Appeals panel: Caterpillar didn't discriminate vs older workers by nixing benefits plan to boost early retirement

By Scott Holland | Aug 24, 2018

Bohao Zhao [CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

A federal appeals panel in Chicago has ruled Caterpillar can’t be sued for age discrimination simply because it changed a benefits plan that led to widespread worker retirement.

On Aug. 20, a three-judge panel of the U.S. Seventh Circuit Court of Appeals issued the decision in favor of the massive maker of earthmoving machines and other equipment. Seventh Circuit Judges Frank Easterbrook, Michael Kanne and Diane Sykes heard arguments March 28 in the class action dispute involving 48 Joliet plant employees who refused to retire as part of a 2012 collective bargaining agreement. Sykes wrote the opinion issued Aug. 20.

According to case documents, the 2012 deal ended the longstanding practice of Caterpillar paying unemployment benefits to laid-off employees from a trust funded by monthly contributions based on hours worked. In exchange, the company gave $7.8 million to employees who had participated in that plan. Workers eligible for retirement got a prorated share if they retired, those too young to retire got the same share with no strings attached.

Employee Timothy O’Brien filed the complaint, saying liquidating the plan violated the Age Discrimination in Employment Act. U.S. District Judge Sharon Coleman granted summary judgment to Caterpillar, which the employees appealed. The panel affirmed Coleman’s decision, saying that while the liquidation plan did affect older workers disparately, the company had several reasonable justifications for the move that show discrimination wasn’t the intent.

Among those reasons, according to Sykes, were that the plan achieved a longstanding Caterpillar financial objective of slashing unemployment benefits, incentivized early retirement, cut administrative expenses and built labor peace between the company and union.

Caterpillar worked to eliminate the unemployment trust contributions as early as 1999, saying layoffs were infrequent and suggesting the capital could be put to better use. That year the union agreed to stop letting new employees qualify for the unemployment plan. In 2005 the union assented to a two-tiered scale, placing incoming workers in a lower pay scale.

O’Brien was on the union bargaining committee that rejected Caterpillar’s pushes to end the unemployment plan in April 2012, contributing to a three-month strike. But in June the union proposed a contract that eliminated the plan; the company signed off in August. Of the 269 participating employees, 184 were retirement age and 136 retired and collected $37,836 each.

In weighing Coleman’s summary judgment, the Seventh Circuit panel said the employees had to offer a specific practice with statistics demonstrating a significant age-based disparity, while the company could defend itself by citing other reasonable factors supporting the policy.

The panel said the policy, although a single event and not perpetual employment practice, applied a rule to hundreds of employees and did have a disparate impact on older workers, given that only 1.4 percent of employees younger than 55 were eligible for retirement compared to 93.4 percent of those 55 and older.

Although the panel rejected Caterpillar’s arguments that older employees weren’t disparately affected — “There are no inherent differences between the unemployment-plan participants who were eligible to retire and those who were not,” Sykes wrote, “Caterpillar simply offered a worse deal to a similarly situated group of employees” — it ultimately backed Coleman’s finding the company had reasons to terminate the retirement plan, and further that the law did not require it to pursue less discriminatory means to that end.

“Voluntary retirement incentives are permissible under the ADEA,” Sykes wrote. “Caterpillar’s proposal killed two birds with one stone: it maintained the retirement incentives and induced union members to sign off on the deal.”

O’Brien and the other plaintiffs are represented by attorneys George F. Galland Jr. and David P. Baltmanis, of the firm of Miner, Barnhill & Galland P.C., of Chicago, and Athena M. Herman, of Benassi & Benassi, P.C., of Peoria.

Caterpillar is represented by attorneys Joseph J. Torres, Heather L. Krizof and Derek G. Barella, of the firm of Winston & Strawn LLP, of Chicago.

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Organizations in this Story

Benassi & Benassi Caterpillar Inc. Derek G. Barella Miner, Barnhill & Galland, PC U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois Winston and Strawn LLP

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