Harvey Karlen, Arnold Kuhn, and Loretta Carsello v. City Colleges of Chicago
Docket: 87-1051
Court: Court of Appeals for the Seventh Circuit; March 25, 1988; Federal Appellate Court
Three professors, aged between 65 and 69, filed a lawsuit against the City Colleges of Chicago under the Age Discrimination in Employment Act, claiming that the Early Retirement Program, established in 1982 as part of a collective bargaining agreement, discriminated against individuals over 65. Two plaintiffs had already retired at ages 65 and 67, while the third was still employed when the district court granted summary judgment for the defendants, dismissing the case.
Prior to the enactment of the Age Discrimination in Employment Act, which raised the mandatory retirement age from 65 to 70 for college faculty, the Illinois legislature had set a mandatory retirement age of 70. The City Colleges initially contested the applicability of this statute and lost in the Illinois Supreme Court in 1981. Concerned about an aging faculty and limited hiring opportunities due to budget constraints and declining enrollments, the Colleges aimed to implement an early-retirement program shortly after the court's ruling.
The Chancellor of the City Colleges promoted the Early Retirement Program as a means to reduce costs by replacing higher-paid older faculty with lower-paid younger faculty, thereby also encouraging diversity among faculty members, as most tenured staff at the time were white and male. The program is available to full-time faculty aged 55 to 69 with at least ten years of service. While the plaintiffs did not contest the pension calculation based on salary and service, they raised concerns about two specific features of the program related to age.
Accumulated sick pay for faculty members taking early retirement varies by age: those aged 55 to 58 receive 50% of their accumulated sick pay based on their final year’s salary; this increases to 60% for 59-year-olds and 80% for those aged 60 to 64, before dropping to 45% for retirees aged 65 to 70, with mandatory retirement at 70. The Age Discrimination in Employment Act, effective December 31, 1993, eliminated mandatory retirement for academic employees.
Additionally, faculty retiring between ages 55 and 64 retain coverage under the Colleges' group insurance until age 70, while those retiring at 65 or older lose this coverage and must pay premiums to continue their insurance, which can result in significant costs. For example, one plaintiff would have gained $23,857 if he retired at 64 instead of 65, while another would incur a $22,430 premium cost for maintaining insurance.
Despite these potential losses, later retirement typically leads to higher pension amounts due to increased salary and service length. However, the argument that higher pensions compensate for lost benefits does not negate the discriminatory impact of reduced benefits at age 65. A faculty member who delays retirement incurs opportunity costs, such as lost leisure time or alternative employment opportunities. The district judge must assume that choosing not to retire at 64 results in a significant penalty, with the extent of this penalty being a matter for the damages stage of litigation.
The treatment of early-retirement programs poses significant challenges under the Age Discrimination in Employment Act (ADEA). These programs are often designed to encourage older employees to leave, potentially due to their higher costs or because they impede younger employees' advancement. While such programs may generate evidence of age discrimination, they can also be seen as favoring older employees by offering them a desirable option. The notion of early retirement does not inherently stigmatize older workers, unlike programs that discriminate based on race. A recent ruling established that a worker who chooses early retirement cannot sue unless they can demonstrate they were coerced into that decision through threats related to age. In contrast, this case examines the situation of a worker who declines early retirement and subsequently feels discriminated against. Both scenarios—whether a worker feels compelled to retire early due to age-based discrimination or faces repercussions for refusing early retirement—constitute violations of the ADEA.
The case presents a significant distinction from Henn regarding age discrimination in early retirement benefits. In Henn, all employees over 55 were offered equal severance bonuses regardless of age, with no discrimination within the eligible group. Those under 55 were ineligible, but this did not constitute age discrimination against the eligible group since all faced the same conditions. The Age Discrimination in Employment Act (ADEA) does not protect younger workers against older ones, meaning early retirement plans that favor older employees are permissible.
In contrast, the current case shows discrimination against older workers (ages 64-69) within the eligible group (55-69). Benefits significantly decrease at age 65, which would be considered discriminatory, akin to losing other fringe benefits like parking or insurance. While there may be justifications for this reduction, they are relevant to a defense under section 4(f)(2) of the ADEA, which allows for bona fide employee benefit plans that do not serve as a subterfuge for discrimination. The burden of proof lies with the defendants to demonstrate that the early retirement program is a legitimate employee benefit plan and not discriminatory. Various case precedents outline the necessary elements for this defense, emphasizing clarity in legal standards over complex legal doctrine.
The summary judgment record sufficiently establishes that the Early Retirement Program is an integral part of the City Colleges' retirement plan, negotiated with the teachers' union. A key issue is whether the features of the program discriminate against faculty aged 65 or older. The Age Discrimination in Employment Act permits employers to adjust benefits based on costs; however, if an employer uses age as the sole factor for varying benefits, they must demonstrate a strong correlation between age and costs to avoid accusations of discrimination. The City Colleges must prove that the age grading in their Early Retirement Program accurately reflects associated costs to withstand a motion for summary judgment.
Regarding sick-leave benefits, which decrease significantly at age 65, the Colleges present two arguments: first, that unused sick leave contributes to the pension component rather than the lump-sum distribution; and second, that older workers will generally have more sick leave accumulated. However, the record lacks specific figures supporting these claims. Moreover, the Colleges' assumption that older workers will use less sick leave fails to consider that older individuals may face more health issues, which could lead to increased usage. The argument that sick leave should vary by length of service rather than age is also raised, especially given the lack of evidence linking age to service length accurately. The abrupt reduction in benefits at age 65 raises further questions that remain unanswered in the record.
The Colleges argue that insurance coverage cessation at age 65 is justified by increased costs associated with aging, as insurance premiums typically rise with age. However, evidence is lacking regarding the overall cost of insurance under group policies, except for life insurance, which shows a modest premium increase for those over 65. Although costs may rise for older faculty, the Colleges’ approach suggests a strategy to incentivize retirement at 65 rather than a justified response to rising costs. The sharp decline in benefits at age 65 appears designed to pressure faculty into retiring early, contradicting their claims that the drop in benefits reflects actual cost increases. This strategy is seen as potentially discriminatory under the Age Discrimination in Employment Act, as it effectively offers better early retirement benefits to younger faculty while penalizing those aged 65-69. The Colleges could legally achieve their retirement objectives by aligning benefits more closely with actual premium costs and service time, indicating that the current program may be a ruse aimed at reducing faculty numbers at age 65.
The document expresses concern for the City Colleges facing declining enrollments and financial challenges, as well as the struggles of young academics unable to secure teaching positions due to tenured faculty not retiring. It highlights the threat to the quality of higher education posed by a faculty gerontocracy, which is protected by the Age Discrimination in Employment Act (ADEA). Despite the lobbying efforts of colleges against raising the minimum mandatory retirement age to 70, they were unsuccessful. The text indicates that the City Colleges may have attempted to circumvent this change through the Early Retirement Program, which raises questions best resolved at trial. The court concludes that the evidence presented by the defendants does not preclude a reasonable jury from determining that the Early Retirement Program could be a disguise for age discrimination, thus violating the ADEA. The prior decision is reversed and the case is remanded for further proceedings.
