Austin Court of Appeals Affirms Disparate Impact Judgment in Age Discrimination Case

Thirty-three City of Austin employees sued for age discrimination, claiming that the terms of their transfer from a defunct department to the Austin Police Department had a disparate impact on older workers. They won the case to a jury. On February 7, 2014, the Austin Court of Appeals affirmed the judgment in City of Austin v. Chandler, No. 03-12-00057-CV (Tex. App. -- Austin Feb. 7, 2014).

The plaintiffs were employees of the Public Safety Emergency Management Department (PSEM), which included the park police, the airport police, and the like. The City decided to merge PSEM into the Austin Police Department (APD). The APD is unionized, but PSEM was not. The City worked out the details of the transfer with the APD union, but the PSEM employees were not consulted. The Austin Court of Appeals described the resulting agreement:

Under the terms of the Consolidation Agreement, no PSEM employee could transfer to APD at a rank higher than "officer" and no PSEM employee could start with a base salary higher than that of an APD officer with sixteen years' experience. Furthermore, PSEM employees could include only up to three years of PSEM service as years of APD service. Given that APD officers need five years of APD service before they are eligible to sit for a promotion exam, this meant that no PSEM employee—regardless of previous rank or years of service—could be promoted to a higher rank for at least two years after the consolidation. However, to compensate for the loss of most of their pay stipends, the City gave all transferring PSEM employees a lump sum payment to ensure that they at least maintained their final PSEM salary for their first two years at APD.

Thirty-three older employees filed letter complaints with the City of Austin Equal Employment and Fair Housing Office and the EEOC. After they received right to sue letters, they filed suit against the City.

The key evidence was the testimony of competing expert witnesses, who had analyzed the effect of the consolidation. The court summarized the testimony:

At trial, Harvey Corn, the Appellees' expert statistician, testified that as a result of the consolidation, the average PSEM employee under 40 years of age lost 3.7 years of service when placed on APD's pay scale, but the average PSEM employee over 40 lost 6.5 years. Because seniority factored heavily into an APD officer's base pay, this disparity, according to Corn, resulted in the average PSEM employee under 40 receiving a 15.61% pay increase after consolidation, but the average employee over 40 receiving only a 5.68% increase. During cross-examination, the City questioned Corn about the validity of his analysis, and Corn admitted that he did not attempt to valuate the differences in retirement benefits, sick-leave pay, and other factors.

The City called James Pearce, an economic and statistical analyst, who testified about his analysis of the pay disparities after PSEM was consolidated into APD. Pearce testified that one reason for the larger pay increases for PSEM officers under 40 years of age was that more than half of the younger employees made less than the APD minimum salary prior to consolidation, and thus their salaries would substantially increase when they became APD officers. Pearce asserted that these "outliers" skewed Corn's analysis. However, Pearce never argued that the consolidation did not result in disparate pay raises between younger and older officers or that this disparity was insignificant. Furthermore, during his damage analysis, Pearce appeared to concede that the consolidation did result in a "disparate impact" and "loss" for older PSEM officers.

The jury found in favor of the employees, and the City appealed.

First, the City argued that the employees had not raised a disparate impact claim in their charges of discrimination, because they did not use a term such as  "disparate impact" or "facially neutral policy."  The court easily disposed of that argument:

As the City correctly notes, the letter complaints do not use the phrases "disparate impact" or "facially neutral policy," nor any variant thereof. However, the complaints do identify a facially neutral policy—the consolidation of the Airport and Park Police and the Marshall's service into APD. The complaints also identify adverse effects—the Appellees' loss of seniority, years of service, rank, stipend pay, and overtime. Finally, the complaints at least allude to a resulting age-based disparity—asserting that younger officers with fewer years of service received pay increases, with the implication that older officers with more years of service did not.

Given that all thirty-three of the Appellees' letter complaints identify the same facially-neutral employment policy that allegedly disproportionally injured older employees, the EEOC would reasonably be expected to investigate this case as both a disparate-treatment and disparate-impact claim. (Citations omitted).

Second, the City argued that the employees had failed to identify a specific employment practice that caused the disparate impact, because any form of consolidation between PSEM and APD was certain to cause some form of disparity between younger and older workers. The court began by listing the elements of a prima facie case for a disparate impact claim:

The plaintiff has the burden of making a prima facie case of age-based disparate impact discrimination. To make a prima facie case, the plaintiff must "(1) isolate and identify the specific employment practice challenged; (2) demonstrate any observed statistical disparity that the practice has on the protected class; and (3) demonstrate a causal link between the identified practice and the demonstrated disparity." Plaintiffs must identify a specific employment practice rather than a generalized policy in order "to avoid the result of employers being potentially liable for the myriad of innocent causes that may lead to statistical imbalances." (Citations omitted).

The court then found that the employees had sufficiently identified a specific employment practice, and that the City's arguments really related to other elements:

On appeal, the City asserts that the Consolidation Agreement is too generalized a policy to satisfy the specific-employment-practice requirement. In particular, the City claims that Corn's analysis of the Consolidation Agreement failed to take into account the benefits all PSEM employees received as a result of their transfer to APD. Furthermore, the City claims that the Appellees' proposed remedy of completely transferring PSEM rank and years of service to APD would have resulted in higher pay disparities between younger and older officers. However, these issues relate to whether the Appellees have sufficiently proven that the Consolidation Agreement caused a disparate impact, not whether the Consolidation Agreement is a sufficiently specific employment practice. Thus, the City's complaint that the Appellees failed to allege a specific employment practice is without merit. (Citations omitted).

Third, the City argued that discrimination on the basis of "years of service" is not the same as discrimination on the basis of age. The City relied on the U.S. Supreme Court's decision in Hazen Paper to support its argument, but the court distinguished that case on the ground that it involved a disparate treatment claim:

The City also asserts that employment practices based on years of service can never form the basis of an age-based disparate-impact claim, and thus the Appellees' criticism of the Consolidation Agreement fails as a matter of law. We find this argument unpersuasive. The City relies on Hazen Paper Co. v. Biggins, in which the United States Supreme Court held that "there is no disparate treatment under the ADEA when the factor motivating the employer is some feature other than the employee's age." 507 U.S. 604, 609, 113 S. Ct. 1701, 123 L. Ed. 2d 338 (1993) (emphasis added). In Hazen Paper, the court held that discriminating against an employee on the basis of his years of service—although correlated to age—did not constitute age-based disparate treatment because the decision was not motivated by age. Id. However, as the opinion makes clear, its analysis was strictly limited to disparate-treatment claims, as the court had not yet "decided whether a disparate impact theory of liability is available under the ADEA." Id.

The court then held that "years of service" could be a "facially neutral" employment practice for purposes of a disparate impact claim:

The United States Supreme Court and this Court have since recognized that a disparate-impact theory of liability is available under the ADEA and Texas law. Given that disparate-impact claims necessarily assert that a facially neutral employment practice adversely affected older employees, it would be wholly illogical to say that employees can never bring a disparate-impact claim when the facially neutral policy relies on factors—like pension status or seniority—that are "empirically correlated with age." An employer like the City is, of course, free to assert the affirmative defense that its use of seniority was a reasonable factor other than age. However, there is nothing in the case law to suggest that seniority is always a reasonable factor other than age for all age-based disparate-impact claims, and we decline to adopt such a per se rule. (Citations omitted).

Fourth, the City argued that the employees had failed to show that the consolidation of departments caused a significant statistical disparity, which is required to support an inference of causation. Citing the expert testimony summarized above, the court found that there was sufficient evidence to support the jury verdict.

Fifth, the City argued that the disparities caused by the consolidation were due to a "reasonable factor other than age." Specifically, the City argued that its goal was to ensure that none of the PSEM employees suffered a loss of pay due to the consolidation. The court rejected this argument because the City's goal of avoiding pay reductions was not linked to the stripping of seniority:

In this case, the City asserts that its policy of ensuring that no PSEM employee's base salary decreased after consolidation demonstrates that its employment decisions within the Consolidation Agreement were based on reasonable factors other than age. It is undisputed that the City provided all PSEM employees with lump-sum payments to ensure that their salaries were not reduced from their pre-consolidation levels for at least two years. Furthermore, it does not appear that any of the Appellees' salaries were reduced as a result of the consolidation.

However, the City fails to explain a logical connection between reducing the Appellees' years of service—thereby adversely affecting their opportunities for promotion and raises—and ensuring that all PSEM employees maintained their current salaries. There is no evidence or testimony in the record to suggest that the reason the Consolidation Agreement stripped PSEM employees of their seniority was to ensure that all PSEM employees did not receive a reduction in pay. At most, the lump-sum payments to PSEM employees were designed to ameliorate some, but not all, of the adverse effects of consolidation. Thus, the jury could have reasonably concluded that the City failed to prove by a preponderance of the evidence that its employment decisions within the Consolidation Agreement were based on reasonable factors other than age.

Finally, the City argued that the trial court erred by denying its requested jury instruction on causation. The court rejected that argument because the City's requested instruction was defective. However, the court raised two points in passing that are worth noting:

1. The court pointed out in a footnote that the current Texas Pattern Jury Charge on age-based disparate impact discrimination (PJC 107.6) misplaces the burden of proof with respect to whether a disparity was caused by a "reasonable factor other than age."

2. The court stated "Neither the pattern jury charge nor any federal or state precedent provides a separate instruction on causation for disparate-impact claims. Therefore, whether the trial court was required to instruct the jury on causation appears to be a question of first impression." The court did not reach that question.

Having rejected all of the City's arguments, the court affirmed the judgment in favor of the 33 former PSEM employees.

From the perspective of a neutral observer, the question raised by this case is: Why did the City reduce the seniority of the PSEM employees in the first place?  Ultimately, this is why the City lost the case.  It could not provide a coherent explanation for that aspect of the consolidation arrangement.

While it is pure speculation, one must wonder whether the answer to the question lies in the involvement of the APD union.  The union would have been motivated to protect the interests of its existing members, whose seniority could be diluted by the addition of the PSEM employees to the APD employee pool.  Furthermore, it is no secret that regular police officers tend to view park police, airport police, and the like with a certain degree of condescension.    It is possible -- and perhaps likely -- that the City found itself caught between the proverbial rock and a hard place, with the APD union demanding the very terms in the consolidation agreement that a jury found to be age discrimination.

David C. Holmes is a Houston employment lawyer with The Law Offices of David C. Holmes

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