Use of “Salary” as a Criterion for Layoffs May Constitute Age Discrimination

By April 19, 2001Articles

Because of recent slowdowns in the nation’s economy, many employers today, large and small are faced with the difficult task of conducting an economic reduction in forces–commonly known as a layoff. One frequently asked question is: “Can the company decide who to layoff based on employee salary or wages? When an employer is trying to cut costs by reducing overhead expenses, workers who earn the most are to some employers the most logical candidates for being laid off. But is this practice permissible if workers over the age of 40 are adversely affected?

In California the answer is no. In 1999, the Legislature enacted Government Code Section 12941.1 which expressly states that “the use of salary as the basis for differentiating between employees when terminating employment may be found to constitute age discrimination if the use of that criterion adversely impacts older workers as a group.” In other words, if the use of salary results in a disproportionate number or percentage of workers over the age of 40 being adversely affected, the layoff is unlawful.

This was not always the law in the State of California. In 1997, the Court of Appeal in Marks v. Loral Corp, 57 Cal.App. 4th 30, held that an employer is not guilty of age discrimination where the choice of which employees to keep and which to let go is based on their compensation.

However, Section 12941.1 expressly rejected the holding in Marks. An employer must now be careful when deciding layoffs to not base their decisions on payroll information alone, if the outcome would have a statistically significant effect on older workers as a group.

For any questions or comments regarding this Labor Law Update please contact attorney Michael Daly of the Daly Law Firm at (619) 525-7000 or daly@dalylawfirm.co.

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