The opinion of the court was delivered by: Savage, J.
After this social security case was remanded to the Commissioner of Social Security (the "Commissioner") pursuant to the fourth sentence of 42 U.S.C. § 405(g),*fn1 the plaintiff Martin L. Jones moved for attorney's fees under the Equal Access to Justice Act ("EAJA").*fn2
The Commissioner opposed the motion, arguing that the government's decision to deny benefits and its subsequent position in this litigation was "substantially justified." We agree with Jones that the government's position was not substantially justified because it violated binding circuit precedent. Thus, we shall grant his motion and award him attorney's fees.
Jones brought this action under 42 U.S.C. § 405(g) seeking judicial review of the Commissioner's decision denying his application for Disability Insurance Benefits ("DIB") and Supplemental Security Income ("SSI"). Magistrate Judge David Strawbridge issued a Report and Recommendation ("R&R") on November 30, 2011 recommending that we vacate the Commissioner's decision and remand the matter to the Commissioner for further proceedings.*fn3 Judge Strawbridge determined that remand was appropriate because the administrative law judge ("ALJ") had failed to acknowledge that Jones's close proximity to age fifty-five created a "borderline situation" for determining whether he was disabled using the Medical-Vocational Guidelines, known as "the grids."*fn4 The Commissioner filed no objections to the R&R. After an independent review of the record, we issued an order adopting the R&R and remanding the case.
On February 16, 2007, Jones applied for DIB under Title II of the Social Security Act (the "Act") and SSI under Title XVI. He alleged that he had been disabled since June 15, 2003.*fn5 After his application was denied, Jones timely requested a hearing before an ALJ. At the hearing, which was held on August 1, 2008, the ALJ and Jones's attorney solicited testimony from Jones and vocational expert ("VE") Nancy Hartner.*fn6 On October 14, 2008, the ALJ issued a decision denying Jones's application on the grounds that Jones was not disabled under the Act.*fn7
Disability, under the Social Security Act, is defined as an "inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment . . . which has lasted or can be expected to last for a continuous period of not less than 12 months." 42 U.S.C. § 423(d)(1)(A). To determine whether a claimant is disabled, the ALJ must conduct the familiar five-step inquiry prescribed in the Social Security regulations. See 20 C.F.R. §§ 404.1520, 416.920 (West. 2012); Rutherford v. Barnhart, 399 F.3d 546, 551-52 (3d Cir. 2005); Plummer v. Apfel, 186 F.3d 422, 427 (3d Cir. 1999).*fn8 In the first four steps, the burden is on the claimant to make a prima facie case that he is unable to perform his past work. Rutherford, 399 F.3d at 551. At step one, the claimant must demonstrate that she is not engaged in gainful employment. Id. At step two, the claimant must show that she has a medically severe impairment or a combination of impairments. Id. At the third step, the ALJ determines whether the claimant's impairment or impairments are equal to one of the impairments listed in an appendix to the social security regulations.*fn9 The Commissioner has decided that those impairments listed are so severe that they conclusively render a claimant disabled. See Plummer, 186 F.3d at 428. Thus, if the claimant meets his burden at step three, he is per se disabled and the inquiry ends. 20 C.F.R. §§ 404.1520(a)(4)(iii), 416.920(a)(4)(iii); Rutherford, 399 F.3d at 551. If the claimant's impairment does not equal one of the listed impairments, the inquiry proceeds to step four where the claimant must show that the impairment prevents him from performing his past relevant work. Rutherford, 399 F.3d at 551. Once the claimant has established that he cannot return to his previous work, the inquiry moves to the fifth step. Id. There, the burden shifts to the Commissioner to show that "other jobs exist in significant numbers in the national economy that the claimant could perform." Id. (citation omitted); see also Kane v. Heckler, 776 F.2d 1130, 1132 (3d Cir. 1985) (citing 42 U.S.C. § 423(d)(2)(A) (1982)); Rossi v. Califano, 602 F.2d 55, 58 (3d Cir. 1979)). If the Commissioner meets that burden, the ALJ must find that the claimant is not disabled. See 20 C.F.R. §§ 404.1520(a)(4)(v), 416.920(a)(4)(v).
The ALJ found that Jones made his prima facie case in steps one, two and four. He determined that although Jones had sufficient residual functional capacity to perform "light work," his impairments prohibited him from returning to his previous work in construction.*fn10 The ALJ then proceeded to the fifth step to consider whether Jones could perform a significant number of other jobs in the national economy.
To assist the ALJ's analysis at step five, the Social Security Administration ("SSA") promulgated the Medical-Vocational Guidelines, commonly referred to as "the grids." See 20 C.F.R. Pt. 404, Subpt. P, Appendix 2;*fn11 Sykes v. Apfel, 228 F.3d 259, 263 (3d Cir. 2000); Kane, 776 F.2d at 1132; see also Hoopai v. Astrue, 499 F.3d 1071, 1075 (9th Cir. 2007). The grids are shortcuts. Where a rule adequately accounts for the claimant's barriers to performing new work, the rule saves the ALJ from having to determine anew in every case how many jobs are available to someone like the claimant. See Heckler v. Campbell, 461 U.S. 458, 461-62 (1983). However, the grids were not intended to govern all cases. See id. at 462 n.5; Santise v. Schweiker, 676 F.2d 925, 934-35 (3d Cir. 1982). Where no rule adequately considers the claimant's vocational limitations, a more individualized determination of the claimant's abilities is required. See Sykes, 228 F.3d at 266; Kane, 776 F.2d at 1133; Santise, 676 F.2d at 934-35. In those cases, the ALJ may need to solicit testimony from a VE regarding how many jobs the claimant could perform given his specific limitations. See Sykes, 228 F.3d at 269-70 (discussing Campbell, 461 U.S. at 467); see also Hoopai, 499 F.3d at 1075 (citing Desrosiers v. Sec'y of Health and Human Servs., 846 F.2d 573, 577 (9th Cir. 1988)); Butts v. Barnhart, 388 F.3d 377, 383-84 (2d Cir. 2004).*fn12
The grids consist of matrices of four "vocational factors"--physical ability, age, education and work experience--"and set forth rules that identify whether jobs requiring specific combinations of these factors exist in significant numbers in the national economy." Sykes, 228 F.3d at 263; Daniels v. Apfel, 154 F.3d 1129, 1132 (10th Cir. 1998) (quoting Campbell, 461 U.S. at 461-62 (internal quotations omitted)). Each factor contains several categories, and the ALJ must determine which category best describes the claimant. See 20 C.F.R. § 404.1560-68.*fn13 Based on those determinations, the grid rules produce a finding of disabled or not disabled. See id. at Part 404, Subpart P, Appendix 2.
To apply the age factor, the ALJ must place the claimant in one of three categories: "younger person" (under age fifty); "person closely approaching advanced age" (ages fifty to fifty-four); or "person of advanced age" (fifty-five and older). 20 C.F.R. §§ 404.1563(c)-(e), 416.963(c)-(e). What differentiates the three categories is the degree to which a claimant's age is presumed to affect his ability to adjust to other work. Id. at §§ 404.1563(a), 416.963(a); Daniels, 154 F.3d at 1136; Kane, 776 F.2d at 1134. For a younger person, the Commissioner generally does not consider age to seriously impair the claimant's ability to adjust. 20 C.F.R. §§ 404.1563(c), 416.963(c). For a person closely approaching advanced age, age may "seriously" affect the claimant's ability to adjust. Id. at §§ 404.1563(d), 416.963(d). For a person of advanced age, it may "significantly" affect his ability to adjust. Id. at §§ 404.1563(e), 416.963(e). Consequently, the claimant's age category will have a bearing on where he falls within the grids, which can make the difference between a finding of disability or no disability.
As stated in 20 C.F.R. §§ 404.1563(b) and 416.963(b), the SSA "will not apply the age categories mechanically in a borderline situation." The regulation defines a borderline situation as one where the claimant is "within a few days to a few months of reaching an older age category, and using the older age category would result in a determination or decision that [the claimant is] disabled." 20 C.F.R. §§ 404.1563(b), 416.963(b). Where a borderline situation exists, the SSA "will consider whether to use the older age category after evaluating the overall impact of all the factors" in the claimant's case. Id.at §§ 404.1563(b), 416.963(b).
Here, the ALJ evaluated Jones's vocational factors and determined that Jones was able to perform light work, at fifty-four years old was a "person closely approaching advanced age," had a ninth grade education, was able to read and write English, and did not have transferable job skills.*fn14 These determinations placed Jones under grid rule 202.10, which dictated a finding of not disabled.*fn15
Therefore, after considering the VE's opinion, the ALJ concluded that Jones was "able to engage in occupations with significant numbers of jobs in the regional and national economies."*fn16
Jones sought review of the ALJ's decision from the SSA's Appeals Council on November 12, 2008. The Appeals Council denied the request on June 21, 2010, rendering the ALJ's decision the final decision of the Commissioner. See Sims v. Apfel, 530 U.S. 103, 107 (2000) (citations omitted).
Jones then filed this action under 42 U.S.C. § 405(g) (2006), seeking review of the Commissioner's final decision on an application for Social Security benefits. Jones alleged that the ALJ committed three errors in denying his application: 1) rejecting the opinion of Jones's treating physician without providing adequate justification; 2) categorizing him as a "person closely approaching advanced age" based on his chronological age of fifty-four without considering that he was only two ...