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It is a fairly common practice for companies which are downsizing to adopt benefit plans which encourage older members of their workforce to terminate or retire.

One of the common features of such programs is to provide a health insurance benefit after termination to employees who enter the termination program. However, another common feature of such programs is that a severance benefit such as a continuation of medical insurance is made available to only employees who have reached a certain age, and not to all employees of the company.

In the case of General Dynamics Land Systems v. Kline, General Dynamics entered into a Collective Bargaining Agreement, which terminated the Company’s obligation to provide health insurance benefits to retired employees unless those employees were at least 50 years old during the year the Collective Bargaining Agreement was signed.

You may recall that the Federal Age Discrimination in Employment Act prohibits employers from discriminating against an employee because of such “individual’s age”. The ADEA goes on to define that an older worker deserving of such protection is anyone over the age of 40.

Employees of General Dynamics who were at least 40 years old (and protected by the ADEA) but were under age 50 did not receive the protection of continuing health benefits under the Collective Bargaining Agreement. These employees brought a claim with the Equal Employment Opportunity Commission. The EEOC agreed with them, stating that General Dynamics had violated the ADEA when it entered into a Collective Bargaining Agreement, which denied medical benefits to those terminating employees who were not over age 50. The EEOC said General Dynamics should settle this problem by changing the benefit.

However, General Dynamics refused to abide by the EEOC’s request that it enter into a informal settlement with Mr. Kline and the 40-50 year-old plaintiffs. As a result, Mr. Kline sued General Dynamics in Federal Court. After calling the case one of “reverse age discrimination”, a Federal District Court dismissed Mr. Kline’s claim on the basis that no court had ever granted relief for reverse age discrimination under the ADEA. The Sixth Circuit Court of Appeals then reversed the trial court’s decision, stating that the ADEA prohibited any discrimination based on age, even if such discrimination benefited the older worker.

The United States Supreme Court reversed this decision. The Court held that the ADEA does not stop an employer from favoring an older employee over a younger one, even if the younger one also is over 40 and within the class protected by the ADEA.

What the General Dynamics decision means is open to question, particularly since Minnesota law prohibits age discrimination for employees over age 18. However, this case clearly permits an employer to discriminate in favor of older employees under federal law when it provides a benefit even if it discriminates against younger employees.

If you have any questions, contact Dennis Merley of our Minneapolis office. Dennis Merley 612.373.8434 dmerley@felhaber.com.

Founded in Saint Paul in 1943, Felhaber, Larson, Fenlon and Vogt, P.A. has offices in Minneapolis and Saint Paul. With over 55 attorneys, the firm serves clients in the areas of corporate and commercial law, employee benefits, employment law, estate planning, health care, intellectual property, labor law representing management, litigation, real estate, transportation law, and workers' compensation.