Plaintiff Equal Employment Opportunity Commission ("EEOC") brings this action against defendant Johnson and Higgins ("J&H") pursuant to the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. Agreeing with plaintiff's contention that J&H's mandatory retirement policy, which requires those of its employees sitting on the Board of Directors to retire at the earlier of age 62, or age 60 with 15 years of service, violates the ADEA, we grant plaintiff's motion for summary judgment.
Defendant J&H is a global insurance brokerage and employee benefits consulting firm. A privately owned corporation, J&H is organized and existing under the laws of the State of New Jersey with its principal place of business in New York City.
J&H's Charter and By-laws provide that the business and affairs of J&H shall be managed by its Board of Directors, which consists of between 20 and 44 members. Affidavit of Gardner M. Mundy Dated Feb. 1, 1995 ("Mundy Aff.") at P 6. Each Director of J&H must own at least 500 shares of its capital stock, and a Director who ceases to own that number of shares automatically ceases to be a Director. Moreover, when a Director leaves the Board for any reason, he is required to surrender his stock, which is allocated to other Directors. The stock is surrendered pursuant to contracts in which (i) J&H promises to pay during the next ten years the dividends that would have been payable if the Director still held the stock (meaning that the Directors to whom stock is reallocated receive no dividends on it during this ten-year period) and (ii) the outgoing Director promises not to compete with J&H and to be available as a consultant. Mundy Aff. PP 15-17.
At all relevant times, no individual has been elected a Director of J&H who was not an officer of J&H, or of one or more of its subsidiaries, and actively engaged in its service at the time of his or her election. Id. PP 9, 12. Candidates for election are nominated by the Chairman of the Board after consultation with the other Directors. According to defendant, qualifications for becoming a Director include "outstanding performance" of one's senior-level duties, as well as an "effectiveness and contribution to the firm in his or her current and possible future roles [that] would be significantly enhanced by the added authority and status that a Directorship at J&H entails." Id. P 9. When an individual is elected a Director of J&H, the requisite 500 shares of common stock are allocated for purchase by that individual at a relatively nominal cost. Id. P 14.
Importantly, directors of J&H retain their prior duties upon becoming Director and remain "employees" of the corporation. See Ex. 13 to Affidavit of Sonya LeCount Dated Dec. 23, 1994 ("LeCount Aff.") at 11; see also Ex. 2 to LeCount Aff. at 5. However, Directors obtain additional duties in conjunction with their appointment, including possible service upon various committees and attendance at Board meetings. Ex. 13 to LeCount Aff. at 16, 43-44. In addition, their prestige and "personal stature and credibility" within the organization, as well as their "ability to get things done within and without one's particular area of responsibility," are "enormously enhanced." Mundy Aff. P 11. Defendant contends that "if status as a Director is accepted, 'employment' continues, but it becomes but an aspect of the fundamentally entrepreneurial relationship that the Directors have among themselves and to the firm as a whole." Id.
At issue in this case is J&H's mandatory retirement policy pertaining to its Directors. Adopted unanimously by the Board of Directors by resolution to the by-laws, this policy states:
RESOLVED, that the normal retirement date for Directors be the earlier of (a) the year in which the age 62 is attained or (b) the end of the year in which age 60 is obtained and 15 years of service on the board is completed. With respect to (b), in cases of corporate need determined by the Chairman and approved by the Executive Committee, a Director may continue on a year-to-year basis up to but not beyond the end of the year in which age 62 is attained.
Ex. B to Mundy Aff. Twenty-two Directors have retired since the adoption of this policy on November 16, 1983.
Mundy Aff. P 3.
Although J&H's mandatory retirement policy applies only to Directors, it also affects their status as employees and officers of the Corporation. When a Director retires pursuant to this policy, he not only ceases to be a Director, but also loses his position as a stockholder, officer, and employee of the company. See Ex. 13 to LeCount Aff. at 75-76. Indeed, Directors joining the Board are asked to submit a letter of resignation "as a Director, officer and employee," which becomes effective "at the pleasure" of two-thirds of the Board. Mundy Aff. P 11. In short, a new Director continues in J&H's active service as an officer and employee of the corporation or one of its subsidiaries, "but if status as a Director is accepted, the individual's role as an officer or employee becomes appurtenant to his Directorship and if the one status terminates, so does the other." See Ex. 2 to LeCount Aff. at 5 (letter from defendant's counsel to EEOC).
A. Summary Judgment
Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). The burden is upon the moving party to demonstrate that no genuine issue respecting any material fact exists. See Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir. 1975). All ambiguities must be resolved and all inferences drawn in favor of the party against whom summary judgment is sought. See Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 249 (2d Cir. 1985), cert. denied, 484 U.S. 918, 98 L. Ed. 2d 226, 108 S. Ct. 269 (1987).
As discussed below, we find that there are no material facts in dispute in this case and that plaintiff is entitled to judgment as a matter of law.
B. The ADEA
The Age Discrimination in Employment Act ("ADEA" or "the Act") provides that it is "unlawful for an employer . . . to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age." 29 U.S.C. § 623(a)(1). In order to bring an action under the ADEA, a plaintiff must be an employee suing a former or current employer. See Hyland v. New Haven Radiology Assocs., 794 F.2d 793, 796 (2d Cir. 1986); Caruso v. Peat, Marwick, Mitchell & Co., 664 F. Supp. 144, 146 (S.D.N.Y. 1987). The Act defines "employer" in general terms as "a person engaged in an industry affecting commerce who has twenty or more employees . . . ." 29 U.S.C. § 630(b). An "employee" is defined in the Act simply as "an individual employed by an employer." 29 U.S.C. § 630(f).
We find that J&H's retirement policy, which requires those of its employees sitting on J&H's Board of Directors to retire when they reach the age of 60 or 62, violates the clear language of the ADEA. We might conclude differently if J&H's employee-Directors were merely forced under the policy to sell their stock and to resign from their position as Director. See Equal Employment Opportunity Comm'n v. First Catholic Slovak Ladies Assoc., 694 F.2d 1068, 1069 (6th Cir. 1982) (noting that "directorships have traditionally been viewed as employer rather than employee positions"), cert. denied, 464 U.S. 819, 78 L. Ed. 2d 90, 104 S. Ct. 80 (1983); see also Zimmerman v. North American Signal Co., 704 F.2d 347, 352 (7th Cir. 1983) ("We do not believe Congress intended the term 'employee' [under the ADEA] to include persons who are no more than directors of a corporation or unpaid, inactive officers."). But see Sempier v. Johnson & Higgins, 45 F.3d 724, 728 n.4 (3d Cir. 1995) (suggesting that J&H's mandatory retirement policy, even with respect to Director status alone, might violate the ADEA). However, J&H's policy not only forces a Director to give up a directorship at age 60 or 62, but it also terminates one's status as officer and employee of the corporation. Because J&H's policy therefore discriminates by age against J&H's employee-Directors in their role as employees, we find that this policy is prohibited by the ADEA. Cf. First Catholic, 694 F.2d at 1069 (mandatory retirement plan violated ADEA not because it forced directors to retire, but because certain employees were required to be members of the Board of Directors; retirement plan thus indirectly placed age limitation on these employees).
J&H contends that its retirement policy is based upon "reasonable factors other than age" ("RFOA") and is therefore permissible under the ADEA. 29 U.S.C. § 623(f)(1). We disagree. In order to qualify for the RFOA defense under the Act, an employment practice or policy must be "age neutral." Iervolino v. Delta Air Lines, Inc., 796 F.2d 1408, 1415 (11th Cir. 1986), cert. denied, 479 U.S. 1090, 94 L. Ed. 2d 155, 107 S. Ct. 1300 (1987). As the EEOC's regulations state, "when an employment practice uses age as a limiting criterion, the defense that the practice is justified by a reasonable factor other than age is unavailable." 29 C.F.R. § 1625.7(c). J&H's retirement policy expressly utilizes age as its sole limiting criterion: but for reaching age 60 or 62, an employee-Director could remain an employee of J&H.
Therefore, the defense that J&H's policy is based upon reasonable factors other than age is not available.
J&H notes that its non-Director employees are not forced to give up their employee status at age 60 or 62 and argues that its employee-Directors are only required to do so because once they have resigned their Directorships it would be awkward and unrealistic for them to move from their position of power and prestige back to their former status as mere employees.
Transcript of Oral Proceedings Dated March 23, 1995 ("Tr.") at 18-19, 23-24. Therefore, urges J&H, we should view the termination of employee status under the retirement policy as due not to age but rather to the peculiar "dual status" of J&H's employee-Directors.
We reject this "dual status" argument in light of the recent decision of the Second Circuit Court of Appeals in Johnson v. New York. In that case, a civilian air base security guard for the New York State Division of Military and Naval Affairs was terminated when he retired from the New York Air National Guard ("ANG") at age 60 as required by federal military regulations. See Johnson v. New York, 49 F.3d 75, 76 (2d Cir. 1995). New York State required its civilian security guards to be members of the National Guard and offered several seemingly age-neutral justifications for this "dual status" requirement.
Id. at 76, 77. Nevertheless, the Court found that New York's decision to require dual status was "age-based" and consequently unlawful under the ADEA.
Id. at 80. Although the ANG was not within the reach of the ADEA and thus did not violate the law by forcing plaintiff to retire at age 60, the State could not adopt the ANG's facially discriminatory policy. Id. at 79. See also Arizona Governing Comm. v. Norris, 463 U.S. 1073, 1074, 77 L. Ed. 2d 1236, 103 S. Ct. 3492 (1983) (employee retirement plan discriminated on the basis of sex in violation of Title VII where employees had the option of receiving benefits from one of several companies selected by the employer, all of which paid lower monthly benefits to women).
In our view, the Johnson court's holding precludes any argument that J&H's employee-Directors are forced to give up their employee status because of factors other than age. Moreover, J&H's mandatory retirement policy is arguably less defensible than that in Johnson in that it is not a third party's facially discriminatory policy that negatively impacts on J&H's employees, but a policy implemented and imposed by J&H itself. In addition, we find defendant's justification for its "dual status" requirement to be considerably less persuasive than those offered by the defendant in Johnson. While J&H may be correct that it would be uncomfortable and perhaps illogical for employee-Directors to become mere employees upon retiring from the Board, we note that J&H could easily solve this problem without violating the ADEA by structuring its retirement plan for Directors so that it took effect at age 65 rather than age 60 or 62. Under the Act, as J&H is well aware, high-level employees can be forced to retire at age 65.
29 U.S.C. § 631(c).
Defendant argues alternatively that its retirement plan is not unlawful under the ADEA because J&H's Directors are not really "employees" within the meaning of the Act. These Directors not only control and manage the business, but they also are "co-owners" of the corporation, jointly holding all but a tiny fraction of its stock. As such, urges defendant, J&H should be viewed by the Court as the equivalent of a limited-liability partnership, and its owner-officer-Directors should be viewed not as its employees, but rather as its partners. The protections of the ADEA generally do not apply to those classified as partners. See Hyland v. New Haven Radiology Assocs., 794 F.2d 793, 797 (2d Cir. 1986). But see Caruso v. Peat, Marwick, Mitchell & Co., 664 F. Supp. 144, 148-50 (S.D.N.Y. 1987) (rejecting a per se rule that partners are not employees and instead setting forth a multi-factor test).
We believe that this argument by defendant has some merit. Employees who are also co-owners and directors of their corporation arguably are in a better position to take care of themselves than the average employee and consequently may not require the protections of the ADEA. Nevertheless, J&H's argument that its employee-Directors should be treated like partners rather than corporate employees for purposes of the Act is barred by the Second Circuit's opinion in Hyland v. New Haven Radiology Associates.7 In Hyland, plaintiff was forced to resign from a professional corporation in which he and four other radiologists served as corporate officers and directors, were the only stockholders, and divided profits and losses evenly among themselves. Hyland, 794 F.2d at 794. The district court dismissed plaintiff's ADEA suit after applying an "economic realities" test and concluding that the defendant corporation amounted "to a partnership in all but name." Id. at 794. The Second Circuit reversed, holding that defendant's action was subject to the ADEA:
The fact that certain modern partnerships and corporations are practically indistinguishable in structure and operation . . . is no reason for ignoring a form of business organization freely chosen and established. Concededly, the physician members of [the defendant corporation] found that incorporation provided them with important tax advantages and employee benefits not available in any other type of business organization. Having made the election to incorporate, they should not now be heard to say that their corporation is 'essentially a medical partnership among co-equal radiologists.'