Heyl Royster

It's What You Say AND How You Say It: How to Properly Conduct Business Succession Planning

september 29, 2015

By: Emily Galligan, egalligan@heylroyster.com


Congress enacted the Age Discrimination in Employment Act of 1967 (ADEA) in response to the public's disapproval of employment practices which would correlate age with ability. EEOC v. Wyoming, 460 U.S. 226, 231 (1983). The ADEA prohibits employers from discriminating against employees or potential employees who are age 40 or older because of their age. 29 U.S.C. §§ 623(a)(1), 633. ADEA liability may exist even where a new employee is also in the class protected by the ADEA if the replaced employee was replaced "because of" his/her age. See, e.g., O'Connor v. Consolidated Coin Caterers Corp., 517 U.S. 308, 312 (1996). 

The ADEA provides two exceptions to the general prohibition against age discrimination. However, these exceptions do not necessarily apply to a large number of employers. In the first exception, a mandatory retirement age is allowed for certain executives and high-level policymakers when particular criteria are met. 29 C.F.R. § 1625.12. This exception applies to any employee who is: 

  • At least 65 years of age;

  • Employed in a bona fide executive or high policymaking position for the two-year period immediately before retirement; and

  • Entitled to an immediate, non-forfeitable annual retirement benefit from an employer pension, profit-sharing, savings, or deferred compensation plan, or any combination of those plans, which equals in the aggregate at least $44,000 per year.

This exception applies only to top-level employees who exercise substantial executive authority over a significant number of employees and a large volume of business or whose position and responsibility are such that they play a significant role in the development and implementation of corporate policy.

The second ADEA exception allows a mandatory retirement age if the employer can show that age is a "bona fide occupational qualification" (BFOQ). 29 C.F.R. § 1625.6. A BFOQ means that the employee's younger age is "reasonably necessary to the normal operation of the particular business." Id. at § 1625.6 (a). Mandatory retirement has rarely been upheld under this second exception, although courts have recognized the BFOQ defense when safety issues are involved. Some examples include: firefighters, law enforcement officers, and pilots.

II. Succession Planning

Despite the ADEA, courts have consistently held that the mere fact that an employer asked an employee about his/her retirement plans is insufficient in and of itself to raise an inference of discrimination under the ADEA. See, e.g.Lewis v. St. Cloud State Univ., 467 F.3d 1133, 1137 (8th Cir. 2006) (holding that reasonable inquires into an employee's retirement plans do not permit an inference of age discrimination); Wallace v. O.C. Tanner Recognition Co., 299 F.3d 96, 100-01 (1st Cir. 2002) (holding that company officials are permitted to gather information relevant to personnel planning without raising the specter of age discrimination); Cox v. Dubuque Bank & Trust Co., 163 F.3d 492, 497 (8th Cir. 1998) (holding that an employer may make reasonable inquires into the retirement plans of its employees); and Woythal v. Tex-Tenn Corp., 112 F.3d 243, 247 (6th Cir. 1997) (stating that questions about an employee's future are insufficient to prove that age was the reason for the employee's departure).

That said, employers will need to be cautious when questioning employees about their retirement plans because there is a critical distinction between asking about retirement plans for the purpose of legitimate business planning and asking about retirement in a manner intended to harass an older employee into retiring. See Barbara Lindemann & David D. Kadue, Age Discrimination in Employment Law 381-82 (2003). 

Courts recognize that employers must be permitted to ask employees about their retirement plans. See, e.g., Moore v. Eli Lilly & Co., 990 F.2d 812, 818 (5th Cir. 1993). The Seventh Circuit declared that "a company has a legitimate interest in learning its employees' plans for the future, and it would be absurd to deter such inquiries by treating them as evidence of unlawful conduct." Colosi v. Electri-Flex Co., 965 F.2d 500, 502 (7th Cir. 1992). But the key is that any inquiries about retirement plans must be "reasonable." Moore, 990 F.2d at 818; see also Rexses v. Goodyear Tire & Rubber Co., 401 Fed. Appx. 866 (5th Cir. 2010) (reasoning that an employer's inquiry into an employee's age and retirement plans is not by itself evidence of discriminatory intent); Betz v. Chertoff, 578 F.3d 929, 934 (8th Cir. 2009) (holding that reasonable inquiries into an employee's retirement plans do not permit an inference of age discrimination).

Similarly, courts generally recognize that employers have legitimate business reasons to be concerned about employees' expected tenure, even though expected tenure may correlate with age. See Lee v. Rheem Mfg. Co., 432 F.3d 849, 853 (8th Cir. 2005) (although applicant's "expected years of work is related to his age, 'factors other than age, but which may be correlative with age, do not implicate the prohibited stereotype, and are thus not prohibited considerations'"). For example, in Misner v. Potter, No. 2:07-CV-330 CW, 2009 U.S. Dist. LEXIS 55147 (D. Utah June 26, 2009), the court illustrates how age discrimination relates to succession planning. The USPS initiated a corporate succession planning processing by establishing various pools of candidates to be considered for upper management positions once those positions became available. To fill the pools, the USPS accepted applications from minimally qualified candidates as well as "high potential" candidates, and those applications were reviewed by a panel of USPS executives who ultimately made the hiring or promoting decisions. Plaintiff was a 56-year-old employee of the US Post Office (USPS) and nominated himself to multiple pools, but was later notified he had not been selected for any of them. He filed a claim against the USPS, alleging that it violated the ADEA by not placing him in the pools because of his age. The court held that although the people who were accepted into the pools from which plaintiff was rejected were younger, the plaintiff's claim failed because the USPS proved it had legitimate and non-discriminatory reasons for not including plaintiff in any of the pools. Specifically, the USPS's decisions were based on merit and plaintiff's qualifications were not sufficient. For example, plaintiff stayed in the same position for over 10 years, which was considered a weakness in plaintiff's resume. Therefore, his most relevant experience was over 10 years old. In addition, plaintiff failed to show that the USPS's explanations were untrue or used as pretext for discrimination. The court explained "[a] selection process that involves both objective goals and subjective evaluations is not alone evidence of pretext." Misner, 2009 U.S. Dist. LEXIS 55147 at *29.

However, not all cases are favorable to the employer. In Sharp v. Aker Plant Servs. Group, Inc., 726 F.3d 789 (6th Cir. 2013), a 52 year old employee was chosen for layoff over a 44 year old co-worker. The employer, Aker, contended that the layoff decisions were based on performance, not age and cited several of the plaintiff's low-scoring performance evaluations. However, when the plaintiff was informed of the layoff, the supervisor never mentioned that poor performance was the underlying reason. When the plaintiff asked why a younger employee with less tenure was being retained, the supervisor explained "well, we want someone younger… Aker has a succession plan where you bring in younger people, train them, so when the older people leave, that you'll have younger people." Sharp, 726 F.3d at 794. The supervisor then provided the plaintiff with a letter of recommendation. The court held that the supervisor's remarks were direct proof of age discrimination. The supervisor maintained that he mentioned a succession plan rather than poor performance to spare the employee's feelings. However, the supervisor in effect provided the court with an inconsistent performance management record and controversial quotas that aided the plaintiff in his lawsuit.

In another case, Romantine v. CH2M HILL Eng'rs, Inc., Wo. 09-973, 2010 U.S. Dist. LEXIS 136011 (W.D. Pa. Nov. 24, 2010), the plaintiff alleged that the company's executives made comments concerning the organization's plans for succession prior to plaintiff's layoff. Specifically, the executives stated that they wanted to get "younger and cheaper [employees]" and get "rid of white-haired men to lower overhead costs." Romantine, 2010 V.S. Dist. LEXIS 136011, at *35. Plaintiff also alleged that his supervisor made several inquiries and comments regarding his plans for retirement. Although the court correctly noted that "an employer may make reasonable inquiries into the retirement plans of its employees for purposes of succession planning or to address rumors concerning retirement for purposes of staffing," other courts have "also recognized ... that some retirement inquiries are so unnecessary and unreasonable [and] may constitute evidence of age discrimination." Id. at *36-37. The court determined the fact that plaintiff was asked about retirement plans on four to six occasions were sufficient "evidence from which a reasonable jury could believe that an ageist environment or atmosphere existed ... and that [the] retirement comments to Plaintiff were not jokes but an attempt by [the supervisor] to fall in line with [the] corporate philosophy that [the plaintiff's division] needed to get younger." Id. at *37. Thus, the employer's summary judgment was denied and plaintiff's age discrimination claims proceeded to trial.

III. Tips for Employers

There are 3 scenarios that can have the effect of mixing succession planning with age discrimination, which should be avoided:

  1. Suggesting retirement to avoid dealing with performance issues;

  2. Selecting older employees for layoff;

  3. Planning for succession when an employer is unsure of when the employee is planning to retire.

Outlined below are tips to avoid ADEA discrimination claims relating to business succession planning:

  • Avoid making age-based stereotypes or assumptions

  • Choose words wisely. Avoid oral or written words (especially in regard to hiring or promoting) such as: "young," "cheap," "fresh," "next generation," "energetic," "young blood" or "youthful."

  • Conduct annual performance reviews as a routine business practice to communicate with employees about their future plans.

  • Focus succession planning on employees in key positions rather than age. Succession plans should focus on the importance of transferring knowledge.

  • Gather information for succession planning from a cross-section of employees of different ages and diverse backgrounds. Don't focus solely on older workers.

  • Questions should be asked by someone in the HR department who is well-respected, experienced, and has good professional history with the employee being questioned.

  • Do not consider nearness to retirement when making lay-off choices.

  • Consider whether succession planning or any other particular employment practice may have a disparate impact on the basis of age.

  • Do not make any succession planning meeting look like an intervention to push, encourage or force retirement. Do not make retirement inquiries if it is unnecessary.

  • Do not continuously revisit the issue if the employee states that he/she has no plans on retiring. In addition, expressing disapproval may be deemed to have a coercive effect.

  • Ask open-ended questions to employees of all ages regarding short-term and future plans, goals, and anticipated changes in their work schedule.

  • Invest in supervisor training regarding effective employee communications.

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