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Replacing Employee With Younger, Cheaper Alternative Not Age Discrimination

    Client Alerts
  • October 05, 2012

Companies faced with the need to reduce labor costs often consider replacing expensive employees with others capable of performing similar job functions at lower salaries. In such cases, the higher paid workers are often older, having achieved their salary levels through long service with the company. Conversely, the cheaper replacement employees are often considerably younger. As noted by the Eleventh Circuit Court of Appeals in an unpublished decision last month, this strategy alone does not constitute age discrimination.

In Ostrow v. GlobeCast Am. Inc., the plaintiff was a 60-year-old general counsel for a company that was losing money. The new president of the company decided to terminate the plaintiff, and to promote the 37-year-old assistant general counsel. The assistant position was left vacant, and the newly promoted general counsel was paid significantly less than his predecessor. The terminated employee sued alleging age discrimination.

The Eleventh Circuit affirmed summary judgment for the employer. The court noted Supreme Court decisions that allow employers to pursue genuine cost saving measures even where the eliminated higher salaries correlate with older workers. In order to prevail, the plaintiff must demonstrate other evidence that the decision was motivated by age. In this case, in addition to the cost savings, the company demonstrated dissatisfaction with the handling of litigation matters, and a strategy to move the in-house legal position to more of a transactional support role.

In situations involving multiple layoffs, decisions that overwhelmingly affect older workers may raise more significant legal concerns. In all such decisions, the business reasons and justifications for the criteria used to select employees for termination should be carefully vetted and documented.