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Age Discrimination – Small Business Impact

The Age Discrimination in Employment Act of 1967 (ADEA) is a federal law that protects workers age 40 and older.  It is administered and enforced by the Equal Employment Opportunity Commission (EEOC).  The goal of the Act is to provide equal opportunity for citizens age 40 and older.  The Act does generally exclude small businesses and this article is written to guide the small business owner, specifically the human resources manager in regards to the impact the Act has on your small business operation.

For purposes of this Act and the corresponding regulations the EEOC defines small business has any legal business entity with fewer than 20 employees.  The Act goes further to define those entities within the purview of this Act as ‘… 20 or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.’ 

Notice the language?  It is the goal of the Act to not affect seasonal employers.  So if you are involved in landscaping or have a summer cleaning service and hire more than 20 employees for a short period of time; it will not apply to your business.  Furthermore it protects weekend based operations such as family owned hotels and motels that use a flex schedule related to staffing needs to meet weekend demand.  Other examples include:

  • Caterers
  • Event Organizers
  • Sports Arenas/Stadiums
  • Small Business Retailers during the Christmas Season
  • Pool maintenance or lifeguard employers
  • Resorts during the summer season or ski resorts
  • Accounting firms for the tax preparation season (this one is interesting because in almost all cases the accounting firms desire older individuals due to experience)
  • Amusement Parks (however, most are now multi-site and owned by publically traded companies)
  • Nurseries

So for most of you reading this article, the ADEA does not really apply.  However, if your business operation has 20 or more employees here are some highlights of the Act that you should pay close attention to for compliance purposes:

Discrimination Prohibited by the Act

One of the more interesting statements made under Title 29 (Federal Code), Part 1625, specifically Section 1625.2 which states that favoring older individuals over younger individual strictly due to age is not unlawful.  It goes on further to state ‘…. the ADEA does not require employers to prefer older individuals ….’In effect you may indeed indicate in your recruitment efforts the preference for older individuals.  Examples of recruiting statements include:

  • Experience individuals given preference
  • Maturity is an advantage

Help Wanted Notices

What you can’t do in your advertising process is specifically request a young person to apply.  Terms such as ‘Boy’ or ‘Girl’ are prohibited.  Even leading terms that indicate youth are violations.  Examples of this include ‘Recent College Graduate’ or ‘High School Student’.  The key is to focus on the merits of the job for application purposes.  I would suggest not using dates of birth or statements of age on the actual job application. 

What is important for small businesses that have 20 or more employees is to have written policies against age discrimination and procedures in place to demonstrate compliance with the law.  These procedures include:

  1. Proper Job Descriptions
  2. Applications without date of birth blocks or these blocks purposely crossed out
  3. Statements on the Employee Information Board indicating nondiscrimination based on age
  4. Signed statements by existing employees that they were informed by the employer that the company does not discriminate based on age

Bona Fide Occupational Qualifications

So some of you are wondering, what about those businesses where age does play a critical role in performance, typically physical exertion.  The ADEA does allow for some organizations to discriminate based on age, such as police departments, fire departments and even our military has an age limit to join.  For those businesses that generally use younger employees due to the physical demands, it is best for the employer to use minimum standards of physical ability to maintain compliance.  A good example is United Parcel Service requires their employees to be able to lift 70 pounds on a regular basis.

However, the regulations, specifically Section 1625.6 allow a business to exclude certain individuals based on age contingent on one of the following:

  1. The age limit is reasonably necessary to the essence of the business, and either
  2. That all or substantially all individuals are excluded from the job are indeed disqualified, or
  3. That some of the individuals so excluded possess a disqualifying trait that cannot be ascertained except by reference to age

Some good examples of this include sporting teams and bus drivers for a private transportation service.  In Hodgson v. Greyhound Lines the court ruled in favor of Greyhound based on the increased risk of hiring older drivers for long distance travel.  Greyhound argued that as people age their sensory abilities decrease increasing the potential for harm and thus increasing the risk to the riders.

Overall, this standard for private business is difficult to meet therefore other means of controlling the outcome for a business must be utilized.  This is where merit comes into play.

Differentiation Based on Reasonable Factors Other Than Age

Using merit is the only real means of promoting or determining termination related to employees.  Section 4(f)(1) of the Act provides that It shall NOT be unlawful for an employer to use differentiation based on reasonable factors other than age’ as a determinate factor for retention, promotion or termination of an employee.  Of course the wording of ‘differentiation based on reasonable factors’ can only be judged based on the particular facts and circumstances involved.  The burden of proof falls on the employer to demonstrate reasonableness.  So it is best to document business decisions and discussions for protection from a lawsuit or federal charges.

The best tool overall is clear communication with all employees to avoid misunderstandings of what are the performance standards.  Document all interviews and performance meetings between the employer and employee as a tool to demonstrate compliance with the Act.

Sometimes a business goes through a reduction in workforce.  In these situations use criteria that is neutral in nature such as closing an entire division.  If you are unable to do this, evaluate if older employees are disproportionately singled out in the reduction process.  If the ratio is disproportionately unfavorable towards older staff consider other means of determining the pool of dismissed employees.

Benefits

In 1990 the Older Workers Benefit Protection Act amended the ADEA to specifically prohibit employers from denying benefits to older employees.  The whole problem in those days and it still exists today is that benefits for older employees are generally more expensive to the employer than those related to younger employees.  This 1990 Act essentially denies you the right to reduce those benefits to control costs.  Benefit reduction must be an across the board function for the entire company.

You may request and receive an exemption, however this is a difficult endeavor as the tests are extremely restricted and often many companies cannot comply with the respective requirements.  One of the tools used by companies to reduce costs during retirement is to offer a monetary incentive in lieu of a full benefits package.  In these cases, it is wise to counsel the employee/retiree and have them sign a waiver statement and a letter of understanding.

Summary

Overall the Age Discrimination in Employment Act of 1967 limits the employer’s ability to selectively control his workforce based on age.  There are two exclusions for this Act related to small business.  First you must have less than 20 employees or your business must be seasonal in nature.  Compliance with the Act is relatively easy but put into place proper policies and procedures to demonstrate compliance.  Finally use merit as the basis for retention, promotion and termination.  If you feel you are on the border, you may request resolution or guidance related to the Act through a local field office of the Equal Employment Opportunity Commission.  Age discrimination only exists for those ages 40 or older.   Act on Knowledge.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you.   If interested in my help as an accountant or consultant, contact me through the ‘My Services’ page in the footer.

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About David J Hoare (405 Articles)
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns