Supreme Court Update

January 2004

In recent sessions, the United States Supreme Court has focused upon key employment issues. In Raytheon Company v. Hernandez, the Court decided on December 2, 2003 that a neutral no-rehire policy provided a legitimate, nondiscriminatory reason for refusing to hire an ex-employee forced out for drug use who is now rehabilitated. In Cline v. General Dynamics Land Systems, the Court heard arguments on November 12, 2003 regarding whether the Age Discrimination in Employment Act (ADEA) supports a claim for "reverse" age discrimination. Finally, in Heinz v. Central Laborer's Pension Fund, the Court will consider whether the anti-cutback provision of the Employee Retirement Income Security Act (ERISA) bars pension funds from cutting or eliminating benefits of workers who take early retirement and then go back to work.

In Raytheon Company v. Hernandez (U.S. Supreme Court, 02-749, decided December 2, 2003), the Court examined whether an employer violates the ADA when it refuses to rehire a recovered addict, following a blanket policy of not rehiring individuals who earlier quit in lieu of discharge. After testing positive for cocaine, Hernandez was allowed to resign rather than be terminated. Three years later, Hernandez reapplied for a job with Raytheon. He attached reference letters indicating that he had overcome his drug and alcohol problem. The Company determined that he was ineligible for rehire citing its unwritten policy of not rehiring former employees who had been terminated or resigned in lieu of termination.

Shortly thereafter, Hernandez filed a lawsuit against the company under the ADA. The Ninth Circuit Court of Appeals ruled for the employee, rejecting the company’s argument that its policy against rehires was a "legitimate, nondiscriminatory reason." According to the court, this policy, "although not unlawful on its face, violates the ADA as applied to former drug addicts whose only work-related offense is testing positive because of their addiction." The lower court continued, "If Hernandez is in fact no longer using drugs and has been successfully rehabilitated, he may not be denied re-employment simply because of his past record of drug addiction."

The Supreme Court unanimously reversed, holding that the employer’s policy was a legitimate, nondiscriminatory reason for its refusal to rehire Hernandez and, therefore, a valid defense against Hernandez’s disparate treatment case. Disparate treatment arises when an employer treats some people less favorably because of a protected characteristic. However, the Court left open the question whether such a policy would violate the ADA under a disparate impact claim, because Hernandez had failed to raise that claim in a timely manner. Disparate impact involves facially neutral employment practices that fall more harshly on one group than another and cannot be justified by business necessity.

The practical import for employers is that employers who have neutral no-rehire policies should monitor the impact of the policies to be sure that they do not affect a protected group in a manner that cannot be justified by business necessity.

On November 12, 2003, the Supreme Court heard arguments in General Dynamics Land Systems v. Cline (U.S. Supreme Court, 02-1080), addressing whether the Age Discrimination in Employment Act (ADEA) supports a claim for "reverse" age discrimination. The case originates from General Dynamics Land Systems, which makes combat vehicles for the military in its Ohio plant. Before 1997, a collective bargaining agreement obligated the employer to provide full health benefits to retired workers who had 30 years of seniority. A subsequent collective bargaining agreement required the employer to provide full health benefits to employees who were 50 years old or older in 1997; younger employees were no longer eligible for full benefits. The Sixth Circuit (contrary to decisions in other circuits) held that the younger employees had a cause of action under these facts because they were disadvantaged compared to older workers. The majority relied on the words in Section 623(a)(1), which prohibit discrimination against "any individual." The majority held that "where the statute's language is plain and unambiguous, there is no justification for resorting to legislative history." The Supreme Court accepted the case to resolve the disagreement between the circuits.

Considering the parties’ oral arguments on November 12, the Court expressed strong skepticism towards the employees’ position. The attorney for the employees argued that, "Congress intended to make age neutral." However, Justice Antonin Scalia disagreed, calling the attorney’s statement a "fanciful version" of what Congress intended. Justice Ruth Bader Ginsburg added that it is common for companies to offer greater benefits to workers over age 50. Such "special accommodations," she said, can include flex time, reduced hours and exemptions from certain physical requirements of the job. "The older you get, the more problems you have," Ginsburg said. "And the statute says yes, you can get these [employee] benefits."

Should the Court uphold the Sixth Circuit’s ruling, it would strike a damaging blow to employers’ ability to control costs by choosing to offer certain benefits to only some employees. A ruling in the case is expected sometime early this year.

The Supreme Court agreed just last month to hear arguments in Central Laborers’ Pension Fund v. Heinz (U.S. Supreme Court, 02-891). This case involves whether ERISA's anti-cutback rule is violated when a pension plan amendment changes the scope of a plan's suspension of benefits provision for those already retired. The Seventh Circuit held that the employer violated the anti-cutback rule when it suspended the retirement benefits of former employees based on an amendment to the pension plan that converted the former employees' post-employment jobs from jobs that did not disqualify them from receiving retirement benefits to jobs that did disqualify them. The question before the Supreme Court will be whether the employer’s post-retirement amendment of the plan "has the effect of eliminating or reducing" the employee’s early retirement benefits. The Court’s decision will have particular interest for employers in law enforcement, military and other government work, where attractive pension benefits may be available after relatively short careers of 20 years or so.

If you have questions regarding the Supreme Court’s decisions, or other labor or employment matters, please contact us.