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Dec 3, 2014

Employer's Stated Concern over Health Costs for its Older Employees Can Serve as a Proxy for Age Discrimination

ABSTRACT: Eighth Circuit reverses summary judgment against terminated employee, where employer had asked its insurer for premium deductions because its "oldest, sickest" employers were no longer with the company.

The Eighth Circuit recently addressed the question of whether an older employee’s termination, motivated by a desire to reduce the company’s health insurance costs, may constitute unlawful age discrimination. Answering in the affirmative, the Court of Appeals reversed a district court’s grant of summary judgment for an employer, Associated Underwriters, Inc., finding that its former employee, Marjorie Tramp, established genuine issues of material fact as to what her employer considered when making the decision to terminate her employment. 

In 2008, facing economic difficulties, Associated Underwriters solicited bids from various health insurers in hopes it could reduce costs. Learning that employees over the age of 65 are usually not included in an insurance quote because they are Medicare eligible, and believing that a substantial saving in health insurance premiums would benefit the company’s bottom line, the company encouraged Tramp and another employee over the age of 65 to utilize Medicare instead of the company’s healthcare plan. The employees declined to do so. 

Subsequently, the employer, eight years after Tramp had been hired, began documenting her alleged poor performance, uncooperative attitude, and insubordination. She was formally reprimanded and subsequently placed on a 90-day probationary period. In 2009, Associated Underwriters underwent a second round of layoffs, and terminated four employees, including Tramp. The company asserted that the reason for Tramp’s termination was not her age or refusal to utilize Medicare, but her historically poor job performance. 

Tramp sued Associated Underwriters under the Age Discrimination in Employment Act and other statutes, claiming she was harassed, retaliated against, and terminated based on her age, race, disability and sex. Discovery revealed that Tramp’s employer had communicated with health insurance companies – specifically stating that its “oldest and sickest employees” were no longer with the company – and that it requested a rate decrease “from the group becoming younger and healthier.” 

The district court granted summary judgment for the employer, finding that Tramp did not establish that age was the “but-for” cause of her termination, as required under the ADEA. Rather, it found that Associated Underwriters terminated Tramp to reduce health care costs, which the district court found to be analytically distinct from a decision to terminate based on age. The Eighth Circuit reversed and remanded the trial court’s grant of summary judgment on this issue. 

The Court held that a question of material fact remained as to whether Associated Underwriters’ communications with health care providers provided necessary evidence for a fact-finder to deduce that there was a direct correlation between Tramp’s age and the employer’s decision to terminate. Certain considerations, including health care costs, could be a proxy for age discrimination if the employer supposes a connection between one and the other. Thus, Tramp raised a genuine issue as to what Associated Underwriters supposed about age in making its employment decision.

The important lesson to be drawn from this decision is that an employer decision which appears to be based on purely economic factors, may in appropriate circumstances be viewed as discriminatory, if  it produces negative consequences for the company’s older workers.