Main Menu

New California Statute Limits Use of Salary as Termination Criterion

October 27, 1999

In conducting reductions in force, employers commonly select for termination employees whose salaries appear to be disproportionately higher than those of similarly-situated co-workers. A 1997 California court of appeal decision, Marks v. Loral Corp. (1997) 57 Cal.App.4th 30, specifically ruled that the use of high salary as a selection criterion does not violate the California Fair Employment & Housing Act's ("FEHA") prohibition on age discrimination, even though the result may be that a disproportionate number of younger employees (who typically have lower salaries) are retained. The California Legislature has recently intervened to reverse the Court's ruling in Marks. Effective January 1, 2000, a new section of FEHA will provide that the use of salary as the basis for differentiating between employees when terminating employment may be found to constitute age discrimination if use of that criteria adversely impacts older workers as a group.

In the FEHA amendments, the Legislature also made clear that "the disparate impact theory of proof may be used in claims of age discrimination." Previously, it was unclear whether, absent proof of discriminatory intent, a personnel action or selection criterion having a statistically greater impact on older employees could be considered age discrimination. The new legislation makes it clear that such "disparate impact" claims may be brought under the FEHA.

Finally, providing even greater encouragement to potential age discrimination plaintiffs, the new legislation also declares the Legislature's intent "that the courts interpret the state statutes prohibiting age discrimination in employment broadly and vigorously, in a manner comparable to prohibitions against sex and race discrimination, and with the goal of not only protecting older workers as individuals, but also of protecting older workers as a group, since they face unique obstacles in the later phases of their careers."

California employers contemplating reductions in force must be mindful of these amendments to FEHA. In selecting employees for layoff they must exercise caution not to adopt criteria - such as salary level - that could have a disparate impact on older workers.