Age Discrimination in Employment Act: Background and Overview

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The time that older Americans spend in retirement has dramatically lengthened in recent years. Not only are people living longer, but many are choosing to retire at a much earlier age. In fact, early retirement is fast becoming a part of the American way of life. However, a growing number of persons desire or need to work in their later years. For them, age discrimination often is an obstacle.

Age, like race, sex, religion, and national origin, is a protected category under Federal law. Eliminating age bias in the workplace is consistent with the American tradition of barring arbitrary policies that discriminate against individuals on the basis of their beliefs or personal characteristics. The nearly unanimous opposition to mandatory retirement by the American public indicates a strong sentiment against age-based employment policies. Nevertheless, statutory protections against age discrimination remain incomplete and somewhat ineffective.

Although the unemployment rate for older persons is approximately half that of younger persons, once an older worker loses a job, his or her duration of unemployment tends to be much longer. In 1990, workers age 55 to 64 years were out of work for an average of 18.5 weeks, while workers age 65 and over were unemployed for an average of 17.6 weeks. The average length of unemployment for all workers age 16 and over was 12.1 weeks.

A. AGE DISCRIMINATION

1. BACKGROUND

Numerous obstacles to older worker employment persist in the workplace, including negative stereotypes about aging and productivity; job demands and schedule constraints that are incompatible with the skills and needs of older workers; and management policies that make it difficult to remain in the labor force, such as early retirement incentives.

Age discrimination in the workplace plays a pernicious role in blocking employment opportunities for older persons. The development of retirement as a social pattern has helped to legitimize this form of discrimination. Although there is no agreement on the extent of age-based discrimination, nor how to remedy it, few would argue that the problem exists for millions of older Americans. Despite Federal laws banning most forms of age discrimination in the workplace, most Americans view age discrimination as a serious problem. Two nationwide surveys conducted by Louis Harris & Associates, in 1975 and in 1981, found nearly identical results: 8 out of 10 Americans believe that "most employers discriminate against older people and make it difficult for them to find work."

The public's perception of widespread age discrimination also is shared by a majority of business leaders. According to a 1981 nationwide survey of 552 employers conducted by William M. Mercer, Inc., 61 percent of employers believe older workers are discriminated against on the basis of age; 22 percent claim it is unlikely that without negative legal consequences a company would hire someone over age 50 for a position other than senior management; 20 percent admit that older workers, other than senior executives, have less opportunity for promotions or training; and 12 percent admit that older workers' pay raises are not as large as those of younger workers in the same category.

The forms of age discrimination range from the more obvious, such as age- based hiring or firing, to the more subtle, such as early retirement incentives. Other discriminatory practices involve relocating an older employee to an undesirable area in the hopes that the employee will instead resign, or giving an older employee poor evaluations to justify the employee's later dismissal. The pervasive belief that all abilities decline with age has fostered the myth that older workers are less efficient than younger workers. Part of this problem is that younger workers, rather than older workers, tend to receive the skills and training needed to keep up with technological changes.

Too often, employers wrongly assume that it is not financially advantageous to retrain an older worker. They believe that a younger employee will remain on the job longer, simply because of his or her age. In fact, the mobility of today's work force does not support this perception. According to the Bureau of Labor Statistics, the median job tenure for a current employee is as little as 4.2 years.

Age-based discrimination in the workplace poses a serious threat to the welfare of many older persons who depend on their earnings for their support. While the number of older persons receiving maximum Social Security benefits is increasing, most retirees receive less than the maximum. According to the 1990 edition of the U.S. Senate Special Committee on Aging's report entitled "Aging America: Trends and Projections," in 1988, 73 percent of persons age 65 or older had a total annual income of less than $15,000. Other reports reveal that only slightly more than half of the work force is covered by a private pension plan, and most older persons do not have substantial holdings in savings, stocks, insurance policies, or bonds.

According to the Bureau of Labor Statistics (BLS), in 1990, the unemployment rate was 3.3 percent for workers age 55 to 64, 3.2 percent for workers age 65 to 69, and 2.7 percent for workers age 70 and over. Although older workers as a group have the lowest unemployment rate, these numbers do not reflect those older individuals who have withdrawn completely from the labor force due to a belief that they cannot find satisfactory employment.

Duration of unemployment is also significantly longer among older workers. As a result, older workers are more likely to exhaust available unemployment insurance benefits and suffer economic hardships. This is especially true because many persons over 45 still have significant financial obligations.

Prolonged unemployment can often have mental and physical consequences. Psychologists report that discouraged workers can suffer from serious psychological stress, including hopelessness, depression, and frustration. In addition, medical evidence suggests that forced retirement can so adversely affect a person's physical, emotional, and psychological health that a lifespan may be shortened.

Despite the continuing belief that older workers are less productive, there is a growing recognition of older workers' skills and value. A 1985 study by Waldman and Avolio revealed little evidence to support the "somewhat widespread belief that job performance declines with age." Their findings showed a strong correlation between improved job performance and increasing age, especially in objective measures of productivity. They concluded that "although chronological age may be a convenient means for estimating performance potential, it falls short in accounting for the wide range of individual differences in job performance for people at various ages."

Many employers also have reported that older workers tend to stay on the job longer than younger workers. Some employers have recognized that older workers can offer experience, reliability, and loyalty. A 1989 AARP survey of 400 businesses reported that older workers generally are regarded very positively and are valued for their experience, knowledge, work habits and attitudes. In the survey, employers gave older workers their highest marks for productivity, attendance, commitment to quality, and work performance.

2. THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

The Equal Employment Opportunity Commission (EEOC) is responsible for enforcing laws prohibiting discrimination. These include: (1) Title VII of the Civil Rights Act of 1964; (2) The Age Discrimination in Employment Act of 1967; (3) The Equal Pay Act of 1963; (4) Sections 501 and 505 of the Rehabilitation Act of 1973; and (5) the Americans With Disabilities Act of 1990.

When originally enacted, enforcement responsibility for the ADEA was placed with the Department of Labor (DOL) and the Civil Service Commission. In 1979, however, the Congress enacted President Carter's Reorganization Plan No. 1, which called for the transfer of responsibilities for ADEA administration and enforcement to the EEOC, effective July 1, 1979.

The EEOC has alternately been praised and criticized for its performance in enforcing the ADEA. In recent years, concerns have been raised over EEOC's decision to refocus its efforts from broad complaints against large companies and entire industries to more narrow cases involving few individuals. Critics also point to the large gap between the number of age-based complaints filed and the EEOC's modest litigation record. In fiscal year 1989, the EEOC received 14,789 complaints and filed only 133 suits on behalf of complainants.

3. THE AGE DISCRIMINATION IN EMPLOYMENT ACT

Over two decades ago, the Congress enacted the Age Discrimination in Employment Act of 1967 (ADEA) (P.L. 90-202) "to promote employment of older persons based on their ability rather than age; to prohibit arbitrary age discrimination in employment; and to help employers and workers find ways of meeting problems arising from the impact of age on employment."

In large part, the ADEA arose from a 1964 Executive order issued by President Johnson declaring a public policy against age discrimination in employment. Three years later, the President called for congressional action to eliminate age discrimination. The ADEA was the culmination of extended debate concerning the problems of providing equal opportunity for older workers in employment. At issue was the need to balance the right of older workers to be free from age discrimination in employment with the employers' prerogative to control managerial decisions. The provisions of the ADEA attempt to balance these competing interests by prohibiting arbitrary age- based discrimination in the employment relationship.

The law provides that arbitrary age limits may not be conclusive in determinations of nonemployability, and that employment decisions regarding older persons should be based on individual assessments of each older worker's potential or ability.

The ADEA prohibits discrimination against persons age 40 and older in hiring, discharge, promotions, compensation, term, conditions, and privileges of employment. The ADEA applies to private employers with 20 or more workers; labor organizations with 25 or more members or that operate a hiring hall or office which recruits potential employees or obtains job opportunities; Federal, State, and local governments; and employment agencies.

As originally enacted, the ADEA prohibited employment discrimination against persons age 40 to 65. As a result of amendments to the law in 1986, however, there currently is no upper-limit cap on these protections, except in a select few professions. The ADEA now covers virtually all employees 40 years of age or older.

Since it's enactment in 1967, the ADEA has been amended a number of times. The first set of amendments occurred in 1974, when the law was extended to include Federal, State, and local government employers. The number of workers covered also was increased by limiting exemptions for employers with fewer than 20 employees. (Previous law exempted employers with 25 or fewer employees.)

In 1978, the ADEA was amended by extending protections to age 70 for private sector, State, and local government employers, and by removing the upper age limit for employees of the Federal Government.

In 1982, the ADEA was amended by the Tax Equity and Fiscal Responsibility Act (TEFRA) to include the so-called "working aged" clause. As a result, employers are required to retain their over-65 workers on the company health plan rather than automatically shifting them to Medicare. Under previous law, Medicare was the primary payer and private plans were secondary. TEFRA reversed the situation, making Medicare the payer of last resort.

Amendments to the ADEA were also contained in the 1984 reauthorization of the Older Americans Act (P.L. 98-459). Under the 1984 amendments, the ADEA was extended to U.S. citizens who are employed by U.S. employers in a foreign country. Support for this legislation stemmed from the belief that such workers should not be subject to possible age discrimination just because they are assigned abroad. Also, the executive exemption was raised from $27,000 to $44,000, the annual private retirement benefit level used to determine the exemption from the ADEA for persons in executive or high policy making positions.

Age Discrimination in Employment Act Amendments of 1986

The Age Discrimination in Employment Act Amendments of 1986 contained provisions that eliminated mandatory retirement altogether. By removing the upper age limit, Congress sought to protect workers age 40 and above against discrimination in all types of employment actions, including forced retirement, hiring, promotions, and terms and conditions of employment. The 1986 Amendments to the ADEA also extended through the end of 1993 an exemption from the law for institutions of higher education and for State and local public safety officers.

In 1990, Congress amended the ADEA by enacting the Older Workers Benefit Protection Act (P.L. 101-433). This legislation restored and clarified the ADEA's protection of older workers' employee benefits. In addition, it established new protections for workers who are asked to sign waivers of their ADEA rights. These important changes in the ADEA are discussed below.

(A) THE OLDER WORKERS BENEFIT PROTECTION ACT

The Older Workers Benefit Protection Act (P.L. 101-433) was signed into law by President Bush on October 16, 1990. Title I of this legislation was designed to overturn Public Employees Retirement System of Ohio v. Betts, 109 S.Ct. 2854 (1989), in which the Supreme Court held that the ADEA does not protect older workers from discrimination in the area of employee benefits. Title II placed new protections in the ADEA which should help to prevent abuses by some employers who ask employees to sign waivers of their ADEA rights.

Congressional concern over the Betts case resulted in the introduction of S. 1511, the Older Workers Benefit Protection Act, on August 3, 1989, by Senators Pryor, Jeffords, Metzenbaum, Kennedy, DeConcini, and Bumpers. The House companion, H.R. 3200, was introduced on August 4, 1989, by Congressmen Roybal, Hawkins, Clay, Martinez and Bilbray.

H.R. 3200 and the Betts decision were the subjects of a joint hearing of the House Select Committee on Aging and the House Education and Labor Subcommittees on Employment Opportunities and Labor-Management Relations on September 21, 1989. The Senate Special Committee on Aging and the Labor and Human Resources Subcommittee on Labor held a joint hearing on S. 1511 on September 27, 1989.

S. 1511 was favorably reported by the Senate Labor and Human Resources Committee on February 28, 1990. The Committee amended S. 1511 by attaching to it a modified version of S. 54, the Age Discrimination in Employment Waiver Protection Act of 1989. The Senate passed a compromise version of S. 1511 by a 94 to 1 vote on September 24 1990. The compromise was passed in the House by a 406 to 14 vote on October 3, 1990.

(1) PROTECTION OF THE EMPLOYEE BENEFITS OF OLDER WORKERS

June Betts was a public employee in Ohio. At age 61 she became permanently and seriously disabled and had no choice but to retire. Ohio's Public Employee Retirement System (PERS), as enacted in 1933, provided for basic retirement and disability retirement. Disability retirement, however, is limited to employees under 60.

In 1976, PERS was amended to provide that disability retirement payments could never be less than 30 percent of the retiree's salary. Under basic retirement, Betts would have received $158.50 per month in benefits; under disability retirement, she would have received $355.00 per month. Betts was not allowed to take disability retirement because she was over age 60, and she was forced to settle for basic retirement benefits. She filed suit in Federal court contending that the PERS plan discriminated against older workers in violation of the ADEA.

Until the Supreme Court handed down its decision in June Betts' case, it has been widely accepted for 20 years that the ADEA protected older workers from discrimination in employee benefits.

In 1967, when the Senate was considering the bill that would become the ADEA, then Senator Javits offered an amendment with the goal of insuring that employers would not be discouraged from hiring older workers due to the fact that the cost of some benefits increases with age. This amendment, which would become section 4(f)(2) of the ADEA, created an exception from the proscriptions of the ADEA for a bona fide employee benefit plan "which is not a subterfuge to evade the purposes of [the Act]. . . ." 29 U.S.C. section 623(f)(2).

The DOL issued a three paragraph regulation interpreting section 4(f)(2) in 1969. This regulation stated that "[a] retirement, pension or insurance plan will be considered in compliance with the statute where the actual amount of payment made, or cost incurred, in behalf of an older worker is equal to that made or incurred in behalf of a younger worker, even though the older worker may thereby receive a lesser amount of pension or retirement benefits, or insurance coverage." 29 C.F.R. section 860.120 (1969). This "equal benefit or equal cost" standard became the test for an employee benefit plans's compliance with the ADEA.

In 1977, the U.S. Supreme court decided United Airlines, Inc. v. McMann, 434 U.S. 192 (1977), in which a retirement plan was forcing the early retirement of older workers. The court held that the term "subterfuge," as used in section 4(f)(2), has a plain meaning (a scheme, plan, stratagem, or artifice of evasion), and by definition an employee benefit plan adopted prior to the enactment of the ADEA in 1967 could never be a "subterfuge." The court therefore ruled that this retirement plan fell within the section 4(f)(2) exception and did not violate the ADEA.

In 1978, Congress reacted to the McMann decision by amending section 4(f)(2) with the phrase "no such . . . employee benefits plan shall require or permit the involuntary retirement of any individual [protected by this Act] because of the age of such individual[.]" 29 U.S.C. section 623(f)(2). Congress also called on the DOL to further clarify its ADEA regulations.

During the Senate debate over the 1978 amendments to the ADEA, Senator Javits essentially endorsed the DOL's interpretation of section 4(f)(2) by clarifying what he had intended with his 1967 amendment:

The purpose of section 4(f)(2) is to take account of the increased cost of providing certain benefits to older workers as compared to younger workers.

(C) TENURED FACULTY EXEMPTION

Provisions in the 1986 amendments to the ADEA to temporarily exempt universities from the law reflect the continuing debate over the fairness of the tenure system in institutions of higher education. During consideration of the 1986 amendments, several legislative proposals were made to eliminate mandatory retirement of tenured faculty, but ultimately a compromise allowing for a temporary exemption was enacted into law.

The exemption allows institutions of higher education to set a mandatory retirement age of 70 years for persons serving under tenure at institutions of higher education. This provision is in effect for 7 years, until December 31, 1993. The law also required the EEOC to enter into an agreement with the National Academy of Sciences to conduct a study to analyze the potential consequences of the elimination of mandatory retirement for institutions of higher education. The study findings are to be submitted to the President and to Congress within 5 years of enactment. The law sets forth the composition of the study panel to include administrators and teachers or retired teachers at institutions of higher education.

Most agree that the tenure system is different from many other employment situations. Tenure protects academic freedom by prohibiting dismissals except under specific conditions. Many have argued that without mandatory retirement at age 70, institutions of higher education will not be able to continue to bring in those with fresh ideas. The older faculty, it is claimed, would prohibit the institution from hiring younger teachers who, with their current state of knowledge, are better equipped to serve the needs of the school. The argument also is made that allowing older faculty to teach or research past the age of 70 denies women and minorities access to the limited number of faculty positions.

Opponents of the exemption claim that there is little statistical proof that older faculty keep minorities and women from acquiring faculty positions. Indeed, they cite statistical information gathered at Stanford University and analyzed in a paper by Allen Calvin which suggests that even with mandatory retirement and initiatives to hire more minorities and women, there was only a slight change in the percentage of tenured minority and women.

Proponents of an exemption cite a study by the Labor Department that the salaries of faculty nearing retirement are about twice those of newly hired faculty. Accordingly, they argue that prohibiting mandatory retirement might also exacerbate the financial problems many colleges and universities are facing.

Those who oppose the exemption believe that there are not sufficient reasons to single out faculty for special, discriminatory treatment. They call it double discrimination--once on the basis of age and again on the basis of occupation--and argue that colleges and universities are using mandatory retirement to rid themselves of both undesirable and unproductive professors, instead of dealing directly with a problem that can afflict faculty members of any age. The use of performance appraisals, they argue, is a more reliable and fair method of ending ineffectual teaching service than are age-based employment policies.

Finally, they claim that there is no evidence that many professors would stay past age 70 even if they could, and that predications of dire consequences from uncapping the retirement age may be exaggerated. According to the Teachers Insurance Annuity Association and College Retirement Equities Fund, the average age at which faculty members being collecting their pensions--which usually represents a retirement date-- has been declining over the past 10 years.

C. OUR AGING WORK FORCE

In January 1989, the Department of Labor released two new reports on older workers and their impact on our Nation's labor market. These reports analyze current work force and labor market data, and make important and interesting projections for older workers for the future.

The DOL report entitled "Older Worker Taskforce: Key Policy Issues for the Future" projects that by the year 2000, the median age of the labor force will increase from about 36 to 39. Also, by the year 2000, the report projects an increase in the number of workers age 55 and over and a decrease of almost 1 million in the number of workers age 16 to 24. These figures confirm that with the aging of the "baby boomers," the population from which our work force is drawn is also aging.

When these projections are combined with the report's additional projection that labor force participation among individuals age 55 and older will decrease significantly by the year 2000, the result is a potential labor shortage. The report concludes that it is important for the government and employers to remove institutional barriers that discourage older workers from continuing in or re-entering the work force. In addition, incentives to retain or attract older workers should be emphasized, and training should be provided to older workers as a means for enhancing and upgrading their skills.

There has been a decreasing trend in work force participation by older workers. The average age at which people begin to draw Social Security benefits is now 63. However, there is growing concern in some circles about the consequences of early retirement. Many contend that a large number of employees who leave the work force, either voluntarily or due to forced retirement, find themselves ill-prepared for the financial consequences. While many believe that retirees who left the work force too early in life are attempting to return, there is presently little proof.

The 1991 unemployment rates for workers in the age groups of 45 to 54, 55 to 64, and 65 and older were significantly lower than the unemployment rates for younger workers. Because an individual must be out of work and actively seeking employment in order to be counted as unemployed, there are at least two viable explanations for these differences. One explanation is encouraging and the other is not. First, the improved pension system may be making it possible for more workers to leave the labor force and permanently retire. Second, the frustration of older individuals in enduring much longer periods of unemployment than younger individuals may be forcing many of them to give up and leave the labor force altogether.

A DOL report entitled "Labor Market Problems of Older Workers" reiterates the longstanding problems facing older persons seeking employment, concluding that many older workers are pressured into early retirement and that "pension rules and job market realities severely limit their options and opportunities." The report also points out that a number of financial disincentives to re-entering the job market persist, including the low pay of part-time work and the Social Security earnings limitation. Looking ahead, the report states that the average retirement age, which had been on a downward trend, has stabilized or gone up slightly in recent years, and that there may be an increased demand for older workers as the general population continues to age.

Ultimately, however, the report concludes that the state of the Nation's economy will determine the value accorded to older workers.

D. PROGNOSIS

As the Nation's population ages, there will be additional pressures to maintain an older work force. This will likely result in the eventual conclusion by the business community that it is to their advantage to modify their current employment practices and provide incentives for older workers to remain on the job. As this occurs, there may well be less need for Federal intervention to assure that older Americans are not victimized by age discrimination. However, until the advantages of employing and retaining older workers are widely acknowledged by business, it will remain essential that older persons who desire to work can rely on the EEOC to protect their rights under the ADEA.

In the years to come, Congress will likely address a number of issues affecting the employment of older workers, including: (1) how to solve permanently EEOC's problems in processing ADEA claims; (2) whether to extend ADEA protections to tenured university faculty, public safety officers, and older workers in apprenticeship programs; (3) ways to improve the delivery of services to older workers under the Title V SCSEP Program of the Older Americans Act; and (4) whether to continue to maintain the State-level set- aside for older workers under the JTPA.

Source: DEVELOPMENTS IN AGING: 1992, VOLUME 1: A REPORT of the SPECIAL COMMITTEE ON AGING, UNITED STATES SENATE, pursuant to S. RES. 71, SEC. 19(b), FEBRUARY 25, 1992, Resolution Authorizing a Study of the Problems of the Aged and Aging. April 20, 1993.