced
where the state law requires a particular procedure for
calculating the benefits of a pension plan. Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 506, 101 S.Ct. 1895
(1981) (pre-emption of state statute which prohibited fed-
erally permissible offset of worker’s compensation award
from pension plan benefits). In Alessi, it was clear that the
administration of a bona fide ERISA-regulated pension
plan? was affected by state law.
Expressing the same concerns for the administration
of certain medical and disability plans and applying the
ERISA pre-emption savings clause, 29 U.S.C. §1144(d) (p.
App. 59-60), the Shaw Court partially pre-empted New
York’s Human Rights Law to the extent that it differed
from Title VII. Shaw v. Delta Air Lines, Inc., 463 U.S. 89,
97-105, 103 S.Ct. 2890, 2900-2904 (1983). Fort Halifax em-
phasized that Shaw’s concern was for the cost and admin-
istrative inefficiencies (possibly resulting in the reduction
of benefits) when an ERISA benefit plan is subject to
varying fair employment laws.
Left unresolved from these decisions is the extent to
which pre-emption applies when the employer provides
an ERISA benefit in situations where ERISA’s purpose of
uniform plan administration is not implicated (as with the
plant closure contract) or is ignored, thus also defeating
the purpose of protecting the employees’ interests (as
with policy 1414-A1). Since federal law, such as Title VII
and the ADEA, will save from pre-emption not-inconsis-
tent state human rights legislation, the employer with an
ERISA-regulated plan must comply with substantive pro-
visions of federal anti-discrimination law. Shaw, 463 U.S.
at 105-06, 103 S. Ct. at 2904. However, the Shaw rationale
2 Under ERISA, an employee benefit pension plan must
comply with standards regarding participation, funding, and
vesting, as well as the reporting, disclosure, and fiduciary
requirements imposed on welfare benefit plans. See Shaw v.
Delta Air Lines, Inc., 463 U.S. 89, 90-91, 103 S.Ct. 2890, 2896
(1983).
10
for such partial pre-emption only serves the congression-
al intent to pre-empt the field of regulation if there is an
employee benefit plan being administered under ERISA.
Such is not the case here or with all employment
practices. If every document written by an employer is
construed as an ERISA-established “plan” just because it
may provide employee benefits, then the application of
ERISA’s pre-emption provision becomes a vehicie to im-
pose only federal substantive law upon employment con-
duct within the state. In short, simply by reducing to
writing a decision to extend benefits, the employer alone
(not ERISA with its concerns for uniform regulation)
essentially would “pre-empt” state anti-discrimination
law. An employer could thus insulate itself from state law
when the interests of “plan” administration were not at
stake.
The severance practices at bar are illustrative of the
inappropriateness of partial pre-emption. In the case of
the hourly employees, B & W entered into the contract in
anticipation of plant closure. Under the guidance of Fort
Halifax, the one-time obligation of writing a check “hard-
ly constitutes the operation of a benefit plan” and creates
no need for ongoing administration. 482 U.S at 12, 107
S.Ct. at 2218. Moreover, a purely local contract does not
implicate a plan needing uniform regulation and pre-
emptive protection from varying regulations. The em-
ployer is completely free to negotiate different contrac-
tual terms regarding severance benefits with a bargaining
unit in another state if the necessity arises.
For the salaried employees, the termination al-
lowance policy was admittedly not disclosed as an
11
employee benefit to the employees.? While an unfunded
corporate severance pay policy has been deemed an
ERISA welfare benefit plan, the policy there was dis-
closed and included as a representation of benefits in the
employee handbook. Gilbert v. Burlington Industries, Inc.,
765 F.2d 320, 323 (2nd Cir. 1985) summ. aff'd, 477 U.S. 901,
106 S.Ct. 3267 (1986).
The Second Circuit in Gilbert also dealt with claim-
ants’ argument tha! the employer was estopped from
invoking pre-emption of state law causes of action due to
non-compliance with ERISA standards. While rejecting
estoppel, the Court adopted a less deferential standard of
review to resolve the “risk of unfairness” present when a
non-compliant employer avoids state law liability
through pre-emption. 765 F.2d 328-29. However, the Sec-
ond Circuit’s Gilbert decision preceded this Court's ruling
in Fort Halifax and its denial of pre-emption when regula-
tory concerns over a plan were absent.
Issues of pre-emption necessarily involve a respect
for the separate spheres of governmental authority. Alessi,
451 U.S. at 522, 101 S.Ct. at 1905. While Congress intend-
ed to regulate the field of employee benefit plans,
3 In Arnold v. Babcock & Wilcox, Co., 154 Ill. App. 3d 863,
507 N.E.2d 218, 220 (2nd Dist. 1987) aff'd 123 Ill. 2d 67, 525
N.E.2d 59 (1988), the Appellate Court stated that employee
handbooks did not refer to the termination allowance benefit,
although plaintiffs had learned of the benefit from others.
Throughout the Arnold litigation, however, the private parties
agreed that the policy was an ERISA welfare benefit plan.
Because Arnold did not involve discrimination, the State of
Illinois’ interest in the partial pre-emption of the HRA was
neither at issue nor represented.
12
pre-emption is premised on the existence of a plan subject
to the regulation of ERISA. When no distinction is made
between (1) an “employee beneiit plan” implicating or
complying with ERISA regulation and (2) employer prac-
tices which fall outside that scope, the latter are allowed
(through the protection of pre-emption) to rewrite state
fair employment laws with the substantive provisions of
federal law. Pre-emption then is used in a manner not
contemplated by Congress, and the state’s interest in
enforcing its laws is frustrated. Consideration of this
matter is necessary to resolve the federal and state inter-
ests at stake.
Assuming arguendo that the ERISA pre-emption was
proper in this case, then this Court shculd address the
federal question concerning ADEA’s constructions as ap-
plied to the severance practices.
Il.
THE UNSETTLED CONSTRUCTION OF THE ADEA
AS TO THE DENIAL OF SEVERANCE PAY FOR RE-
TIREMENT-ELIGIBLE EMPLOYEES PRESENTS AN
IMPORTANT AND REOCCURRING FEDERAL QUES-
TION.
The practice of denying severance benefits to retire-
ment-eligible employees affects the very persons who can
least afford it. Studies have shown that older workers
have a more difficult time obtaining employment than
younger workers.4 While congressional concern for the
4 See Displaced Older Workers: Hearings Before the Select
Committee on Aging of the U.S. House of Representatives, 99th
Cong., Ist Sess. 3 (1985).
13
unemployment and discrimination problems of older
workers was the purpose for the passage of the ADEA, 29
U.S.C. §621(a)(3)&(4), the status of ADEA’s construction
has left unresolved that Act’s application to the denial of
severance to retirement-eligible workers. This Court’s
guidance is needed for federal and state courts adjudica-
ting the rights of these workers in an area of law previ-
ously litigated upon a basis now held invalid by this
Court.
Until this Court’s ruling in Public Employees Retire-
ment System of Ohio v. Betts, __ U.S. __, 109 S.Ct. 2854
(1989), the age-related cost justification analysis was uii-
lized to determine whether certain employment practices
were a subterfuge for discrimination falling outside of
ADEA’s §4(f)(2) exemption provision. As here relevant,
§4(f)(2)’s exemption provides that it is not unlawful for
an employer to follow the terms of a bona fide employee
benefit plan, which is not a subterfuge for discrimination,
provided that the plan does not require or permit invol-
untary retirement. 29 U.S.C. §623(f)(2) (p. App. 61-62).
See also Ill. Rev. Stat. ch. 68, ¥2-104(5)(a)(1987) (providing
a similar exemption for merit and retirement systems
under the HRA) (p. App. 63-64).
While Betts (a disability retirement case) struck down
the cost justification requirement to disprove “subter-
fuge”, it did not reach the issue which would resolve as a
matter of law the severance pay practices presented in
this and other cases. See EEOC v. Westinghouse Electric
> See, e.g., EEOC v. Westinghouse Electric Corp., 725 F.2d
211 (3rd Cir. 1984) cert. den., 469 U.S. 820 (1984) (“Westing-
house I”); EEOC v. Borden's Inc., 724 F.2d 1390 (9th Cir. 1984).
14
Corp., 869 F.2d 696 (3rd Cir. 1989) (“Westinghouse II”)
vacated and remanded __ U.S. __, 110 S.Ct. 37 (1989) (a
similar severance pay case now on remand for recon-
sideration in light of Betts).
The inescapable importance of the construction of
§4(f)(2) lies in the realization that the exemption analysis
is reached only because age-disparate treatment in em-
ployment has occurred. The discriminatory employment
practice can only be saved from its otherwise unlawful
character if the §4(f)(2) exemption applies.® Protection
under §4(f)(2) necessarily requires that the employer (1)
observe the terms (2) of a bona fide (3) employee benefit
plan (4) which is not a subterfuge for discrimination and
(5) which does not require or permit involuntary retire-
ment. The unsettled status of the third and fifth aspects of
§4(f)(2) are advanced as a basis for certiorari.”
Betts specifically left unresolved “the precise mean-
ing of the phrase ‘any bona fide employee benefit plan
such as retirement, pension or insurance plan’.” ___ U.S.
_ at ___ n.6, 109 S.Ct. at 2856 n.6. Although ERISA
regulates established severance pay plans as employee
benefit plans (Gilbert, 765 F.2d at 325) pursuant to its
6 In the case at bar, the Appellate Court did not even
question the human rights violation involved, though B & W
argued that point first. Rather, the Appellate Court went di-
rectly to an analysis of the HRA’s exemption provision in light
of Betis — an unnecessary step without the preliminary conclu-
sion that the severance practice was discriminatory.
? Petitioners would reserve the remaining components of
§4(f)(2), should certiorari be granted, as inclusive issues when
applied to this case.
15
definitional section in 29 U.S.C. §1002, ERISA’s reference
to benefit plans is not necessarily dispositive of §4(f)(2).
The ADEA statutory language pre-dated ERISA by seven
years and is used more restrictively as an exemption to
broad discriminatory prohibitions. The state courts need
guidance on the ERISA-ADEA relationship and construc-
tion of “employee benefit plan” when deciding state em-
ployment discrimination cases. The Appellate Court here
assumed, without analysis, that the congressional usage
of the phrase “employee benefit plan” in ERISA served
the same purpose in ADEA despite ADEA’s qualifying
phrase of “such as a retirement, pension or insurance
plan.” 29 U.S.C. §623(f)(2) (p. App. 61).
Further, the 1978 congressional amendment to
§4(f)(2) prohibits the terms of the plan from “requir[ing]
or permit[ting] the involuntary retirement of any individ-
ual” because of age. (p. App. 62). See also 29 CFR
§1625.9(b)(1) (amendment applies to plans established
before 1978). The significant question raised is whether
the denial of severance pay to retirement-eligible employ-
ees falls outside the protection of the exemption because
it induces involuntary retirement by denying a benefit
provided to other employees. See Trans World Airlines,
Inc. v. Thurston, 469 U.S. 111, 124-25, 105 S.Ct. 613, 623
(1985) (seniority system which denies a privilege offered
to younger workers permitted involuntary retirement and
is not protected by §4(f)(2)). This Court remanded the
Betts decision for a ruling on the involuntary retirement
provision, and a divided panel of the Sixth Circuit recent-
ly concluded that the retirement plan at issue forced
involuntary retirement where the retiree was not allowed
the same benefit choices because of age. Betts v. Hamilton
16
County Board of Mental Retardation and Developmental Dis-
abilities, Nos. 86-3676, 86-4034, _ F2d __, 1990 U.S.
App. LEXIS 4281 (6th Cir. March 26, 1990).
These employment practices also implicate an em-
ployee’s vested retirement rights which are not subject to
forfeiture under ERISA. 29 USC §1053. In this and other
cases involving similar employment practices, the terms
of the severance and retirement plans result in benefits to
classes of workers as follows: 1) younger workers with-
out vested pension rights receive severance; 2) younger
workers with vested pensions receive severance and de-
ferred pension; and 3) the retirement-eligible workers are
“given” nothing but their pensions - a right which they
already possessed. Whether this practice is permissible
under ADEA deserves this Court’s attention.
a
—
17
CONCLUSION
For these reasons, this petition for certiorari should
be granted.
Respectfully submitted,
Nem. F. HARTIGAN
Attorney General
State of Illinois
Ropert J. Ruiz
Solicitor General
100 West Randolph Street
12th Floor
Chicago, IL 60601
(312) 814-3312
Attorneys for Petitioners.
RosaLtyN B. Karian*
Derroran L. AHLSTRAND
Assistant Attorneys General
100 West Randolph Street
12th Floor
Chicago, IL 60601
(312) 814-3698
SAMUEL J. CASTREE, JR.
WILLIAMS AND McCartity
321 West State Street
Rockford, IL 61101
(815) 987-8900
Of Counsel.
* Counsel of Record.
May 1, 1990
App. 1
No. 2-88-0735
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
BABCOCK & WILCOX
COMPANY,
Petitioner,
V.
ILLINOIS HUMAN RIGHTS
COMMISSION, EDMUND
HENKELMAN, OLETA BRITT,
ELDEN AMANS,
FLORENCE MAYCRAFT,
DWIGHT VAN FLEET,
GERALD STAHL, JAMES
BRESEMAN, CHARLES
REWERTS, GODFREY
FARRELL, THOMAS
IVY, JOHN DOWNING,
ARTHUR HELGERSON,
ROLAND BERGLUND,
MARGARET DREESEN,
JOHN CAMPBELL, and
WALTER PIERCE,
Respondents.
Naat ‘eet Nea Sat ead Neat “ed “ed Nea eed a ed i ee et i ee ee ee ee ee
Appeal from
Order of
Illinois Human
Rights
Commission.
Charge Nos.
1984CF-9003
1984CF-0766
1984CF-0792
1984CF-0962
1984CF-0969
1984CF-0970
1984CF-0971
1984CF-0972
1984CF-0974
1984CF-0975
1984CF-0976
1984CF-0978
1984CF-0979
1984CF-1003
1984CF-1004
1984CF-1046
1984CF-1074
1984CF-1093
JUSTICE NASH delivered the opinion of the court
This case was initiated by a complaint filed with the
Illinois Human Rights Commission by the Department of
App. 2
Human Rights (the Department) on behalf of certain for-
mer employees of petitioner, the Babcock & Wilcox
Company (B&W). The complaint charged that B&W vio-
lated section 2-102(A) of the Illinois Human Rights Act
(Ill. Rev. Stat. 1987, ch. 68, par. 2-102(A)) (Human Rights
Act) by maintaining and implementing a severance pay
policy which denied severance pay to complainants be-
cause they were eligible to retire on pensions, which was
alleged to be an impermissible age-related criterion. The
Department moved for partial summary judgment before
the Commission and B&W sought dismissal of the com-
plaints. B&W now appeals from the order and decision of
the Commission which granted the Department’s motion
for summary judgment, contending that (1) ineligibility
for a termination allowance based on immediate eligi-
bility for retirement benefits was not impermissible age
discrimination because age was not the differentiating
factor and there was no intent of the employer to discrim-
inate because of age; (2) that the challenged action is
exempt from the prohibitions of the Human Rights Act
because it was taken pursuant to a retirement system that
is not used as a subterfuge for and does not have the
effect of unlawful discrimination; and, (3) the claims of
those complainants who were hourly employees were
waived by a contract entered into between B&W and
their collective bargaining representatives, the Interna-
tional Union, United Automobile, Aerospace and Agri-
cultural Implement Workers of America (UAW) and its
Local 528 (the Union). We reverse.
The individual complainants each filed charges with
the Department alleging that B&W violated the Illinois
Human Rights Act when it denied them severance pay on
App. 3
the ground they were eligible to retire and receive pen-
sions. The Department filed a complaint with the Com-
mission pursuant to section 7-102 of the Human Rights
Act (Ill. Rev. Stat. 1987, ch. 68, par. 7-102(F)) which al-
leged, and B&W’s answer admitted, that complainants
Roland Berglund, Margaret Dreesen, and John Campbell
were each salaried employees of B&W, over the age of 40,
with more than 15 years of service with B&W at the time
it ceased its Illinois operations on October 31, 1983; the
remaining complainants were B&W hourly employees be-
tween the ages of 40 and 70 at the time of their separation
from B&W’s employ and were production workers sub-
ject to the terms of a contract entered into on March 22,
1983, between B&W, UAW, and the Union, which pro-
vided for a separation allowance to employees meeting
the eligibility requirements contained therein. The com-
plaint further alleged that, but for B&W’s claimed age-
discriminatory-separation allowance policy, and other
acts of discrimination, the complainants would have been
eligible for a separation allowance.
The Department moved for partial summary judg-
ment and B&W filed an affidavit in opposition to that
motion and in support of its cross-motion for summary
judgment. While B&W’s counteraffidavit is part of the
record on appeal, its cross-motion for summary judgment
is not. The Department’s motion and B&W’s counter-
affidavit show that in 1963 B&W acquired its Rockford,
Illinois, facilities and its operations there were part of its
Automated Machine Division (AMD). AMD performed
nuclear core structural work and produced automated
machines in the Rockford facilities. In the spring of 1981,
the nuclear core structural work was transferred from
App. 4
AMD to another B&W group, and in 1982, the Rockford
plant was transferred to Acme Precision Products
(Acme), an unaffiliated company. Acme continued the
automated machine activities formerly conducted by
B&W, employing some former B&W salaried employees
associated with the automated machine activities. Litiga-
tion respecting B&W’s denial of termination benefits to
those employees was resolved in J. Dean Arnold v. Babcock
& Wilcox Co. (1987), 154 Ill. App. 3d 863, 507 N.E.2d 218,
aff'd (1988), 123 Ill. 2d 67, 525 N.E.2d 59.
B&W subsequently leased space from Acme at the
Rockford plant for the purpose of performing its nuclear
core structural work and all complainants continued their
employment with B&W for that purpose until about Oc-
tober 31, 1983, when B&W ceased its Rockford operation.
All of the complainants were denied a termination al-
lowance by B&W.
Hourly Employees
On March 22, 1983, UAW and the Union entered into
a contract with B&W on behalf of the hourly employees
in contemplation of the plant closing, which provided
that an active employee “who is not eligible for a normal,
early, special early or disability retirement under the
Service Benefit Pension Plan” would be entitled to a
separation allowance based on years of service. A mini-
mum of three-years seniority was necessary to be eligible
for the allowance, and the agreement provided that the
separation allowance would be paid in a lump sum and
would not be considered as a payment in lieu of wages.
an
App. 5
Generally, any person who was an hourly employee
on December 31, 1975, became a member of the Company
Service Benefit Pension Plan, and any person becoming
an hourly employee thereafter became a member of the
plan upon the latter of the date the employee completed
one year of continuous service or reached age 25. An
employee’s membership in the plan ceased upon termina-
tion of his employment unless such termination was by
reason of retirement. Eligibility for normal, early, and
special early retirement was as follows:
“1. Normal Retirement: a member who is
65 years of age on the retirement date. Benefits
equal a specified monthly amount for each year
of credited service.
2. Early Retirement: a member who has at
least 15 years of service and is age 55 or older on
the retirement. Benefits are computed in accord-
ance with the normal retirement provisions con-
tained in the plan but are reduced by 4/10 of 1%
for each month by which the member has not
attained age 62 at the time of retirement.
3. Special Early Retirement: a member
who has at least 10 years of service and age 62
or older on the retirement date.
4. Disability Retirement: a member who
has at least 10 years of service and has a perma-
nent and total disability on the retirement date.
If the pension commenced prior to age 55, the
maximum pension was the equivalent actuarial
value to the maximum pension payable at age
55.”
All of the hourly employee complainants were ages 55
through 64 except for Thomas Ivy, who was 65 years old,
App. 6
and, pursuant to the terms of the plant closing agree-
ment, these employees were denied a termination al-
lowance because they were eligible to retire. The
collective bargaining agreement which was in effect from
March 28, 1980, through October 31, 1983, has no provi-
sion for a separation allowance, and neither that contract
nor the service benefit pension plan state that an hourly
employee who is eligible for a retirement pension will not
be eligible for a separation allowance.
Salaried Employees
At the time B&W ceased its Rockford operations, its
policy and procedure No. 1414-Al regarding termination
benefits for salaried employees provided that the termi-
nation pay awarded was to assist financially those perma-
nently terminated salaried employees during their re-
employment adjustment period. Policy and procedure
No. 1414-Al provides that termination allowances were
not available if a salaried employee was immediately
eligible to retire pursuant to the employee retirement
plan (the retirement plan). A salaried employee over 45
years of age was eligible for the termination allowance if
he had one or more years of service; all salaried employ-
ees with five or more years of service were eligible re-
gardless of age. A copy of policy and procedure No. 1414-
Al was available for employee inspection in the person-
nel department and had been in effect since at least 1960.
Membership in the salaried employees’ retirement
plan was generally the same as that under the hourly
employees’ pension plan and, like that plan, a salaried
App. 7
employee’s membership ended upon termination of em-
ployment. Salaried employees were eligible for retire-
ment benefits as follows:
1. “Normal Retirement: a member who is
65 years of age on the retirement date. The
minimum annual pension payable to a member
who has completed 15 or more years of credited
service is $1,500; the minimum pension payable
to a member with less than 15 years of service is
equal to $1,500 multiplied by the ratio that years
of credited service bears to 15.
2. Early Retirement: a member who has at
least 15 years of service and age 50 or older on
the retirement date. Benefits are computed in
accordance with the normal retirement provi-
sions contained in the plan but if the total of the
member’s age and years of credited service is
less than 75, certain reductions in benefits are
set forth in the plan.
3. Disability Retirement: a member who
has at least 15 years of service and a permanent
and total disability on the retirement date.”
The current retirement plan, effective March 1, 1979, did
not state that termination allowances would be denied if
a salaried employee was eligible for immediate retire-
ment. The summary plan description, dated May 1976,
provided, however, that an employee’s pension would be
reduced by any dismissal allowance, and that “[t]his
booklet summarizes only the main features of the Em-
ployee Retirement Plan and does not attempt to cover all
details. These are provided in the official plan text and
Trust Agreement which legally govern the operation of
the plan. Copies of these documents * * * are available for
review by any plan member at your local personnel of-
fice.” The retirement plan, effective January 1, 1972, as
App. 8
well as other prior versions of the retirement plan dating
back to 1955, provided that the amount of pension pay-
able to a retired employee would be reduced by the
amount of any dismissal allowance paid or payable to a
retired or terminated employee.
In summary, the undisputed facts show that B&W
denied a termination allowance to those complainants
who were salaried employees in accordance with its long-
established written company policy and procedure and
that those complainants who were hourly employees
were denied termination pay as was provided in the plant
closing agreement entered into between B&W and the
hourly employees’ union representatives. Further, the es-
tablished company retirement plans for both hourly and
salaried employees do not state that retirement-eligible
employees would be denied termination pay.
The Department moved for partial summary judg-
ment on the issue of liability and B&W apparently filed a
cross-motion for summary judgment seeking dismissal of
the complaint. Initially, we note that the administrative
law judge (ALJ) made inconsistent findings of fact re-
garding the status of complainants Berglund, Dreesen,
and Campbell as salaried or hourly employees. As the
Department’s complaint and B&W’s answer make clear,
these are salaried employees, and neither B&W nor the
Department dispute this fact on appeal.
The ALJ, in her interim recommended order and
decision, concluded that B&W’s policy of denying sever-
ance pay to employees eligible to retire with a pension
resulted in age discrimination prohibited by section
2-102(A) of the Illinois Human Rights Act (Ill. Rev. Stat.
App. 9
1987, ch. 68, par. 2-102(A)) and that complainants were
thus treated disparately from nonpension eligible em-
ployees who received the severance pay. The ALJ also
concluded that B&W’s severance pay policy was not ex-
empt as a merit or retirement system under section
2-104(5)(a) of the Human Rights Act (Ill. Rev. Stat. 1987,
ch. 68, par. 2-104(5)(a)), and that B&W’s affirmative de-
fense of waiver was not a defense to the Human Rights
Act’s prohibition against unlawful discrimination on the
basis of age. In concluding that B&W’s severance pay
policy was not exempt under section 2-104(5)(a) of the
Human Rights Act, the ALJ recommended that the Hu-
man Rights Commission adopt the rationale of some Fed-
eral cases which have interpreted an analogous Federal
provision under the Federal Age Discrimination in Em-
ployment Act of 1967. (29 U.S.C. §623(f)(2) (1982).) These
cases hold that age-based distinctions in employee bene-
fit plans must be justified by significant cost consider-
ations and, because the age of an employee has no
relation to the cost of severance pay to an employer, a
severance pay policy which denies the award to the older
worker is age discriminatory. B&W filed exceptions to the
interim recommended order and decision, and the ALJ
thereafter entered her recommended order and decision
sustaining the complaints.
On June 28, 1988, the Commission entered an order
affirming the recommended order and decision, finding
that B&W’s severance policy was facially discriminatory,
and B&W’s exceptions were denied. Because the Depart-
ment does not argue that B&W’s failure to file its excep-
tions to the recommended order and decision waives
App. 10
those exceptions, we do not consider the issue. Cf. Glass-
works v. Human Rights Comm'n (1987), 164 Ill. App. 3d 842,
849, 518 N.E.2d 343 (where objections were filed with the
ALJ as to the interim recommended order and decision
and not to the recommended order and decision as is
required under section 8-107(A) of the Human Rights Act
(Ill. Rev. Stat. 1987, ch. 68, par. 8-107(A)), the objections
were not preserved for review).
On July 8, 1988, B&W filed a motion with the Human
Rights Commission to modify its order, alleging that an
earlier action entitled Equal Employment Opportunity
Comm'n v. Babcock & Wilcox Co. (W.D. Mo. filed June 13,
1986), No. 86-0762-CV-W-6, superseded this action insofar
as the salaried employees are concerned. The record dis-
closes that in that case, the Federal Equal Employment
Opportunity Commission filed a complaint on behalf of
certain unnamed salaried employees alleging that B&W
had violated the Federal Age Discrimination in Employ-
ment Act of 1967 (29 U.S.C. §621 et seq. (1982)) by denying
those employees a termination allowance. That case was
settled by a consent decree entered on December 8, 1987.
In its memorandum in support of its motion to modify
the Commission’s order in this case, B&W argued that
upon the commencement of an action under the Federal
Age Discrimination Act, any State action is superseded,
and that any action on behalf of the salaried employees in
this case was accordingly precluded. «ve Commission
and the Department note in their brief that on January 6,
1989, the Commission entered a supplemental order,
which is not part of the record of this case on appeal,
deleting its order for severance payments to the three
complainants who were salaried employees, and that a
App. 11 )
motion by the Department to vacate or modify that sup-
plementa! order is still pending before the Commission.
The Commission and the Department also note in their
brief in this court that the Department had filed a brief
with the Commission in opposition to B&W’s motion to
modify its order in December 1988, and state that the
brief “was inadvertently not before the Commission at
the time of the January, 1989 modification. * * * The State
Respondents will inform this Court of any ruling and
make a motion to supplement the record, if necessary.”
This matter has not been noted or addressed in B&W’s
brief.
On August 1, 1988, B&W filed a petition for review of
the Commission’s order by this court pursuant to section
8-111 of the Human Rights Act which permits a party to
obtain judicial review of a final order of the Commission
by filing a petition for review in the appellate court
within 35 days after entry the Commission’s order. (See
Ill. Rev. Stat. 1987, ch. 68, par. 8-111.) The parties have not
appealed to this court from the later supplemental order
which was apparently entered by the Commission which
is stated to have modified the decision relating to the
salaried employees and which we are asked to review in
this appeal. We note too that B&W has not complied with
Supreme Court Rule 341(e)(4)(ii) which requires that an
appellant’s brief contain a statement of jurisdiction (122
Ill. 2d R. 341(e)(4)(ii)).
We consider first whether the Commission’s order
affirming the ALJ’s recommended order and decision is
final and appealable. Section 8-111(A)(1) of the Human
Rights Act (Ill. Rev. Stat. 1987, ch. 68, par. 8-111(A)(1))
provides that a petition for review to the appellate court
App. 12
should be filed in accordance with Supreme Court Ruie
335 (107 Ill. 2d R. 335) which makes section 3-101 of the
Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par.
3-101) applicable to a direct review of an administrative
order by the appellate court. (107 Ill. 2d R. 335.) Section
3-101 of the Code of Civil Procedure provides:
“‘Administrative decision’ or ‘decision’
means any decision, order or determination of
any administrative agency rendered in a partic-
ular case, which affects the legal rights, duties
or privileges of parties and which terminates the
proceedings before the administrative agency. In
all cases in which a statute or a rule of the
administrative agency requires or permits an
application for a rehearing or other method of
administrative review to be filed within a spec-
ified time (as distinguished from a statute which
permits the application for rehearing or admin-
istrative review to be filed at any time before
judgment by the administrative agency against
the applicant or within a specified time after the
entry of such judgment), and an application for
such rehearing or review is made, no adminis-
trative decision of such agency shall be final as
to the party applying therefor until such rehear-
ing or review is had or denied. However, if the
particular statute permits an application for rehear-
ing or other method of administrative review to be
filed with the administrative agency for an indefinite
period of time after the administrative decision has
been rendered (such as permitting such applica-
tion to be filed at any time before judgment by
the administrative agency against the applicant
or within a specified time after the entry of such
judgment), then the authorization for the filing of
such application for rehearing or review shall not
postpone the time when the administrative decision
as to which such application shall be filed would
App. 13
otherwise become final, but the filing of the applica-
tion for rehearing or review with the administrative
agency in this type of case shall constitute the com-
mencement of a new proceeding before such agency,
and the decision rendered in order to dispose of such
rehearing or other review proceeding shall constitute
a new and independent administrative decision. If
such new and independent decision consists
merely of the denial of the application for re-
hearing or other method of administrative re-
view, the record upon judicial review of such
decision shall be limited to the application for
rehearing or other review and the order or deci-
sion denying such application and shall not in-
clude the record of proceedings had before the
rendering of the administrative decision as to
which the application for rehearing or other ad-
ministrative review shall have been filed unless
the suit for judicial review is commenced within
the time in which it would be authorized by this
Act to have been commenced if no application
for rehearing or other method of administrative
review had been filed. On the other hand, if the
rehearing or other administrative review is
granted by the administrative agency, then the
record on judicial review of the resulting admin-
istrative decision rendered pursuant to the re-
hearing or other administrative review may
consist not only of the record of proceedings
had before the administrative agency in such
rehearing or other administrative review pro-
ceedings, but also of the record of proceedings
had before such administrative agency prior to
its rendering of the administrative decision as to
which the rehearing or other administrative re-
view shall have been granted.” (Emphasis add-
ed.) (Ill. Rev. Stat. 1987, ch. 110, par. 3-101.)
The Human Rights Act does contain provisions which
regulate applications for rehearing and modification of
App. 14
the Commission’s orders. Section 8-107(F)(1) provides
that a party may file an application for a rehearing before
the full commission within 30 days after service of the
Commission’s order. (Ill. Rev. Stat. 1987, ch. 68, par.
8-107(F)(1).) While applications for a rehearing are dis-
couraged, a rehearing will be granted upon a clear dem-
onstration that legal issues of significance are involved or
if there is a conflict in decisions of the Human Rights
Commission. (Ill. Rev. Stat. 1987, ch. 68, par. 8-107(F)(2).)
If an application for rehearing is granted by a vote of six
Commission members, the original order is nullified (Ill.
Rev. Stat. 1987, ch. 68, pars. 8-107(F)(2), (F)(3)). B&W did
not request a rehearing before the full commission, but
moved for a modification of the Commission’s order be-
cause, as B&W alleged, a prior consent decree pertaining
to the salaried employees had been entered into between
B&W and the Equal Employment Opportunity Commis-
sion thereby superseding the salaried employees’ claims
in this case.
Section 8-107(G)(1) of the Human Rights Act pro-
vides that “[a]t any time prior to a final order of the court
in a proceeding for judicial review under this Act, the
Commission or the three-member panel which decided
the matter, upon reasonable notice, may modify or set
aside in whole or in part any finding or order made by it
in accordance with this Section.” (Ill. Rev. Stat. 1987, ch.
68, par. 8-107(G)(1).) Because the Human Rights Act per-
mits the Commission to modify or set aside its order for
an indefinite period of time prior to any final order by a
reviewing court, the Commission’s order entered on June
28, 1988, must be considered as a final order under sec-
tion 3-101 of the Code of Civil Procedure, even though it
App. 15
may be modified or, indeed, vacated by the Commission
while being reviewed by the appellate or supreme courts.
We recognize that our conclusion that the order is
appealable may provide ground for a subsequent moot-
ness argument, as the Commission may have again
changed, or vacated, the order we are called upon to
review. However, when reviewing a provision under the
Fair Employment Practices Act (Ill. Rev. Stat. 1963, ch. 48,
par. 858(h)), which is substantially similar to section
8-107(G)(1) of the Human Rights Act, our supreme court
stated that “this provision expresses the legislative pur-
pose that judicial review is not to be barred by the power
of an administrative agency to reconsider its decision
after judicial review has been initiated.” (Motorola, Inc. v.
Illinois Fair Employment Practices Comm’n (1966), 34 Ill. 2d
266, 272, 215 N.E.2d 286, 290.) On addressing the consti-
tutional issue relating to the lack of complete finality of
the administrative decision in that case, the court stated
that one constitutional issue that might have arisen “is
met by section 9 of article VI of the constitution, S.H.A.
which provides that the circuit court shall have ‘such
powers of review of administrative action as may be
provided by law.’ ” (Motorola, Inc. v. Illinois Fair Employ-
ment Practices Comm'n (1966), 34 Ill. 2d 266, 272-73, 215
N.E.2d 286, 290; see also Fredman Brothers Furniture Co. v.
Department of Revenue (1985), 109 Ill. 2d 202, 214, 486
N.E.2d 893; Woodward Governor Co. v. Human Rights
Comm'n (1985), 139 Ill. App. 3d 853, 857-58, 487 N.E.2d
653.) In light of these cases and section 3-101 of the Code
of Civil Procedure, we consider that the Commission’s
order is final for purposes of review, and any supplemen-
tal order entered by it in this case is to be considered as a
App. 16
new and independent decision which has not been ap-
pealed and is not before us.
B&W contends first that determining ineligibility for
a termination allowance because a former employee is
eligible for retirement benefits did not constitute imper-
missible age discrimination because years of service, and
not age, was the determinative factor. B&W also contends
that its severance-pay policies are exempt from the prohi-
bitions of the Human Rights Act because the policies are
part of a retirement system that is not used as a subter-
fuge for or does not have the effect of unlawful discrimi-
nation. (See Ill. Rev. Stat., 1987, ch. 68, par. 2-104(5)(a).)
The Department and Commission argue that because age
was a motivating factor in B&W’s decision not to pay
severance pay to complainants, B&W’s severance-pay
policies are discriminatory on the basis of age. They also
argue that the severance policies in question cannot qual-
ify as an exempt retirement system under section
2-104(5)(a) of the Human Rights Act (Ill. Rev. Stat. 1987,
ch. 68, par. 2-104(5)(a)) or, alternatively, that the policies
have the effect of unlawful discrimination because a com-
mon element in an exempt retirement plan is the exis-
tence of age-related cost factors which are lacking in
B&W’s severance-pay policies. The argument is that age-
based distinctions in retirement systems are permissible
only if the cost of providing a benefit increases because of
age; thus, because the cost of providing severance pay in
the present case does not increase because of the employ-
ee’s age, B&W’s severance-pay policies are not exempt
under section 2-104(5)(a) of the Human Rights Act.
We recognize that most Federal authority which has
considered a similar Federal statute supports the view of
———— << = é=«3n's st
App. 17
the Commission and Department. (See Equal Employment
Opportunity Comm’n v. Westinghouse Electric Corp. (3rd Cir.
1989), 869 F.2d 696, 710; Equal Employment Opportunity
Comm'n v. City of Mt. Lebanon, Pennsylvania (3rd Cir.
1988), 842 F.2d 1480, 1489; Karlen v. City Colleges of Chicago
(7th Cir. 1988), 837 F.2d 314, 319; Cipriano v. Board of
Education of the City School District of the City of North
Tonawanda, New York (2d Cir. 1986), 785 F.2d 51, 57-58;
Equal Employment Opportunity v. Babcock & Wilcox Co.
(E.D. N.C. 1987), 43 F.E.P. Cases 736, 742.) However, after
oral arguments in this case, the United States Supreme
Court decided Public Employees Retirement System of Ohio
v. Betts, (1989), 492 U.S. __, 106 L. Ed. 2d 134, 109 S. Ct.
2854), and there considered provisions of the Age Dis-
crimination in Employment Act of 1967 (Age Discrimina-
tion Act) (29 U.S.C. §621 et seq. (1982)), which are
comparable to those of the Illinois Human Rights Act
which are the subject of the present appeal. Because most
of the decisions in the cases cited by the parties in their
briefs are contrary to the holding and reasoning in Betts,
and we find Betts controlling in this case, our analysis
will be essentially limited to consideration of Betts and
the application of its reasoning to this case.
A proper resolution of the parties arguments requires
us to first consider whether the Federal Employee Retire-
ment Income Security Act of 1974 (ERISA) (29 U.S.C.
§1001 et seq.) preempts the Illinois Human Rights Act
insofar as it may vary from the Federal Age Discrimina-
tion in Employment Act of 1967, which we do so con-
clude. ERISA preempts “any and all State laws insofar as
they * * * relate to an employee benefit plan.” (29 U.S.C.
§1144(a) (1982).) An employee benefit plan includes an
App. 18
employee welfare benefit plan (29 U.S.C. §1002(3) (1982))
which is “any plan, fund, or program * * * established or
maintained by an employer or by an employee organiza-
tion, or by both.” (29 U.S.C. 1002(1) (1982).) An employee
welfare benefit plan which pays severance benefits out of
an employer’s general assets as well as a trust fund is
governed by ERISA. (Fort Halifax Packing Co. v. Coyne
(1987), 482 U.S. 1, 7 n.5, 96 L. Ed. 2d 1, 8 n.5, 107 S. Ct.
2211, 2215 n.5.) “State law” includes “all laws, decisions,
rules, regulations, or other State action having the effect
of law, of any State.” (29 U.S.C. §1144(c) (1982).) State
decisional law relating to an employee benefit plan is also
superseded. Gadsby v. Health Insurance Administration, Inc.
(1988), 168 Ill. App. 3d 460, 466, 522 N.E.2d 865.
A law “relates to” an employee benefit plan if it has a
connection with or reference to such a plan. (Shaw v. Delta
Air Lines, Inc. (1983), 463 U.S. 85, 96-97, 77 L. Ed. 2d 490,
501, 103 S. Ct. 2890, 2899-2900.) In enacting ERISA, Con-
gress did not limit the preemptive effect of ERISA to
specific subject matters covered by it which deal with
reporting, disclosure, and fiduciary responsibilities.
(Shaw, 463 U.S. at 98, 77 L. Ed. 2d at 501-02, 103 S. Ct. at
2900.) Instead, Congress intended to eliminate all “con-
flicting or inconsistent State and local regulation of em-
ployee benefit plans.” (Shaw, 463 U.S. at 99, 77 L. Ed. 2d
at 502, 103 S. Ct. at 2901, quoting 120 Cong. Rec. 29933
(1974).) The Shaw Court noted Congress’ desire to achieve
national uniformity with respect to employee benefit
plans through ERISA preemption. Shaw, 463 U.S. at 99
n.20, 77 L. Ed. 2d at 502-03 n.20, 103 S. Ct. at 2901 n.20.
|
App. 19
Here, we conclude that B & W’s severance-pay poli-
cies are employee welfare benefit plans within the mean-
ing of ERISA. Regarding the salaried complainants in this
case, the Illinois Supreme Court has considered B & W’s
policy and procedure No. 1414-Al with which we are
concerned in this case and concluded that it was an
employee welfare benefit plan within the meaning of
ERISA. Arnold v. Babcock & Wilcox Co. (1988), 123 Ill. 2d
67, 72, 525 N.E.2d 59.
The severance-pay provision in the plant closing
agreement executed on behalf of the hourly complainants
presents a more difficult question ERISA preempts State
laws which relate to employee benefit plans (29 U.S.C.
§1144(a) (1982)), not merely those State laws relating to
employee benefits. (Fort Halifax Packing Co. v. Coyne
(1987), 482 U.S. 1, 7, 96 L. Ed. 2d 1, 9, 107 S. Ct. 2211,
2215-16.) Superficially, Fort Halifax Packing Co. appears to
apply here. In that case, the defendant closed down its
Maine operations but denied the plaintiffs severance pay.
Maine had adopted a statute which required employers
that terminated their plant operations to pay severance
benefits to their terminated employees. The Maine Su-
preme Judicial Court held that the statute was not pre-
empted by ERISA because ERISA only preempted benefit
plans created by employers. Accordingly, the Maine Judi-
cial Supreme Court found that because the severance-pay
liability in that case arose from operation of a State stat-
ute, the plaintiffs claim for severance pay was not pre-
empted by ERISA. Fort Halifax Packing Co., 482 U.S. at 4-6,
96 L. Ed. 2d at 7-8, 107 S. Ct. at 2214-15.
App. 20
While the United States Supreme Court held that the
Maine statute was not preempted by ERISA, it disagreed
with the State court’s rationale. The United States Su-
preme Court concluded that ERISA did not preempt the
statute because it “neither establishes, nor requires an
employer to maintain, an employee welfare benefit ‘plan’
under that federal statute [ERISA].” (Fort Halifax Packing
Co., 482 U.S. at 6, 96 L. Ed 2d at 8, 107 S. Ct. at 2215.) The
Court stated that in enacting ERISA, Congress intended
to provide employers with a uniform set of administra-
tive procedures governed by one set of regulations. Con-
gress’ concern for uniformity in the regulation of
employee benefit plans “only arises, however, with re-
spect to benefits whose provision by nature requires an
ongoing administrative program to meet the employer’s
obligation.” (Fort Halifax Packing Co., 482 U.S. at 11, 96 L.
Ed. 2d at 11, 107 S. Ct. at 2217.) The requirement of a one-
time, lump-sum payment triggered by a plant closing
requires no administrative scheme at all. (Fort Halifax
Packing Co., 482 US. at 12, 96 L. Ed. 2d at 12, 107 S. Ct. at
2218.) The Court noted that the defendant had no need to
set up an administrative scheme in response to the Maine
statute. (Fort Halifax Packing Co., 482 U.S. at 14, 96 L. Ed.
2d at 13, 107 S. Ct. at 2219.) “The obligation imposed by
Maine generates no such [administrative] activity. There
is no occasion to determine whether a ‘plan’ is ‘operated’
in the interest of its beneficiaries, because nothing is
‘operated.’ ” Fort Halifax Packing Co., 482 U.S. at 16, 96 L.
Ed. 2d at 14, 107 S. Ct. at 2220.
We find the facts in the present case to be distin-
guishable. In our view, the hourly complainants in this
case were entitled to severance benefits pursuant to an
App. 21
employee welfare benefit plan when B&W entered into its
contract with UAW and the Union to provide such bene-
fits. Unlike the facts in Fort Halifax Packing Co., B&W did
establish, maintain, and operate an employee welfare
benefit plan relating to severance benefits, albeit in antici-
pation of its plant closure. In Fort Halifax Packing Co., only
a Maine statute was involved and did not require em-
ployers to design an administrative scheme for payment
of severance benefits. Accordingly, we do not find that
case controlling, and we conclude that B & W’s agree-
ment to pay severance benefits to hourly employees is
subject to ERISA.
While ERISA preempts State laws which relate to
employee benefit plans (29 U.S.C. 1144(a) (1982)), it does
not “alter, amend, modify, invalidate, impair, or super-
sede any law of the United States * * * or any rule or
regulations issued under any such law” (29 U.S.C.
1144(d) (1982)). In Shaw v. Delta Air Lines. Inc. (1983), 463
U.S. 85, 77 L. Ed. 2d 490, 103 S. Ct. 2890, the United States
Supreme Court analyzed the relationship between ERISA,
Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as
amended (Title VII) (42 U.S.C. §2000e et seq.), and a State
law prohibiting discrimination in employee benefit plans
on the basis of sex. Based on a New York human rights
law, the State court held that a private employer’s em-
ployee benefit plan which treated pregnancy differently
from other nonoccupational disabilities had engaged in
sex discrimination. However, shortly before the State
court decision, the United States Supreme Court ruled
that discrimination on the basis of pregnancy was not sex
discrimination under Title VII. Shaw, 463 U.S. at 88, 77 L.
Ed. 2d at 495-96, 103 S. Ct. at 2895.
App. 22
The Court held that the State law was preempted by
ERISA insofar as it prohibited practices which were not
unlawful under Federal law. (Shaw, 463 U.S. at 108, 77 L.
Ed. 2d at 508, 103 S. Ct. at 2906.) While preemption of a
State law which sought to enforce Title VII’s commands
would impair Title VII, State laws that are lawful under
Title VII would not impair it. (Shaw, 463 U.S. at 101-03, 77
L. Ed. 2d at 503-05, 103 S. Ct. at 2902-03.) The Court noted
that it “failled] to see how federal law would be impaired
by pre-emption of a state law prohibiting conduct that
federal law permitted.” Shaw, 463 U.S. at 103-04, 77 L. Ed.
2d at 505, 103 S. Ct. at 2903.
The Court rejected the “double saving clause” argu-
ment, that is, because ERISA does not preempt Title VII
and Title VII does not preempt State fair employment
laws, ERISA does not preempt such State laws. “Title VII
does not transform state fair employment laws into feder-
al laws that §514(d) [29 U.S.C. 1144(d)] saves from ERISA
pre-emption.” (Shaw, 463 U.S. at 101 n.22, 77 L. Ed. 2d at
503 n.22, 103 S. Ct. at 2902 n.22.) The Court also rejected
the argument that preemption of the State’s law would
impair Title VII because that law encourages States to
adopt laws providing greater substantive protection, not-
ing that “[w]le have found no statutory language or legis-
lative history suggesting that the federal interest in State
fair employment laws extends any farther than saving
such laws from pre-emption by Title VII itself.” Shaw, 463
U.S. at 103 n.24, 77 L. Ed. 2d at 505 n.24, 103 S. Ct. at 2903
n.24.
While the Age Discrimination Act permits States to
perform like functions with regard to discriminatory em-
ployment practices because of age (29 U.S.C. §633 (1982)),
App. 23
we have found no authority, legislative or otherwise,
which would permit us to conclude that ERISA’s broad
preemption provision extends any further than saving
State laws which advance the Federal interest in prohibit-
ing age discrimination in employment. In fact, with the
exception of a statutory waiting period, the Age Discrimi-
nation Act permits concurrent State and Federal adminis-
trative jurisdiction to expedite the resolution of age
discrimination claims. (Ocsar Mayer & Co. v. Evans (1979),
441 U.S. 750, 757, 60 L. Ed. 2d 609, 616, 99 S. Ct. 2066.)
State laws which were inconsistent with the Age Discrim-
ination Act would, accordingly, cause simultaneous, in-
consistent age discrimination claims.
From the forgoing, we conclude that the age discrimi-
nation claims in this case under sections 2-102(A) and
2-104(5)(a) of the Illinois Human Rights Act are pre-
empted by ERISA to the extent the Illinois Human Rights
Act differs from the Federal Age Discrimination in Em-
ployment Act of 1967. We next consider the substantive
provisions of the Human Rights Act and the Age Dis-
crimination Act as they relate to this case.
It is a civil violation under the Illinois Human Rights
Act “[flor any employer to refuse to hire, to segregate, or
to act with respect to recruitment, hiring, promotion,
renewal of employment, selection for training or appren-
ticeship, discharge, discipline, tenure or terms, privileges
or conditions of employment on the basis of unlawful
discrimination.” (Ill. Rev. Stat. 1987, ch. 68, par. 2-102(A).)
The Human Rights Act defines “unlawful discrimina-
tion,” in part, as discrimination against a person because
of age. (Ill. Rev. Stat. 1987, ch. 68, par. 1-103(Q).) “Age” is
App. 24
defined, to the extent pertinent here, as “the chronologi-
cal age of a person who is at least 40 years old.” (Ill. Rev.
Stat. 1987, ch. 68, par. 1-103(A).) Thus, only persons who
are at least 40 years of age are in the protected class.
There is no dispute that the claimants here are in the
protected class or that B&W is an employer as defined in
the Human Rights Act. The Human Rights Act also pro-
vides that an employer is not prohibited from “[a]pplying
different standards of compensation, or different terms,
conditions or privileges of employment pursuant to a
merit or retirement system provided that such system or
its administration is not used as a subterfuge for or does
not have the effect of unlawful discrimination.” Ill. Rev.
Stat. 1987, ch. 68, par. 2-104(5)(a).
The similar Federal Age Discrimination in Employ-
ment Act of 1967 (29 U.S.C. §621 et seq. (1982)) provides
that it is unlawful for an employer “to fail or refuse to
hire or to discharge any individual or otherwise discrimi-
nate against any individual with respect to his compensa-
tion, terms, conditions, or privileges of employment,
because of such individual’s age.” (29 U.S.C. §623 (1982).)
Persons in the protected class also must be at least 40
years of age. (29 U.C.S. §631(b) (19___).) As does the
Illinois Human Rights Act, the Age Discrimination Act
provides that it is not unlawful for an employer to ob-
serve the terms of a “bona fide employee benefit plan
such as a retirement * * * plan, which is not a subterfuge
to evade the purpose of this chapter.” (29 U.S.C.
§623(f)(2) (1982).) Because of the close similarities be-
tween the Age Discrimination Act and the Human Rights
Act, and our conclusion that we are constrained in our
interpretation of the Human Rights Act by ERISA and the
App. 25
Age Discrimination Act, we consider Betts controlling
authority in resolving the issues raised in this petition for
review.
In Betis, the retirement system adopted for employ-
ees of the State of Ohio provided for two types of retire-
ment benefits. An employee was eligible for an age-and-
service retirement benefit if at least 60 years of age with
five years of service credit; if at least 55 years of age with
25 years of service credit; or, if the employee had 30 years
of service credit. Disability retirement benefits were
available to employees with at least five years of service,
but only if the employee was under the age of 60 at the
time of retirement. At the time of her retirement, the
plaintiff in Betts was denied disability retirement benefits
as she was 61 years old. The plaintiff’s age-and-service
retirement benefits under the State plan were $158.50 per
month but, had she been permitted a disability retirement
benefit, she would have received $355 per month. (Betts,
492 U.S. at __, 106 L. Ed. 2d at 144-46, 109 S. Ct. at
2858-59.) The Court concluded that the plaintiff did not
establish that the defendant discriminated against her
because of age in these circumstances.
Initially, the Supreme Court considered an adminis-
trative regulation of the Equal Employment Opportunity
Commission which provided that an employee benefit
plan which had age-based distinctions would not be con-
sidered a subterfuge to’evade the purposes of the Age
Discrimination Act if age-based reductions in benefits
were justified by significant cost considerations. The
Court rejected the EEOC’s cost-justification rationale be-
cause “ ‘subterfuge’ means ‘a scheme, plan, stratagem, or
artifice of evasion,’ which in the context of section 4(f)(2)
App. 26
[29 U.S.C. §623(f)(2)], connotes a specific ‘intent * * * to
evade a statutory requirement.’ [Citation.] The term thus
includes a subjective element that the regulation’s objec-
tive cost-justification requirement fails to acknowledge.”
(Betts, 492 U.S. at __, 106 L. Ed. 2d at 150, 109 S. Ct. at
2863.) Furthermore, the cost-justification requirement ap-
peared nowhere in the Age Discrimination Act but origi-
nated from an interpretive regulation promulgated by the
Department of Labor, and that regulation did not intend
to exclude from section 4(f)(2) exemption plans which
could not meet a cost-justification requirement. The regu-
lation was only intended as a safe harbor, that is, “a
nonexclusive test for employers to use in determining
whether they could be certain of qualifying for the sec-
tion 4(f)(2) exemption.” Betts, 492 U.S. at ___, 106 L. Ed.
2d at 150-51, 109 S. Ct. at 2863.
We too conclude that an employer need not meet a
cost-justification requirement to be eligible for the ex-
emption-under section 2-104(5)(a) of the Human Rights
Act, and reject the contrary conclusion of the administra-
tive law judge and commission in the present case. Like
the Federal statute, the Human Rights Act does not man-
date such a rule. Further support for our conclusion is the
fact that an employer’s costs which are associated with
providing retirement benefits do not always increase with
age. Betts, 492 U.S. at__n.5, 106 L. Ed. 2d at 152 n.5, 109
S. Ct. at 2864 n.5 (in a defined contribution plan an
employer’s contribution is fixed and an employee will
receive a level of benefits dependent on the amount con-
tributed; thus, an employer’s cost for making contribu-
tions is totally unrelated to an employee’s age).
App. 27
After finding that an exemption for a bona fide retire-
ment plan under the Age Discrimination Act did not
require an employer to meet a cost-justification require-
ment, the United States Supreme Court in Betts stated
that to determine the meaning of the term “subterfuge” in
the context of section 4(f)(2) of the Age Discrimination
Act, a court must look to the purposes and substantive
provisions of that statute. (Betts, 492 U.S. at __, 106 L.
Ed. 2d at 153-54, 109 S. Ct. at 2865-66.) The Federal Age
Discrimination Act promotes the employment of older
persons based upon their ability rather than age. It is
designed to preclude employment discrimination because
of age, and enables employers and employees to resolve
problems arising from the impact of age on employment.
Betts, 492 U.S. at __, 106 L. Ed. 2d at 153, 109 S. Ct. at
2865.) The Age Discrimination Act’s primary enforcement
provision prohibits an employer from failing or refusing
to hire, or discharging a person, or discriminating against
him, with respect to compensation, terms conditions, or
privileges of employment, on the basis of age. (Betts, 492
U.S. at __, 106 L. Ed. 2d at 154, 109 S. Ct. at 2866.) The
Court stated that:
“The phrase ‘compensation, terms, conditions,
or privileges of employment’ in section 4(a)(1)
[29 U.S.C. §623(a)] can be read to encompass
employee benefit plans of the type covered by
section 4(f)(2). Such an interpretation, however,
would in effect render the section 4(f)(2) exemp-
tion nugatory with respect to post-Act plans.
Any benefit plan that by its terms mandated
discrimination against older workers would also
be facially irreconcilable with the prohibitions in
section 4(a)(1) and, therefore, with the purposes
of the Act itself. It is difficult to see how a plan
provision that expressly mandates disparate
App. 28
treatment of older workers in a manner incon-
sistent with the purposes of the Act could be
said not to be a subterfuge to evade those pur-
poses *** .” (Betts, 492 U.S. at__, 106 L. Ed. 2d
at 154, 109 S. Ct. at 2866.)
Accordingly, the Supreme Court held that “when an em-
ployee seeks to challenge a benefit plan provision as a
subterfuge to evade the purposes of the Act, the employ-
ee bears the burden of proving that the discriminatory
plan provision actually was intended to serve the pur-
pose of discriminating in some nonfringe-benefit aspect of
the employment relation.” (Emphasis added.) (Betts, 492 U.
S.at___, 106 L. Ed. 2d at 157, 109 S. Ct . at 2868.) While
age-based reductions in benefits would generally be justi-
fied by any increased costs generated because of an em-
ployee’s age, an employer could not decrease the wages
of all workers and then increase benefits only for younger
workers because the employer’s action would be viewed
as a subterfuge for age discrimination. Under section 4(d)
of the Age Discrimination Act (29 U.S.C. §623(d) (1982)),
it is unlawful for an employer to discriminate against an
employee who has opposed an employer practice prohib-
ited by the Age Discrimination Act or who has partici-
pated in age discrimination-related litigation and, if an
employer did so, the employer’s action would be a sub-
terfuge for unlawful age discrimination. Betts, 492 U.S. at
__, 106 L. Ed. 2d at 156, 109 S. Ct. at 2867-68.
Given the similarities between the Age Discrimina-
tion Act and the Human Rights Act, and the Human
Rights Act’s similar purpose of encouraging the employ-
ment of older workers (Board of Trustees of Community
College District No. 508 v. Human Rights Comm’‘n (1981), 88
App. 29
Ill. 2d 22, 32, 429 N.E.2d 1207), we conclude that a retire-
ment system in Illinois may be considered as a subterfuge
for unlawful age discrimination only if the employee
proves that the system was intended to discriminate in a
nonfringe benefit aspect of the employment relation,
which was not shown here.
We next consider whether B&W’s decision not to pay
severance pay to those employees who were eligible to
receive retirement pension benefits was pursuant to a
retirement system and, if so, whether that system had the
effect of unlawful discrimination within the meaning of
section 2-104(5)(a) of the Human Rights Act (see Ill. Rev.
Stat. 1987, ch. 68, par. 2-104(5)(a)). We believe that the
phrase “retirement system” must be construed here in
light of the special circumstances which exist in a plant
closure case. To “retire” generally means “[t]o terminate
employment or service upon reaching retirement age.”
(Black’s Law Dictionary 1183 (5th ed. 1979).) A “system”
is an “[o]rderly combination or arrangement, as of partic-
ulars, parts, or elements into a whole; especially such
combination according to some rational principle.”
(Black’s Law Dictionary 1300 (5th ed. 1979).) B&W’s sev-
erance-pay policies were undoubtedly part of a “system”
in that it sought to provide a source of income to all
employees upon termination of its Rockford, Illinois, op-
eration. The more difficult question is whether that sys-
tem may be considered as a “retirement system” under
section 2-104(5)(a).
It is apparent that these complainants did not retire
in the conventional sense of the word; they were in fact
terminated from B&W’s employ not because of their age
but because B&W ceased its operations in Rockford,
App. 30
lllinois. But, both complainants and the other employees
who did receive severance benefits were retired in the
sense that both groups of employees were terminated
from B&W’s employ. In our view, B&W’s severance poli-
cies on its closure constituted a “retirement system” as
they were designed to achieve the same result as would a
traditional retirement system in the ordinary sense of that
term, that is, B&W’s severance policies, like a retirement
plan, ensured that its employees receive a source of in-
come upon termination from their employment. B&W’s
retirement policies did not have the effect of unlawful
discrimination as all terminated employees received com-
pensation from B&W by means of an age-neutral employ-
er action. Furthermore, there is no evidence that B&W’s
retirement system was intended to discriminate in a non-
fringe aspect of the complainants’ employment relation
with B&W.
Because of our disposition of this issue, we need not
consider B&W’s further contention that the claims of
those complainants who were hourly employees were
waived by the contract entered into on March 22, 1983,
between B&W, UAW and the Union.
The summary judgment of the Human Rights Com-
mission is reversed and the cause remanded for further
proceedings consistent with this opinion.
Reversed and remanded.
WOODWARD, J., concurs.
JUSTICE LINDBERG, dissenting:
—— ——
App. 31
I believe a “best-case scenario” for the complainants
serves to establish that the severance-pay plan discrimi-
nates on the basis of age and, therefore, is facially age
discriminatory. Assume that two employees each had 15
years’ service with B&W on October 31, 1983, but one was
54 years old and the other 55 years old or older on that
date. Under the plan the 54-year-old would receive about
$3,000 in severance pay, and within the following year he
would begin receiving his pension benefits. The 55-year-
old, only because of his age, would receive no severance
pay and would receive only his pension benefits. Because
of his age on October 31, 1983, the 55-year-old has been
denied about $3,000 in severance pay. This scenario estab-
lishes that B&W’s severance-pay plan is facially age dis-
criminatory.
The Illinois Human Rights Act provides:
“81-102. Declaration of Policy. It is the pub-
lic policy of this State:
(A) To secure for all individuals within II-
linois the freedom from discrimination because
of * * * age * * * in connection with employ-
ment * * * .” (Ill. Rev. Stat. 1987, ch. 68, par.
1-102(A).
And:
“(Q) Unlawful Discrimination. ‘Unlawful
discrimination’ means discrimination against a
person because of his or her *** age *** .” (III.
Rev. Stat. 1987, ch. 68, par. 1-102(Q).)
And:
“82-102. Civil Rights Violations — Employ-
ment. It is a civil rights violation:
pS
App. 32
(A) Empioyers: For any employer * * * to act
with respect to * * * discharge * * * tenure or
terms, privileges or conditions of employment
on the basis of unlawful discrimination.” (III.
Rev. Stat. 1987, ch. 68, par. 2-102(A).)
And:
Ҥ2-104 Exemptions. Nothing contained in
this Act shall prohibit:
an employer * * * from:
* * *
(5) Merit and Retirement Systems. (a) Apply-
ing different standards of compensation, or dif-
ferent terms, conditions or privileges of
employment pursuant to a merit or retirement
system provided that such system or its admin-
istration is not used as a subterfuge for or does
not have the effect of unlawful discrimination.”
Ill. Rev. Stat. 1987, ch. 68, par. 2-104(5)(a).
This statutory scheme makes it clear that in Illinois it
is a civil rights violation for an empioyer to unlawfully
discriminate against its employees, and age discrimina-
tion constitutes unlawful discrimination. However, an
employer may apply different standards of compensation
or different terms, conditions or privileges of employ-
ment pursuant to a (1) merit or (2) retirement system
provided that the system or its administration is not used
as (3) a subterfuge for or (4) does not have the effect of
unlawful discrimination which, by definition, is discrimi-
nation on the basis of age.
The precise question is whether an employer can
establish under the exemption provision of section
2-104(5)(a) of the Illinois Human Rights Act (HRA) a
App. 33
plant closing severance-pay plan which denies severance
pay to employees whose age within three length-of-ser-
vice categories qualifies them to receive their pension
benefits. As to Illinois, it would appear we are writing on
a clean slate.
I have charted B&W’s severance-pay plan for conve-
nience of analysis as follows:
B & W Severance-pay Plan
Length of Service Categories:
I. 15 years or more service:
(a) Employees under age 55 receive both
the severance pay and their pension (at 55).
(b) Employees over age 55 receive no sev-
erance pay but only their pension.
II. 10 years but not more than 15 years of
service:
(a) Employees under age 62 receive both
the severance pay and their pension (at 62).
(b) Employees age 62 receive no severance
pay but only their pension.
III. Minimum but not more than 10 years
service:
(a) Employees under age 65 receive both
severance pay and their pension (at 65).
(b) Employees age 65 or older receive no
severance pay but only their pension.
I conclude that the severance-pay plan does not qual-
ify for exemption under section 2-104(5)(a) of the HRA
(Ill. Rev. Stat. 1987, ch. 68, par. 2-104(5)(a)), because it is
not a merit or a retirement plan. Even if it could be
EE
App. 34
construed as a merit or a retirement plan, nonetheless, it
has the effect of discriminating on the basis of age. See Ill.
Rev. Stat. 1987, ch. 68, par. 2-104(5)(a).
The HRA does not define “merit plan,” but it would
not be unreasonable to assume that any plan with differ-
entials in pay, hours and other terms of en.ployment
based upon quality of performance and/or length of ser-
vice or other considerations would satisfy the definition
of “merit plan.” Here severance pay is being denied on the
basis of merit in terms of length of service. Fifty-five- to
61-one-year-olds with 15 years’ service or more, for exam-
ple, are denied severance pay while 55- to 6l-year-olds
with less than 15 years of service are given the severance
pay at issue. This phenomenon persists as to each of the
three categories of length of service and, thus, disqual-
ifies the severance-pay plan as a “merit plan.”
“Retirement plan,” while not defined in the HRA,
however is defined as “a systematic arrangement estab-
lished by an employer for guaranteeing an income to
employees upon retirement [withdrawal from active ser-
vice] according to definitely established rules with or
without employee contributions but usu. funded.” (Web-
ster’s Third New International Dictionary, 1939 (1986).)
“Income” is defined as “a gain or recurrent benefit that is
usu. measured in money and for a given period of time,
derives from capital, labor or a combination of both.”
(Webster’s Third New International Dictionary, 1143
(1986).) While the severance-pay plan is a guarantee for
withdrawal from service, it is not “income” in that it is
not a gain or recurrent benefit for a given period of time.
In fact, it is a one-time, lump-sum award of money and
App. 35
does not satisfy either the dictionary definition of a re-
tirement pian, or the general notion of what constitutes a
retirement plan such as the one already in place at B&W.
Regardless, even if the severance-pay plan were to be
viewed as one based upon length-of-service merit or re-
tirement, it has the precise effect of discriminating as to
age within each of the three length-of-service categories.
As such, the severance-pay plan fails to meet the section
2-104(5)(a) exemption of the HRA, and, therefore, it con-
stitutes unlawful discrimination and a civil rights viola-
tion under the HRA. Ill. Rev. Stat. 1987, ch. 68, pars.
1-102(A), (Q), 2-102(A).
Obviously, I do not agree with the majority’s reliance
on Public Employees Retirement System of Ohio v. Betts
(1989), 492 U.S.__, 106 L. Ed. 2d 134, 109 S. Ct. 2854. The
United States Supreme Court held that the retired em-
ployee in that case, Betts, did not establish a prima facie
case of age discrimination. The Court relied heavily on its
analysis of Congressional debate to ascertain the legisla-
tive intent behind the ADEA and in arriving at its final
conclusion. The Court found that Congress intended not
to regulate retirement programs, which were not a mere
subterfuge to implement age-discriminatory practices,
when it enacted the ADEA. Betts, 492 U.S. at __, 106 L.
Ed. 2d at 155-56, 109 S. Ct. at 2867.
The Betts Court decided that the “30% floor” for
disability benefits, which were not available to persons
who had attained age 60, was part of Ohio’s State-retire-
ment plan and, therefore, did not qualify as a nonfringe
benefit subject to the ADEA age-discrimination prohibi-
tions. (Betts, 492 U.S. at __, 106 L. Ed. 2d at 157, 109 S. Ct.
; App. 36
2868.) The Supreme Court said that Betts failed to prove
that the discriminatory plan provision was intended to
serve the purpose of discriminating in some nonfringe-
benefit aspect of the employment relationship under the
Federal Age Discrimination in Employment Act of 1967
(ADEA) (29 U.S.C. §621 et seq. (1982)). Betts, 492 U.S. at
__, 106 L. Ed. 2d at 157, 109 S. Ct. 2868.
In Illinois, the legislative intent in enacting our stat-
ute was quite different. Section 1-102(A) of the HRA,
quoted previously, expresses the legislative intent of the
HRA which is to secure for all individuals within Illinois
freedom from discrimination in employment because of
age. (Ill. Rev. Stat. 1987, ch. 68, par. 1-102(A).) In fact, in
one of the few cases involving the HRA to come before
the final arbiter of Illinois statutes, the Illinois Supreme
Court, the court held that the HRA does regulate retire-
ment plans (Board of Trustees v. Human Rights Comm'n
(1981), 88 Ill. 2d 22, 26, 429 N.E.2d 1207, 1210) in contrast
to the Betts Court’s conclusion that the ADEA does not
regulate retirement plans unless they are a subterfuge.
While I do not premise my conclusion that B&W’s sever-
ance-pay plan is age discriminatory on the fact of the
HRA’s coverage of retirement plans, the distinction be-
tween the two acts is, nonetheless, apparent. Addi-
tionally, while the ADEA and the HRA both incorporate
the subterfuge standard, the HRA has the additional stan-
dard of “does not have the effect of unlawful discrimina-
tion.” (Ill. Rev. Stat. 1987, ch. 68, par. 2-104(5)(a).)
Therefore, I conclude that the Betts decision is not persua-
sive in the resolution of the instant petition for review.
After submitting my draft dissent to the majority, it
undertook further analysis and included a more detailed
a a acl aaa
App. 37
reliance on the Federal Employee Retirement Income Se-
curity Act of 1974 (ERISA) (29 U.S.C. §1001 et seq. (1982))
and a discussion of Fort Halifax Packing Co. v. Coyne
(1987), 482 U.S. 1, 96 L. Ed. 2d 1, 107 S. Ct. 2211. Regretta-
bly, I conclude that the majority in the instant case is
incorrect when it concludes that the facts of Fort Halifax
are distinguishable from those in the instant case. The
sole basis for the instant majority’s distinction would
appear to be that because the hourly employee’s union
agreed to the severance-pay plan “B&W did establish,
maintain and operate an employee welfare benefit plan
relating to severance benefits, albeit, in anticipation of
plant closure.” (Babcock & Wilcox Co. v. Illinois Human
Rights Comm'n, (2d Dist. 1989), No. 2-88-0735, slip op. at
22.) | could not disagree more. The action of the union is
irrelevant. What could be less of a “plan” to “operate,” to
paraphrase the Court in Fort Halifax, than disbursing a
one-time lump sum severance payment. The Court in Fort
Halifax said:
“The Maine statute neither establishes, nor
requires an employer to maintain, an employee
benefit plan. The requirement of a one-time,
lump-sum payment triggered by a single event
requires no administrative scheme ever to meet
the employer’s obligation. The employer as-
sumes no responsibility to pay benefits on a
regular basis, and thus faces no periodic de-
mands on its assets that create a need for finan-
cial coordination and control. Rather, the
employer’s obligation is predicated on the oc-
currence of a single contingency that may never
materialize. The employer may well never have
to pay the severance benefits. To the extent that
the obligation to do so arises, satisfaction of that
App. 38
duty involves only making a single set of pay-
ments to employees at the time the plant closes.
To do little more than write a check hardly
constitutes the operation of a benefit plan. Once
this single event is over, the employer has no
further responsibility. The theoretical possibility
of a one-time obligation in the future simply
creates no need for an ongoing administrative
program for Processing claims and paying bene-
fits.
* * *
The foregoing makes clear both why ERISA
is concerned with regulating benefit ‘plans,’ and
why the Maine statute does not establish one.
Only ‘plans’ involve administrative activity po-
tentially subject to employer abuse. The obliga-
tion imposed by Maine generates no such
activity. There is no occasion to determine
whether a ‘plan’ is ‘operated’ in the interest of
its beneficiaries, because nothing is ‘operated.’
No financial transactions take place that would
be listed in an annual report, and no further
information regarding the terms of the sever-
ance pay obligation is needed because the stat-
ute itself makes these terms clear. It would make
no sense for pre-emption to clear the way for
exclusive federal regulation, for there would be
nothing to regulate. Under such circumstances,
pre-emption would in no way serve the over-all
purpose of ERISA.” (Emphasis in original.) (Fort
Halifax Packing Co., 482 U.S. at 12, 14, 96 L. Ed.
2d at 11-12, 14, 107 S. Ct. at 2218, 2220.)
It would be hard to draft a more accurate description of
the character of B&W’s severance-pay plan. On the basis
of the United States Supreme Court’s rationale in Fort
Halifax, B&W’s severance-pay plan does not qualify as a
plan regulated by ERISA, and, therefore, the application
App. 39
of the Illinois Human Rights Act is not preempted by
ERISA.
I believe that the decision of the Illinois Human
Rights Commission, finding that B&W’s severance-pay
plan discriminated on the basis of age and thereby vio-
lated the HRA, was correct. I would affirm.
App. 40
STATE OF ILLINOIS
HUMAN RIGHTS COMMISSION
IN THE MATTER OF:
THE ILLINOIS
DEPARTMENT OF
HUMAN RIGHTS,
ET AL.
Complainant,
CHARGE NO:
1984CF9003
1984CF0766
1984CF0792
1984CF0962
1984CF0969
1984CF0970
1984CF0971
1984CF0972
1984CF0974
1984CF0975
1984CF0976
1984CF0978
1984CF0979
1984CF1003
1984CF1004
1984CF1046
1984CF1074
1984CF1093
EEOC NO:
ALS NO: 1531
AND
BABCOCK & WILCOX,
INC.
Respondent,
Te ee ee ee ee a aa A A tht th tt i
ORDER AND DECISION
This matter is before the Commission panel to Re-
view the Recommended Order and Decision submitted by
Administrative Law Judge Patricia A. Patton. The indi-
vidual Complainants argue that they were denied sever-
ance benefits because of their age in violation of the
Human Rights Act. The Respondent contends it did not
discriminate against the Complainants because of their
age. It further contends, in the alternative, that if there
was discrimination, it was exempt from coverage pur-
suant to Section 2-104(E)(1) of the Act, which, under
App. 41
certain circumstances, allows discrimination pursuant to
a “retirement system”.
Cross motions for summary judgment were filed by
all the parties. With respect to the sixteen individual
Complainants named in the style of this case the Admin-
istrative Law Judge found that there was no material
issue of fact. Accordingly, she rendered a final recommen-
dation with respect to these Complainants. The charges of
the remaining Complainants were severed by Judge Pat-
ton, and are not before the panel for review at this time.
I. THE RECOMMENDED ORDER AND DECISION
A. BACKGROUND FACTS
Before presenting her analysis of the case, Chief
Judge Patton inade thirty-six findings of fact. These find-
ings formed the factual basis for her decision. There does
not appear to be any dispute with respect to these factual
findings and accordingly they will be adopted by the
Commission. Only facts which are necessary to an under-
standing of the opinion which follows are repeated here.
The mere fact that a particular factual finding is not
repeated should not be taken as an indication that it was
not considered and relied upon by the Commission.
The Complainants in this case were production work-
ers for the Respondent and were subject to the terms of
the Collective Bargaining Agreement entered into be-
tween the Respondent and the Complainants’ union. At
some point the Respondent made a decision to cease all
operations in Illinois. The Respondent and the Complain-
ants’ union entered into negotiations with respect to the
App. 42
circumstances under which the Illinois workers’ employ-
ment with the Respondent would be terminated.
On March 22, 1983 the Respondent and the Com-
plainants’ union entered into a Memorandum of Agree-
ment, which provided, in relevant part, as follows:
1. The Contract will be terminated on October
31, 1983.
2. Notwithstanding the provisions of the Con-
tract, any employee released from the Plant
by the Company on or after the date of this
MEMORANDUM OF AGREEMENT and
during the terms of this contract, as spec-
ified in Section one above whose release
would otherwise have been characterized as
a lay off from the plant shall be deemed to
have been terminated on account of cessa-
tion of Company operations and his employ-
ment, service and seniority terminated for
all purposes with the Company... .
3. Any employee so terminated, as provided in
Section 2 above, who was actively employed
on the date of this MEMORANDUM OF
AGREEMENT and only said date (this ex-
cludes any person who may be recalled from
lay off status or newly hired subsequent to
the date of this MEMORANDUM OF
AGREEMENT, and who is not eligible for a
normal, early, special early or disability retire-
ment under the Service Benefit Pension Plan
(Rockford Works) and who executes and de-
livers to the Company, within seven (7) cal-
endar days following the day of termination,
the attached form shall receive the following
separation allowance:
App. 43
WEEKS
SENIORITY AT TERMINATION ALLOWANCE
3 yrs. but less than 5 yrs. 4
5 yrs. but less than 7 yrs. 6
7 yrs. but less than 10 yrs. 7
10 yrs. and over 8
(emphasis
added)
The Collective Bargaining Agreement defined “nor-
mal retirement date” as the first day of the month coin-
ciding with or next following the date upon which a
member attained his or her 65th birthday. The pension
plan provided that a member who had completed 15 or
more full years of continuous service and had attained
age 55 could retire on an early retirement date. Special
early retirement was available to members who had com-
pleted 10 or more full years of continuous service and
who had attained 62 years of age.
The Complainants in this case were all excluded from
receiving any sort of separation benefit pursuant to the
memorandum of agreement because they were eligible to
receive some sort of retirement under the pension plan.
Since age is a factor which is considered in determining
whether an individual is eligible for retirement, the Com-
plainants contended in front of the Administrative Law
Judge that they were excluded from participating in the
separation benefit program because of their age.
B. THE DECISION OF THE ADMINISTRATIVE
LAW JUDGE
The Administrative Law Judge first determined that
the agreement in question constituted a discrimination
App. 44
based upon age. Although the memorandum of agree-
ment does not explicitly refer to age, it indisputably
creates a system in which age is a criterion in determin-
ing who does and who does not receive termination
allowances. Interim Recommended Order and Decision,
p. 19. Because attainment of a particular age, in this case
55, is a necessary condition for denial of severance pay, it
is Judge Patton’s conclusion that the Complainants were
denied the severance payments involved in this case be-
cause of their age.
The Recommended Order and Decision .goes on to
reject arguments made by the Respondent based upon the
doctrines of waiver and pre-emption. Finally, the Admin-
istrative Law Judge found that the discrimination in
question was not covered by the exemption contained in
Section 2-104(A)(5) of the Human Rights Act.
II. THE RESPONDENT’S EXCEPTIONS
The Respondent first argues that the discrimination
involved is not based upon “age”. Although eligibility for
retirement is clearly based upon the Complainants age, it
is also based upon the individual’s length of service. In
other words, no individual under 55 years of age is
eligible for retirement, but the mere fact that an individu-
al has reached age 55 does not entitle that individual to
early retirement benefits. As noted above, the individual
must be 55 years of age and have completed fifteen or
more full years of continuous service.
The Respondent cites in support of its argument the
case of General Electric Company v. Gilbert, 429 U.S. 125
(1976). In that case the United States Supreme Court
App. 45
stated that discrimination on the basis of pregnancy was
not the same as discrimination on the basis of sex. Al-
though only females can become pregnant, not all fe-
males become pregnant. Thus, a discrimination against
pregnant employees was not the same as a discrimination
against women.
The problem with the Respondent’s argument is that
almost immediately after the General Electric v. Gilbert
decision Congress enacted an amendment to the law in
question which specifically provided that discrimination
on the basis of pregnancy was discrimination on the basis
of gender. This legislative reversal of the General Electric
v. Gilbert decision indicates that the United States Su-
preme Court had not correctly interpreted the law in
question, which was Title VII of the Civil Rights Act of
1964.
The Supreme Court, itself, acknowledged this in the
case of Newport News Ship Building and Dry Dock Company
v. EEOC, 462 U.S. 669, 103 S. Ct. 2622 (1983). In that case
the Supreme Court stated that Congress, by enacting the
amendment not only overturned the holding of General
Electric v. Gilbert, but also rejected the reasoning
employed in that case, that differential treatment of preg-
nancy is not gender-based discrimination.
Thus, the doctrine enunciated by the Supreme Court
in General Electric v. Gilbert has been completely dis-
credited. It is crystal clear that the Complainants in this
case would have received benefits if they were younger.
This is obviously discrimination based upon age, and
thus the Respondent’s exception must be denied.
App. 46
The Respondent next argues that it had no intent to
discriminate based upon age. For the reasons stated be-
low, this argument is rejected. As can be seen from the
discussion of the Respondent’s first exception, the mem-
orandum of agreement is not facially neutral. It discrimi-
nates on the basis of eligibility for retirement, and
eligibility for retirement is determined, at least in part,
based on the participant’s age. Thus, the agreement in
question is, per se, discriminatory. Because the Respon-
dent “intended” to implement this plan, we must find
that it “intended” to discriminate on the basis of age.
This is not to say that the Respondent intended to
violate the Human Rights Act, or that the Respondent
harbored animosity towards the workers. It is clear that
the Respondent negotiated the memorandum of agree-
ment in good faith. It is also clear, however, that the
memorandum discriminates on the basis of age and that
the Respondent “intended” the natural and probable con-
sequences of the agreement. Accordingly, the Respon-
dent’s second exception must be denied.
The Respondent next argues that a disparate impact
analysis is not applicable to this case. The United States
Supreme Court has ruled that a facially neutral test or
criterion will violate Federal anti-discrimination law if it
has the “effect” of classifying individuals based upon
their race, sex, religion, or some other prohibited factor.
Griggs v. Duke Power Company, 401 U.S. 424 (1971). Al-
though cases interpreting Federal law are not binding on
the Human Rights Commission, they will be considered
by the Commission and State courts in deciding cases
under the Human Rights Act. City of Cairo v. FEPC, 21
Ill.App.3d 358 (1974). The Illinois Courts have adopted
eT
App. 47
the “disparate” impact method of analysis used by the
U.S. Supreme Court in Griggs. See Burnham City Hospital
v. Human Rights Commission, 126 Ill.App.3d. 999, 467
N.E.2d 635 (1984).
As noted above, the policy in question in this case is
not neutral on its face. It explicitly makes age a factor in
decisions with respect to which employees receive sep-
aration benefits. Thus, we need not consider if the policy
in question has the unintended effect of excluding indi-
viduals based upon their age.
We next come to the most difficult exception filed by
the Respondent. It is the Respondent’s contention that
even if the denial of separation benefits under the mem-
orandum of agreement can be considered discrimination
based upon age, such discrimination is exempted pur-
suant to Section 2-104(A)(5)(a) of the Human Rights Act.
This provision states as follows:
Nothing contained in this Act shall prohibit an
employer, employment agency or labor organi-
zation from:
* * *
(5) Merit and Retirement Systems. (a) Applying
different standards of compensation, or differ-
ent terms, conditions or privileges of employ-
ment pursuant to a merit or retirement system
provided that such system or its administration —
is not used as a subterfuge for or does not have
the effect of unlawful discrimination.
It is the contention of the Respondent that the mem-
orandum of agreement provides benefits which are inex-
tricably related to the Complainants’ retirement system.
j
App. 48
The separation benefits provide an alternative to the re-
tirement benefits available to eligible older workers. Ac-
cordingly, the Respondent argues that the payment of
separation benefits is exempt.
The provision in question was interpreted by the
Illinois Supreme Court in the case of Board of Trustees, etc.
v. Human Rights Commission, 88 I]l.2d 22 429 N.E.2d 1207
(1981). In that case the Illinois Supreme Court rejected the
Respondent’s interpretation of the exemption. The prob-
lem, according to the Supreme Court, is that the Respon-
Cent’s interpretation of the provision completely ignores
the proviso at the end of the Section. That provision
states that the retirement system cannot be a subterfuge
for, or have the effect of “unlawful discrimination”.
Among other things, the term “unlawful discrimination”,
includes discrimination based upon “age”. Taken abso-
lutely literally, this proviso would have the effect of an-
nulling the exemption. There would be no need for an
exemption if a retirement system did not discriminate on
the basis of age. Thus, subsection 5 must be an attempt on
the part of the legislature to allow companies to employ
certain types of retirement systems, even though the re-
tirement systems discriminate on the basis of age.
The scope of the proviso was set forth quite clearly
by the Supreme Court in the Board of Trustees case. The
Court stated as follows:
So long as the different standards of compensa-
tion or terms, conditions or privileges of em-
ployment, that is their overall impact, do not
turn the system into one which favors or dis-
favors employees on the basis of age or any
other unlawful discrimination, the system does
not run afoul of the proviso. Thus, in the case of
App. 49
the differing monthly amounts contributed to a
pension plan or the different health benefits in
the examples set forth above, the employees’
compensation or benefits are based on age. The
system is nevertheless legal because it does not
have the effect of discriminating against em-
ployees based on their age. One employee may
have to contribute more per month for pension
benefits than another; but that is only because
he will be paying for fewer months before he
retires. On the whole, the effect is neutral, as
would be expected of a practice based on objec-
tive considerations. The system even with the
differing pension contributions is not only fair
and rational, but also necessary to prevent the
employer’s obligation to hire without regard to
age from being undermined by the exorbitant
cost of hiring older people. 429 N.E.2d at 1213.
Thus, according to the Supreme Court, an employer
can apply different terms, conditions or privileges of
employment to older individuals only where the individ-
ual’s age makes it more likely that the employer will have
to pay more money to provide a retirement system which
provides equal benefits. As noted by the Supreme Court,
older workers face different health risks than younger
workers. It is not illegal to charge older workers a greater
amount of money for health benefits than the amount
charged younger workers.
This interpretation by the Supreme Court gives
meaning to each part of the exemption contained in sub-
section 5. At first glance it may appear to be discrimina-
tion to charge an older worker more money for health
care benefits. Thus, there is a need for a an explicit
exemption in the Human Rights Act. On the other hand,
the application of different terms, conditions or privileges
EE
App. 50
of employment pursuant to a retirement system must be
based upon increased costs associated with age. Accord-
ingly, there is a need for a proviso which states that the
employer is not allowed to apply different terms, condi-
tions or privileges of employment if it does not result in
the payment of equal benefits.
In contrast, the construction favored by the Respon-
dent in this case reads the proviso out of the Act. The
failure to pay Complainants separation benefits because
of their ages is not based on any age related cost factor.
Thus, it is clearly “unlawful discrimination” within the
meaning of the proviso. Because it is presumed that the
legislature meant to give effect to each word in the stat-
ute, the Respondent’s construction of subsection 5 cannot
be correct.
The construction by the Illinois Supreme Court gives
effect to each word in the subsection, and is therefore
favored. Because the Illinois Supreme Court is, under the
Illinois Constitution, the ultimate arbiter with respect to
the meaning of Illinois law, the Respondent's exceptions
must be rejected.
This conclusion is also supported by the resolution of
a similar question under Federal law. As noted above,
although Federal cases deciding questions under Federal
law are not binding on the Illinois Human Rights Com-
mission, they are helpful in addressing questions which
arise under the Human Rights Act. The analogous Feder-
al law is the Age Discrimination in Employment Act
(ADEA). 29 USC § 621 et seq. Section 623(F)(2) of ADEA
exempts from coverage the application of any bona fide
employee benefit plan such as a retirement, pension, or
App. 51
insurance plan, which is not a subterfuge to evade the
purposes of the Act.
The contemporaneous interpretation of ADEA was
provided by the Department of Labor, which was — at that
time — responsible for enforcing the law. The Department
of Labor set forth a regulation which has been adopted by
the Equal Employment Opportunity Commission, and
which is now codified at 29 CFR 1625.10. In pertinent
part, the regulation states as follow:
The legislative history of this provision indi-
cates that its purpose is to permit age-based
reductions in employee benefit plans where
such reductions are justified by significant cost
considerations.
* * *
In general, a plan or plan provision which pre-
scribes lower benefits for older employees on
account of age is not a “subterfuge” within the
meaning of section 4(1)(2), provided that the
lower level of benefits is justified by age-related
cost considerations.
This contemporaneous interpretation is in direct
agreement with the Illinois Supreme Court’s interpreta-
tion of State law. The Department of Labor interpretation,
which is based upon the legislative history of ADEA, has
never been overturned. Instead, as noted by the Adminis-
trative Law Judge, the administrative interpretation has
been explicitly followed by the Federal courts. Thus, in
the case of EEOC v. Westinghouse Electric Corp., 725 F.2d.
211 (3d. Cir. 1984) the Third Circuit Court of Appeal
found that the denial of separation benefits under circum-
stances almost identical to the instant case was not ex-
empt under the relevant section of ADEA.
—————E——E——————
App. 52
In EEOC v. Borden’s Inc., 724 F.2d 1390 (9th Cir. 1984)
the Ninth Circuit Court of Appeals also found that the
denial of severance benefits under circumstances identi-
cal to the instant case did not qualify for the exemption
provided in ADEA. The Ninth Circuit found that sever-
ance payments are not an employment benefits plan such
as retirement, pension, or insurance, in which there are
age related cost factors.
The Sixth Circuit Court of Appeals has adopted the
same interpretation of the provision in question. In Betts
v. Hamilton County Board of Mental Retardation and Devel-
opmental Disabilities, Nos. 86-3676/4033 (June 3, 1988) the
Sixth Circuit stated that Congress intended to relieve
employers of the burden of providing equal benefits to all
employees only when the cost of providing lower benefits
to older workers is approximately equal to the cost of
providing greater benefits to younger workers.
This basic interpretation of the exemption in question
has been approved in Karlen v. City Colleges of Chicago, 837
F.2d 314 (7th Cir. 1988) and Equal Employment Opportunity
Commission v. City of Mount Lebanon, Pennsylvania, 842
F.2d 1480 (3rd Cir. 1988).
Thus, the Federal precedent on the subject is in ac-
cord with the State precedent and supports the deter-
mination of the Administrative Law Judge. Based upon
all the authority presented to this Commission, it is clear
that the Respondent’s interpretation of the Human Rights
Act is not viable.
Even if there were no authority on this question, the
decision of the Administrative Law Judge would still
a a
App. 53
have to be adopted based upon principles of sound pub-
lic policy. The justification for the exclusion of the Com-
plainant from separation benefits is crystal clear. It is
obvious that both the Respondent and the Complainants’
union wanted to provide some type of monetary support
to employees who would be thrown out of work by the
termination of the Respondent’s business. Individuals
such as the Complainants are excluded from the provi-
sions of the agreement because they are eligible for retire-
ment. In other words, individuals such as the
Complainants could soften the blow of termination by
electing to take early retirement.
The problem with this arrangement is that it assumes
that an individual who has reached age 55 and is eligible
for early retirement should react to the termination of his
or her employment by taking early retirement, rather
than by attempting to get another job, and postponing
retirement until that person wants to retire. In the case at
bar a younger individual who is terminated will be given
a separation benefit which will ease the impact of em-
ployment while that worker looks for another job. If the
worker is able to attain another job, he or she can afford
to decline their early retirement option at age 55, and
receive full retirement on the normal retirement date. On
the other hand, the worker who is age 55 or older on the
date of the termination is not given a separation benefit
which can be used while that person is looking for alter-
native work. If the older worker does not find alternative
work soon after he or she becomes unemployed, the
worker will be forced to take early retirement. This will
prevent the worker from taking the full, normal retire-
ment at a later date.
App. 54
Section 2(b) of the retirement plan provides that a
worker who takes early retirement loses 4/10 of 1% of his
full retirement benefit for each month by which the work-
er has not attained 62 at the age of retirement. Thus, an
employee who is forced to retire at age 55 would lose one
third of his normal retirement benefits. Just as it is illegal
to force an individual to retire because that person has
reached a certain age (Board of Trustees v. Human Rights
Commission, supra), it is illegal to force an individual to
take an early retirement option because of that individu-
al’s age. Although the Respondent in this case did not
“force” the Complainants to take the early retirement
option, it did not give the Complainants the same separa-
tion benefits as younger workers, which would allow the
Complainants to endure a period of unemployment with-
out dipping into their retirement money.
In sum, the argument set forth by the Respondent has
been rejected by the Illinois Supreme Court and by Feder-
al circuit courts of appeal. Furthermore, it is contrary to
the long standing administrative interpretation of Federal
law, and the clear purpose of the Human Rights Act.
Under the circumstances, the Respondent’s exception
must be denied.
The Respondent has filed a number of further excep-
tions to the Recommended Order and Decision which are
merely reiterations of arguments made to the Administra-
tive Law Judge. The reasons for Judge Patton’s rejection
of those arguments are well stated in the Recommended
Order and Decision and it will serve little purpose to
repeat those arguments in this Order and Decision. After
carefully considering the arguments of the Respondent,
we find that Judge Patton’s rejection of the Respondents
App. 55
further defenses was well supported by the record, and
based upon sound legal conclusions. Accordingly, all of
the Respondent’s exceptions will be denied.
Ill. THE COMPLAINANTS’ REQUEST TO PRESENT
ADDITIONAL EVIDENCE
The Complainant has asked the Commission permis-
sion to present additional evidence with respect to mone-
tary damages and attorney’s fees. The Respondent was
granted until March 28, 1988 to file a response to the
Complainants’ motion to present additional evidence. As
of this date, no response has been filed.
With respect to the Complainants’ request to present
additional evidence with respect to attorney’s fees, the
motion is denied. Chief Judge Patton gave the Complain-
ants sufficient time to present attorney’s fees petitions,
and the Commission has not been presented with any
justification for the failure to present the petition during
the time period granted.
The other portion of the motion has to do with the
amount of separation benefits which each Complainant
would have received had they been included in the mem-
orandum of agreement. This appears to be a matter of
mathematical calculation, and the Respondent has not
filed any objections to the numbers submitted by the
Complainants. Because there does not appear to be any
dispute with respect to the amount of money which
would have been received had the Complainants’ been
allowed to participate in the separation benefits program,
the portion of the Complainants’ motion which asks leave
App. 56
to present additional evidence with regard to monetary
damages is granted.
IT IS THEREFORE ORDERED:
1. That the complaints of Roland Berglund, John
Campbell, Margaret Dreesen, Edmund Henkelman, Oleta
Britt, Elden Amans, Florence Maycraft, Dwight Van Fleet,
Gerald Stahl, James Breseman, Thomas Ivy, Charles Re-
werts, Godfrey Farrell, John Downing, Arthur Helgerson,
and Walter Pierce are sustained.
2. That the Recommended Order and Decision of
the Administrative Law Judge is affirmed, adopted by the
Commission and incorporated by reference herein.
3. That the Respondent shall pay the individual
Complainants the following amounts:
A. Edmund Henkelman $3,072.80
B. Oleta Britt 3,040.00
C. Elden Amans 2,992.00
D. Florence Maycraft 3,040.00
E. Dwight Van Fleet 3,072.80
F. Gerald Stahl 3,372.80
G. James Breseman 3,316.80
H. Charles Rewerts 3,372.80
I. Godfrey Farrell 3,347.20
J. Thomas Ivy 2,543.80
_K. John Downing 3,321.60
L. Arthur Helgerson 3,372.80
M. John Berglund 9,434.07
N. Margaret Dreesen 7,144.72
O. John Campbell 12,870.00
P. Walter Pierce 3,456.00
4. That the Respondent shall cease and desist from
discrimination based upon age with respect to separation
benefits.
App. 57
5. That all motions and exceptions not previously
dealt with by the Commission and not specifically men-
tioned in this Order and Decision are hereby denied.
6. That this Order and Decision is final, enforceable
and appealable.
(Commissioner Manuel Barbosa, Commissioner Mervin
N. Bachman, Commissioner Grace Kaminkowitz)
HUMAN RIGHTS COMMISSION
/s/ Manuel Barbosa
Manuel Barbosa
/s/ Mervin N. Bachman
Mervin N. Bachman
/s/ Grace Kaminkowitz
Grace Kaminkowitz
Entered: June 28, 1988
App. 58
69510
ILLINOIS SUPREME COURT
JULEANN HORNYAK, CLERK
SUPREME COURT BUILDING
SPRINGFIELD, ILL. 62706
(217) 782-2035
January 31, 1990
Ms. Deborah L. Ahlstrand
Asst. Attorney General
100 W. Randolph St., 12th Flr.
Chicago, IL 60601
No. 69510 - The Babcock & Wilcox Company, respon-
dent, v. Illinois Human Rights Commis-
sion, et al., petitioners. Leave to appeal,
Appellate Court, Second District.
The Supreme Court today DENIED the petition for
leave to appeal in the above entitled cause.
The mandate of this Court will issue to the Appellate
Court on February 22, 1990.
App. 59
EMPLOYEE RETIREMENT INCOME SECURITY ACT
(ERISA)
29 U.S.C. §1144:
§1144 Other Laws
(a) Supersedure; effective date. Except as pro-
vided in subsection (b) of this section, the provi-
sions of this title and title IV shall supersede any
and all State laws insofar as they may now or
hereafter relate to any employee benefit plan
described in section 4(a) [29 USC §1003(a)] and
not exempt under section 4(b) [29 USC
§1003(b)]. This section shall take effect on Janu-
ary 1, 1975.
* * *
(c) Definitions. For purposes of this section:
(1) The term “State law” includes all laws,
decisions, rules, regulations, or other
State action having the effect of law, of
any State. A law of the United States
applicable only to the District of Co-
lumbia shall be treated as a State law
rather than a law of the United States.
(2) The term “State” includes a State, any
political subdivisions thereof, or any
agency or instrumentality of either,
which purports to regulate, directly or
indirectly, the terms and conditions of
employee benefit plans covered by this
title.
(d) Alteration, amendment, modification, in-
validation, impairment, or supersedure of any
law of the United States prohibited. Nothing in
this title shall be construed to alter, amend,
modify, invalidate, impair, or supersede any law
of the United States (except as provided in sec-
tions 111 [29 USC §1031] and 507(b) [29 USC
App. 60
§1137(b)]) or any rule or regulation issued under
any such law.
App. 61
AGE DISCRIMINATION IN EMPLOYMENT ACT
(ADEA)
29 U.S.C. §623(a) & (f)(2):
§623. Prohibition of age discrimination
(a) Employer practices. 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 privi-
leges of employment, because of such indi-
vidual’s age;
(2) to limit, segregate, or classify his em-
ployees in any way which would deprive or
tend to deprive any individual of employ-
ment opportunities or otherwise adversely
affect his status as an employee, because of
such individual’s age; or
(3) to reduce the wage rate of any employee
in order to comply with this Act [29 USC
§§621 et seq.].
* * *
(f) lawful practices; age an occupational quali-
fication; other reasonable factors; seniority
system; employee benefit plans; discharge or
discipline for good cause. It shall not be unlaw-
ful for an employer, employment agency, or la-
bor organization —
* * *
(2) to observe the terms of a bona fide se-
niority 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 [29 USC
App. 62
§§621 et seq.], except that no such employee
benefit plan shall excuse the failure to hire
any individual, and no such seniority sys-
tem or employee benefit plan shall require
or permit the involuntary retirement of any
individual specified by section 12(a) of this
Act [29 USC §631(a)] because of the age of
such individual;... .
App. 63
ILLINOIS HUMAN RIGHTS ACT
Ill. Rev. Stat. ch. 68, 71-103 (Q) (1987):
§1-103 General Definitions. When used in this
Act, unless the context requires otherwise, the
term:
(Q) Unlawful Discrimination.
“Unlawful discrimination” means discrimi-
nation against a person because of his or her
race, color, religion, national origin, ances-
try, age, sex, marital status, handicap or un-
favorable discharge from military service as
those terms are defined in this Section
Ill. Rev. Stat. ch. 68, (2-102 (A) (1987):
§2-102. Civil Rights Violations - Employment.
- It is a civil right violation:
(A) Employers. For any employer to re-
fuse to hire, to segregate, or to act with
respect to recruitment, hiring, promo-
tion, renewal of employment, selection
for training or apprenticeship, dis-
charge, discipline, tenure or terms,
privileges or conditions of employ-
ment on the basis of unlawful discrim-
ination.
Ill. Rev. Stat. ch. 68, 92-104 (5)(A) (1987):
§2-104 Exemptions Nothing contained in the
Act shall prohibit:
an employer, employment agency or labor
organization from:
* * *
(5) Merit and Retirement Systems.
(a) Applying different standards of com-
pensation, or different terms, conditions or
Se Te
App. 64
privileges of employment pursuant to a
merit or retirement system provided that
such system or its administration is not
used as a subterfuge for or does not have
the effect of unlawful discrimination.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.