Q: Now that my agency's Paycheck Protection Program funds are about to run out, without business picking up in any meaningful way, I am faced with the very unpleasant decision of laying off employees. Since many of our advisors are over 40, how do I lay them off without violating the Age Discrimination in Employment Act (ADEA)? For example, if someone is older than 65, can I lay them off first because they are most at risk of severe illness if they contract Covid-19 or because they are the highest paid? Do the age discrimination laws apply to independent contractors?
A: The ADEA applies to employers with 20 or more employees. It allows employees and former employees who are 40 years old or older to sue for age discrimination in employment decisions such as hiring and firing.
Some states have age discrimination laws that apply to employers with fewer than 20 employees, and some states have laws that protect all employees against age discrimination, even if they are younger than 40.
Under the ADEA, the federal Equal Employment Opportunity Commission (EEOC) has issued guidance on the subject of age discrimination and Covid-19. It states: "The ADEA would prohibit a covered employer from involuntarily excluding an individual from the workplace based on his or her being 65 or older, even if the employer acted for benevolent reasons such as protecting the employee due to higher risk of severe illness from Covid-19."
So, if you cannot keep an employee from coming to the office based on the higher risk that people over 65 have, it follows that you cannot lay off or fire them on that basis, either.
More broadly, whenever you take any furlough, layoff or termination action that has a disparate impact on employees 40 and over, you need to establish that you are acting on the basis of "reasonable factors other than age," as the EEOC terms it. According to the EEOC, this means "a nonage factor that is objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under like circumstances."
In other words, you need an objective standard, such as productivity. You need to establish the standard in advance, stick to it and make a record of the reason for each decision you make.
As to whether compensation level qualifies as a reasonable basis, the answer appears to be yes. According to one expert, "As the law currently stands, employers appear free to fire older workers, as long as they are higher paid than their younger counterparts, even if the employer is motivated in large part by age discrimination."
I use the term "appears to be" because there is no definitive guidance or precedent on this point, so you may be risking a lawsuit or EEOC complaint even if you ultimately prevail.
Finally, the ADEA does not apply to independent contractors, unless they can successfully show that they should be reclassified as employees under federal or state employment laws.