On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil Action Nos. 83-5457, 84-4799.
Higginbotham, Chief Judge, Scirica and Garth, Circuit Judges.
This appeal arises from an action by the Equal Employment Opportunity Commission ("EEOC") against Westinghouse Electric Corp. based on the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. §§ 621-634 (1982 & Supp. V 1987), which prohibits employers from discriminating on the basis of age with respect to an employee's compensation, terms, conditions, or privileges of employment, id. § 623(a)(1). Following a bench trial, the district court found that Westinghouse had willfully violated ADEA through the use of discriminatory severance plans, and enjoined Westinghouse from denying severance pay to retirement-eligible employees. E.E.O.C. v. Westinghouse Electric Corp., 632 F. Supp. 343 (E.D. Pa. 1986). On appeal, we affirmed the district court's determination that the plans violated ADEA but remanded for reevaluation of the finding that Westinghouse had acted willfully. E.E.O.C. v. Westinghouse Electric Corp., 869 F.2d 696 (3d Cir. 1989) (" Westinghouse II "). On October 2, 1989, the Supreme Court vacated our decision and remanded this case for further consideration in light of Public Employees Retirement System of Ohio v. Betts, 492 U.S. 158, 109 S. Ct. 2854, 106 L. Ed. 2d 134 (1989). Westinghouse Electric Corp. v. E.E.O.C., 493 U.S. 801, 110 S. Ct. 37, 107 L. Ed. 2d 7 (1989). Upon review, we hold that our original decision cannot stand in light of the standards announced in Betts. We believe that Betts has significantly altered the ADEA landscape on employee benefit plans. Therefore, we will reverse the district court's judgment against Westinghouse.*fn1
The facts of the case are fully set forth in our prior opinion. In brief, the 1979 Westinghouse severance plan denied severance pay to laid-off employees who were eligible for retirement. Under the 1982 plan, retirement-eligible employees could elect either severance pay or retirement benefits but not both in the event of a layoff.
In Westinghouse II, we held that both plans discriminated on the basis of age in violation of ADEA. 869 F.2d at 699. We concluded that the district court had not erred in finding that under each plan, retirement-eligible employees were treated less favorably than younger employees, and that this less favorable treatment was based on age. Id. at 705-09. Moreover, we held that the district court correctly determined that the plans were not part of an integrated company plan to prevent "double-dipping." Id. at 707. Thus, Westinghouse had failed to set forth a legitimate, nondiscriminatory justification for the disparate treatment of retirement-eligible employees.
In addition, we held that the plans were not exempt under § 4(f)(2) of ADEA, 29 U.S.C. § 623(f)(2). 869 F.2d at 711. Section 4(f)(2) exempts any bona fide employee benefit plan that is not a subterfuge to evade the purposes of ADEA so long as the plan does not require or permit involuntary retirement.*fn2 We decided that the severance plans were not part of an integrated employee benefit scheme because, we concluded, severance pay is a fringe benefit, different in purpose from retirement benefits, for which retirement benefits cannot substitute. Id. at 710 (citing E.E.O.C. v. Westinghouse Electric Corp., 725 F.2d 211, 225 (3d Cir. 1983), cert. denied, 469 U.S. 820, 83 L. Ed. 2d 38, 105 S. Ct. 92 (1984) (" Westinghouse I ")). Moreover, we found that the plans could not qualify for the exemption because they were not based on age-related cost factors. Id. (citing E.E.O.C. v. City of Mt. Lebanon, 842 F.2d 1480, 1491 n.9 (3d Cir. 1988), and Westinghouse I, 725 F.2d at 224). Thus, we did not reach the question whether the plans constituted a subterfuge. Finally, we remanded to the district court to reconsider the factors it relied upon in concluding that Westinghouse had acted willfully. Id. at 714.
In Betts, the Supreme Court addressed the question whether the § 4(f)(2) exemption applied to a disability retirement plan that was available only to employees who retired before reaching age sixty. The Court declined to decide the precise meaning of the phrase "any bona fide employee benefit plan, such as a retirement, pension, or insurance plan," found in § 4(f)(2). 109 S. Ct. at 2865 n. 6. The Court held, however, that the statutory language does not limit the exemption to "plans in which all age-based reductions in benefits are justified by age-related cost considerations." Id. at 2864-65 (rejecting Westinghouse I, 725 F.2d at 224). Moreover, the Court decided that the EEOC regulation, which provides that a plan is "not a subterfuge" only if lesser benefits are justified by age-related cost factors, 29 C.F.R. § 1625.10(d) (1988), was contrary to the plain language of the statute and invalid. 109 S. Ct. at 2863, 2865 (rejecting Mt. Lebanon, 842 F.2d at 1489).
The Court reached several conclusions regarding the precise meaning of "subterfuge" in § 4(f)(2). First, it reaffirmed its holding in United Air Lines, Inc. v. McMann, 434 U.S. 192, 203, 54 L. Ed. 2d 402, 98 S. Ct. 444 (1977), that an employee plan adopted prior to the enactment of ADEA cannot be a subterfuge. 109 S. Ct. at 2861. The Court noted, however, that to the extent a post-ADEA provision of a plan "increased the age-based disparity caused by the pre-Act age limitation, McMann does not insulate it from challenge." Id. at 2862.
Second, the Court reiterated its statement in McMann that "'subterfuge' means 'a scheme, plan, stratagem, or artifice of evasion,' which, in the context of § 4(f)(2), connotes a specific 'intent . . . to evade a statutory requirement.'" Id. at 2863 (quoting McMann, 434 U.S. at 203).
Third, the Court noted that a post-Act plan cannot be a subterfuge unless "it discriminates in a manner forbidden by the substantive provisions of the Act." Id. at 2865-66. Noting that any benefit plan that discriminates against older workers would violate § 4(a)(1) (employers prohibited from discriminating on the basis of age with respect to compensation, terms, privileges of employment), the Court stated that both § 4(a)(1) and § 4(f)(2) could be given effect if § 4(f)(2) is viewed as exempting bona fide benefit plans that are not "a method of discriminating in other nonfringe-benefit aspects of the employment relationship." Id. at 2866 (citing 29 U.S.C. § 623(a)(1), (f)(2)). The Court did not define "nonfringe benefit" but its use of the term makes clear that the terms "bona fide employee benefit plan" and "nonfringe benefit" are mutually exclusive. See id. at 2864, 2866.
Fourth, the Court stated that § 4(f)(2) does not establish a defense to liability under ADEA; rather, the section "redefines the elements of plaintiff's prima facie case." Thus, an employee who challenges a provision of a benefit plan under ADEA "bears the burden of proving that the discriminatory plan provision actually was intended to serve the purpose ...