E.E.O.C. v. Boeing Services Intern.

Citation: Not availableDocket: 91-2882

Court: Court of Appeals for the Fifth Circuit; August 17, 1992; Federal Appellate Court

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In the case of Equal Employment Opportunity Commission v. Boeing Services International, the Fifth Circuit addressed a dispute regarding alleged age discrimination under the Age Discrimination in Employment Act (ADEA). The Equal Employment Opportunity Commission (EEOC) appealed a district court ruling that found Boeing Services International's equivalent pay program did not constitute discrimination against retired employees from The Boeing Company.

The ADEA prohibits age-based discrimination against individuals aged 40 and older, aiming to eliminate arbitrary age discrimination in employment. The court examined whether the equivalent pay, which compensated employees for lost retirement plan contributions and paid holidays after being laid off from Boeing and hired by Boeing Services International, qualified as a "bona fide employee benefit plan" under the ADEA.

The court affirmed the district court's conclusion that the equivalent pay program was indeed a bona fide plan. The context involved Boeing restructuring its operations to enhance competitiveness for a NASA contract, leading to the dissolution of Boeing-Houston and the formation of Boeing Services International. Employees transitioning to BSI were offered equivalent pay to offset reductions in retirement benefits and paid holidays compared to what they previously received at Boeing.

Ultimately, the court upheld the summary judgment favoring Boeing Services International, validating the equivalent pay program as compliant with the ADEA.

Equivalent pay was calculated as a percentage of an employee's base salary but was not considered part of that salary. BSI implemented a new retirement plan and a deferred compensation plan for employees. A letter dated August 10, 1983, informed Boeing employees that those accepting offers from BSI and retiring from Boeing would not receive equivalent pay. At least 28 laid-off employees from Boeing-Houston, aged 55 and older with over ten years of service, retired and subsequently accepted employment with BSI on October 1, 1983, receiving equivalent pay initially but not after retiring from Boeing. These individuals received wages from BSI alongside retirement benefits from Boeing.

The Equal Employment Opportunity Commission (EEOC) filed a lawsuit against BSI, alleging violations of the Age Discrimination in Employment Act (ADEA) due to the denial of equivalent pay to these retirees. The EEOC claimed this constituted age discrimination in employment terms. BSI contended that the denial was age-neutral, as equivalent pay depended on employment continuity rather than age, and asserted that its equivalent pay program was a bona fide employee benefit plan exempt under ADEA section 4(f)(2), which protects legitimate benefit plans from being classified as discriminatory.

The district court granted BSI's motion for summary judgment, determining the equivalent pay program was a bona fide employee benefit plan and that there was no evidence of it being a subterfuge to evade ADEA purposes. The EEOC appealed this decision. The appellate court's review will focus on whether the district court overlooked any disputed material facts and whether it correctly applied the law to the undisputed facts, with both parties agreeing on the absence of factual disputes. The central issue on appeal is whether BSI is entitled to judgment as a matter of law.

Congress enacted the Age Discrimination in Employment Act (ADEA) to achieve three main objectives: (1) to encourage the employment of older individuals based on their abilities rather than age, (2) to prohibit arbitrary age discrimination in employment, and (3) to assist employers and employees in addressing age-related employment issues. Under section 4(a)(1) of the ADEA, it is unlawful for employers to discriminate against individuals based on age in hiring, firing, or employment conditions. However, section 4(f)(2) permits age discrimination in the context of bona fide employee benefit plans (such as retirement or insurance plans), provided it does not serve as a means to evade the Act's purposes. The Supreme Court's ruling in Public Employees Retirement System of Ohio v. Betts clarified the scope of this exemption, indicating that it encompasses any bona fide employee benefit plan, without restricting it to those justifying age-based reductions in benefits through age-related cost considerations. The court indicated that the phrase "any employee benefit plan" should be interpreted broadly and that the inclusion of examples (like retirement and pension plans) does not limit the exemption. The Betts decision does not define the exact meaning of "employee benefit plan," but it confirms that a disability retirement plan fits within this category. Subsequent legislation, such as the Older Workers Benefit Protection Act, has altered the rules regarding age discrimination in employee benefits, but this amendment does not affect the current analysis.

The Court did not determine the precise meaning of a phrase in section 4(f)(2) but identified two interrelated questions for consideration. First, whether the plan in question is a "bona fide" plan, meaning it exists and pays benefits, which the parties agree it does regarding the BSI equivalent pay program. Second, whether the employer adhered to the plan's terms, which the parties also concede by acknowledging BSI's refusal to extend equivalent pay to certain retirees. Given these concessions, the focus shifts to whether the equivalent pay program qualifies as "any employee benefit plan." If it does, the next inquiry is whether the plan is a "subterfuge" to evade the Age Discrimination in Employment Act (ADEA). The term "subterfuge" suggests a deliberate intent to evade statutory requirements. 

Section 4(a)(1) of the ADEA prohibits age discrimination concerning employee compensation and related conditions. The Betts Court noted that sections 4(a)(1) and 4(f)(2) can coexist only if 4(f)(2) is understood to exempt bona fide plans that do not discriminate in non-fringe benefits. While not defining "nonfringe-benefit," the decision implies that "bona fide employee benefit plan" and "nonfringe benefit" are mutually exclusive. The term "employee benefit plan" pertains to fringe benefits, as Congress aimed to regulate only hiring, firing, wages, and other non-fringe benefit conditions, leaving employee benefit discrimination for later consideration. Employers may differentiate fringe benefits based on age without violating the ADEA unless they adopt such plans intending to discriminate against older employees regarding non-fringe benefits. Any attempts to disguise discriminatory practices as age-based benefit variations fall outside the 4(f)(2) exemption.

Illegality of age-based distinctions in fringe benefits hinges on the employer's intent to discriminate in non-fringe benefit areas of employment, as established in City Colleges, 944 F.2d at 342. The Betts ruling clarifies that under section 4(f)(2), the plaintiff must demonstrate the employer's "actual intent" to discriminate in protected non-fringe benefit areas under the ADEA. A key issue in the section 4(f)(2) analysis is whether an equivalent pay program qualifies as an "employee benefit plan," which involves distinguishing between fringe benefits (like retirement and insurance) and non-fringe benefits (such as wages). Non-fringe benefits provide immediate compensation for job performance, while fringe benefits reward employee longevity.

The Third Circuit recognized severance plans as "employee benefit plans," linking them to an employee's length of service and providing financial assistance post-layoff. Conversely, the Ninth Circuit described a profit-sharing plan as a "hybrid," containing elements of both fringe and non-fringe benefits, ultimately ruling it violated the ADEA by denying wages to employees over 65 based solely on age.

The district court deemed the equivalent pay program a "bona fide employee benefit plan" because it did not relate to current performance but instead substituted for lost holiday pay and contributions to a retirement plan, thus classifying it as a fringe benefit. The EEOC contends the equivalent pay should be viewed as a non-fringe benefit under section 4(a)(1) of the ADEA, arguing for an objective analysis that disregards employer motives. However, evidence indicates that the equivalent pay was intended to compensate employees for lost holidays and retirement contributions, not for current services based on past work, as outlined in the communication provided to employees.

Substituted items, including lost holiday pay and retirement contributions, formed the basis of the equivalent pay that employees would have received if they had not been laid off from B–H. This equivalent pay was designed to reward employees for their longevity and continuity of service, bridging the benefits gap between B–H and BSI. BSI argues that lost holiday pay and retirement contributions are fringe benefits under the law, particularly highlighting that retirement contributions are explicitly classified as employee benefits under 29 U.S.C. 623(f)(2). BSI claims lost holiday pay also qualifies as a fringe benefit since it is not tied to current performance and is universally applicable to employees. 

The EEOC, however, classifies holiday pay as a nonfringe benefit, equating it to routine vacation pay, as determined in Massachusetts v. Morash. The Supreme Court in Morash ruled that routine vacation payments do not meet the definition of an "employee welfare benefit plan" under ERISA, emphasizing that these payments are fixed and predictable. The EEOC argues that holiday pay, like vacation pay, is not contingent on employee performance. 

However, this case is under the Age Discrimination in Employment Act (ADEA), not ERISA, and the criteria established in Morash should not be strictly applied. The Betts Court suggests that Congress intended a broader interpretation of employee benefits under the ADEA. The evidence indicates that equivalent pay is contingent on the layoff, distinguishing it from the non-contingent nature of vacation pay. Holiday pay is viewed as more similar to health insurance, a fringe benefit available to all employees, rather than vacation pay, which is dependent on job performance.

BSI's equivalent pay was determined not to be a direct compensation for work performed but rather a replacement for fringe benefits lost due to layoffs at B–H. As such, it is classified as a "bona fide employee benefit plan" under the ADEA, consistent with the Betts Court's broad interpretation of "employee benefit plan" to include various fringe benefits. The EEOC argued that since employees earn equivalent pay only while actively working, it should be considered a nonfringe benefit. However, BSI countered that cessation of employment results in the loss of both wages and fringe benefits, reinforcing that equivalent pay is a fringe benefit. The method of calculating equivalent pay as a percentage of salary does not alter its classification as a fringe benefit, as this approach simply reflects the value of lost benefits.

The assessment then shifted to whether the equivalent pay program was a subterfuge to evade the ADEA's anti-discrimination goals. The EEOC was tasked with proving that the lack of access to equivalent pay for retired incumbents resulted from discriminatory intent regarding nonfringe benefits. The district court found that the EEOC did not present evidence supporting claims of discriminatory intent or adverse impact on employment terms. Consequently, the court concluded that BSI's actions did not constitute age discrimination. Upon review, it was determined that no genuine issue of material fact existed regarding the equivalent pay program's compliance with the ADEA. The district court's summary judgment favoring BSI was therefore affirmed.