Aaron Carson v. Lake County, Indiana

In the United States Court of Appeals For the Seventh Circuit ____________________ No. 16-3665 AARON CARSON, et al., Plaintiffs-Appellants, and RONALD PAULSIN, Intervenor-Appellant, v. LAKE COUNTY, INDIANA, Defendant-Appellee. ____________________ Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:14-CV-117-PRC — Paul R. Cherry, Magistrate Judge. ____________________ ARGUED APRIL 5, 2017 — DECIDED JULY 26, 2017 ____________________ Before WOOD, Chief Judge, and FLAUM and HAMILTON, Cir- cuit Judges. HAMILTON, Circuit Judge. During the recession of the late 2000s, Lake County, Indiana, experienced an emergency cash shortage. The County’s positive cash flow declined from $51 2 No. 16-3665 million in 2007 to $9.9 million in 2008. By 2009, the County was operating at a deficit, and by 2013 its general fund was more than $1 million in the red. During that same period, the County’s self-insurance fund, which it used to cover em- ployee healthcare costs, foundered. The fund had a balance of over $10 million in 2007; that balance was wiped out by 2013. Something had to be done. In an attempt to stanch its fi- nancial bleeding, the County offered retirement incentives to employees age 65 or older. With one incentive package, retir- ees were entitled to five years of supplemental health insur- ance (secondary to Medicare coverage) through Aetna. Retir- ees who selected this package were also permitted to return to work on a part-time basis, though their employment re- mained at-will. The incentive package was attractive, and a number of em- ployees took advantage of it. But the County had miscalcu- lated. In 2013, Aetna informed the County that current em- ployees were ineligible for the supplemental insurance cover- age. If retirees who had been rehired as part-time employees remained on the plan, the plan would no longer qualify for special exemptions under federal law. In that case, the County’s insurance costs would skyrocket. The County was in no position to absorb those added costs. It therefore notified all rehired retirees who were covered by both Medicare and the Aetna supplement that their employment would end ef- fective October 1, 2013. A group of rehired retirees who were fired in October 2013 filed this suit alleging that the County had discriminated against them on the basis of their age in violation of the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. No. 16-3665 3 §§ 621 et seq., and the Fourteenth Amendment’s Equal Protec- tion Clause. The district court granted summary judgment to the County. We affirm. We see no evidence that the County engaged in unlawful age discrimination. Age was a necessary but insuf- ficient factor in the County’s decision-making process. The key criterion that distinguished the terminated employees from all other County employees was not their age but rather their participation in the Aetna plan. The equal protection claim fails because the undisputed facts show that the County’s action was rationally related to a legitimate state in- terest: preserving supplemental insurance coverage for its re- tirees while avoiding further financial hardship. I. Factual and Procedural Background A. Lake County’s Supplemental Insurance Debacle Although plaintiffs’ claims arise under the ADEA and the Equal Protection Clause, those claims (and the County’s ac- tions that precipitated the claims) cannot be analyzed properly without understanding some basics of health insur- ance law. Federal law requires group health insurance plans such as those sponsored by employers to comply with a host of terms governing portability, coverage, rating, renewability, and non-discrimination. Many of these requirements were put in place as part of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010). Others were imposed earlier under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. No. 104-191, 110 Stat. 1936, or prior legislation. Federal law also carves out exemptions for special types of health insurance, including so-called “retiree-only” plans. 4 No. 16-3665 These plans pay benefits secondary to Medicare and are ex- empt from many of the requirements of HIPAA and the Af- fordable Care Act that apply to primary policies. Retiree-only plans help Medicare recipients manage their out-of-pocket costs, including co-insurance and deductibles. For retirees, es- pecially those living on modest or fixed incomes, supple- mental coverage helps ensure access to essential care. In 2008 and 2010, Lake County offered early retirement in- centives to all Medicare-eligible employees who had at least five years of continuous service and who were age 65 or older. These employees could select either a lump-sum payment or five years of supplemental health insurance at the same rela- tively low premium that full-time County employees paid for their health insurance. Retirees who selected the insurance package had a further choice: they could return to work on a part-time basis or receive a small monthly stipend. The record on appeal does not show how many County employees chose each option, but some of the plaintiffs in this case selected the insurance and part-time re-employment package. Other plaintiffs, apparently, selected the lump-sum package or retired through the normal retirement process but were later rehired on a part-time basis. The salient point is that each plaintiff at the time of termination was employed part-time and was covered by both Medicare and Aetna sup- plemental insurance. According to Thomas Dabertin, the County’s human re- sources consultant, in 2013 Aetna informed the County that current employees (including rehired retirees) could not par- ticipate in the supplemental insurance plan. At the time, the County believed this prohibition was a consequence of the Af- No. 16-3665 5 fordable Care Act. However, the statutory language that au- thorizes retiree-only plans actually predates the Affordable Care Act. As best we can tell, the County’s arrangement of providing its rehired retirees with supplemental insurance (secondary to Medicare) that did not conform to group health plan requirements under federal law was impermissible even before the Affordable Care Act took effect. See 26 U.S.C. § 9831(a) (“The requirements of this chapter shall not apply to … (2) any group health plan for any plan year if, on the first day of such plan year, such plan has less than 2 participants who are current employees.”) (emphasis added); 29 U.S.C. § 1191a(a) (“The requirements of this part … shall not apply to any group health plan … for any plan year if, on the first day of such plan year, such plan has less than 2 participants who are current employees.”) (emphasis added). 1 Regardless of the prior legality of the County’s insurance arrangement, one thing was clear when Aetna raised the issue in 2013: if the County did not act quickly, it risked either for- feiting its supplemental insurance coverage altogether or in- curring substantial costs to bring the plan into compliance with federal rules and regulations governing group health in- surance. Neither scenario was acceptable for a local govern- ment still struggling to regain its financial footing. Shortly after receiving the bad news from Aetna, the County retained Larry Grudzien, an attorney specializing in 1 At oral argument, we asked the parties to explain whether the County’s health insurance arrangement was legitimate under federal law as it existed prior to the Affordable Care Act, and if so, the statutory or regulatory support for the arrangement. Neither party could offer any such explanation, reinforcing our doubts about whether the arrangement was ever lawful. 6 No. 16-3665 employee benefits. Grudzien confirmed Aetna’s position, writing that a “retiree who is rehired as an employee … should be treated as a current employee that counts against retiree only plan status and should be covered under the ERISA plan maintained for purposes of current (i.e., active) employees immediately upon rehire.” Grudzien advised the County “not to rehire any retirees,” or, alternatively, to rehire them full-time and offer them regular benefits. In light of Aetna’s warning and Grudzien’s recommenda- tion, the County decided to terminate its rehired retirees. In letters dated August 21 and September 12, 2013, the County informed a group of twenty-eight employees that their em- ployment would end effective October 1, 2013. As the County explained in its letters, these employees were selected because they met each of four criteria: (1) they had retired from County service and were later rehired part-time; (2) they were age 65 or older; (3) they were receiving Medicare as their pri- mary insurance; and (4) they were enrolled in the Aetna sup- plement. 2 A much larger group of employees age 65 or older who were not enrolled in the Aetna supplement continued their employment with the County. As of November 2015, between 150 and 200 active employees, or roughly ten percent of the total County workforce, were age 65 or older. 2 Plaintiffs observe that there is some disagreement among County officials as to who was responsible for selecting the four termination crite- ria. This dispute is immaterial. There is no evidence that any County offi- cial harbored any age-based animus leading to plaintiffs’ terminations. In- stead, the evidence shows that the County acted to preserve affordable supplemental insurance for all of its retirees, a group that includes those affected by the termination decision but also many others. No. 16-3665 7 B. Procedural History Plaintiffs, a subset of the twenty-eight part-time employ- ees who were terminated in 2013, brought this suit in federal court accusing the County of age discrimination in violation of the ADEA and the Fourteenth Amendment’s Equal Protec- tion Clause. Following discovery, the parties filed cross-mo- tions for summary judgment. The district court denied plaintiffs’ motion and granted the County’s motion. Carson v. Lake County, No. 2:14-CV-117- PRC, 2016 WL 4798965 (N.D. Ind. Sept. 14, 2016). The court concluded that plaintiffs had come forward with insufficient direct or circumstantial evidence of age discrimination to sup- port their ADEA claim. As the court explained, “being age sixty-five or older was a necessary but insufficient factor to become a member of the affected group,” as only those em- ployees who met all four criteria (including participation in the Aetna plan) were terminated. Id. at *11. Plaintiffs’ equal protection claim likewise failed. Given the dilemma facing the County if it retained plaintiffs on its payroll—i.e., loss of sup- plemental insurance or a dramatic rate hike—the County’s ac- tion was rationally related to a legitimate governmental inter- est. Id. at *17. The district court entered final judgment for the County. Plaintiffs have appealed. II. Analysis We review de novo the district court’s decision granting the County’s motion for summary judgment, viewing all facts and drawing all reasonable inferences in favor of the plain- tiffs. O’Regan v. Arbitration Forums, Inc., 246 F.3d 975, 983 (7th Cir. 2001). 8 No. 16-3665 A. Age Discrimination in Employment Act 1. Legal Framework Congress enacted the ADEA in 1967 to “promote employ- ment of older persons based on their ability rather than age; to prohibit arbitrary age discrimination in employment; [and] to help employers and workers find ways of meeting prob- lems arising from the impact of age on employment.” 29 U.S.C. § 621(b). The statute, which extends protection to workers age 40 or older, § 631(a), makes it unlawful for an employer, among other things, “to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, con- ditions, or privileges of employment, because of such individ- ual’s age,” § 623(a)(1). By its terms the ADEA proscribes disparate treatment, where “liability depends on whether the protected trait … ac- tually motivated the employer’s [adverse] decision.” Hazen Paper Co. v. Biggins, 507 U.S. 604, 610 (1993). The Supreme Court has held that disparate impact claims are also cogniza- ble under the ADEA. See Smith v. City of Jackson, 544 U.S. 228, 240 (2005). “Claims of disparate treatment may be distin- guished from claims that stress ‘disparate impact’” in that the “latter involve employment practices that are facially neutral in their treatment of different groups but that … fall more harshly on one group than another and cannot be justified by business necessity.” Int’l Brotherhood of Teamsters v. United States, 431 U.S. 324, 335 n.15 (1977). 3 3Plaintiffs proceed primarily under a disparate treatment theory but argue (summarily) that they may also prove their claim under a disparate impact theory. We address both theories. No. 16-3665 9 2. Disparate Treatment A plaintiff seeking to recover for disparate treatment un- der the ADEA must “prove, by a preponderance of the evi- dence, that age was the ‘but-for’ cause of the challenged ad- verse employment action.” Gross v. FBL Financial Servs., Inc., 557 U.S. 167, 180 (2009); Fleishman v. Continental Casualty Co., 698 F.3d 598, 603 (7th Cir. 2012). In this respect, the ADEA is narrower than Title VII of the Civil Rights Act of 1964, as Title VII also protects against mixed-motive discrimination. See Hossack v. Floor Covering Assocs. of Joliet, Inc., 492 F.3d 853, 860 (7th Cir. 2007). An ADEA plaintiff may proceed by introducing direct or circumstantial evidence that her employer took an adverse ac- tion against her because of her age. See Cerutti v. BASF Corp., 349 F.3d 1055, 1061 (7th Cir. 2003), overruled in part on other grounds by Ortiz v. Werner Enterprises, Inc., 834 F.3d 760 (7th Cir. 2016). Alternatively, a plaintiff may proceed through the burden-shifting framework adapted from McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Under the burden-shifting approach, the plaintiff must come forward with evidence showing that “(1) she is a member of a protected class, (2) she was meeting the defendant’s legitimate expectations, (3) she suffered an adverse employment action, and (4) similarly sit- uated employees who were not members of her protected class were treated more favorably.” Simpson v. Franciscan Alli- ance, Inc., 827 F.3d 656, 661 (7th Cir. 2016). If the plaintiff has established this prima facie case, the burden shifts “to the de- fendant to ‘articulate a legitimate, nondiscriminatory reason for the adverse employment action, at which point the burden shifts back to the plaintiff to submit evidence that the em- ployer’s explanation is pretextual.’” Id. (citation omitted). 10 No. 16-3665 However the plaintiff chooses to proceed, at the summary judgment stage the court must consider all admissible evi- dence to decide whether a reasonable jury could find that the plaintiff suffered an adverse action because of her age. See Ortiz, 834 F.3d at 765 (“Th[e] legal standard … is simply whether the evidence would permit a reasonable factfinder to conclude that the plaintiff’s [age] caused the discharge or other adverse employment action. Evidence must be consid- ered as a whole … .”). 4 a. Facially Discriminatory Action Plaintiffs view this case as straightforward. They argue that the County’s termination decision was discriminatory on its face. Since all part-time employees who were terminated on October 1, 2013 were age 65 or older, and since age was one of the criteria listed in the termination letter, plaintiffs assert that “age was a but-for cause, as their age was a necessary condition for the defendant’s decision to terminate them.” The problem is that age over 65, while a characteristic common to all terminated employees, was not the impetus for the County’s decision. It is true, as plaintiffs observe, that an ADEA plaintiff alleging disparate treatment need not prove that age was the sole motivation underlying an adverse ac- tion. But the plaintiff must show that age was a “‘determining 4 The plaintiff in Ortiz brought employment discrimination claims un- der 42 U.S.C. § 1981 and Illinois law. However, the principle that a district court assessing an employment discrimination claim must consider all ad- missible evidence at the summary judgment stage applies with equal force to age discrimination claims under the ADEA. No. 16-3665 11 factor’ or a ‘but for’ element in the decision.” Miller v. Ameri- can Airlines, Inc., 525 F.3d 520, 523 (7th Cir. 2008) (citation omitted). Plaintiffs have not made that showing here. The employees affected by the County’s decision shared four characteristics: they were (1) age 65 or older and (2) en- rolled in Medicare for their primary health insurance cover- age, but also were (3) rehired retirees and (4) most important, enrolled in the Aetna supplemental policy. The County did not terminate these employees because of their ages. It termi- nated them because they were enrolled in a retiree-only insur- ance plan in which current employees could not participate. If these rehired retirees had kept their jobs and remained on the Aetna supplemental health insurance plan in violation of federal law and the County’s insurance contract, they would have—in attorney Larry Grudzien’s words—blown the plan apart. Plaintiffs argue, however, that Medicare eligibility (and, presumably, enrollment in a Medicare supplement like the Aetna plan) may function as a proxy for age, such that an em- ployer’s decision to terminate an employee based on such in- surance coverage is a form of implicit age discrimination. The Supreme Court considered an analogous argument in Hazen Paper. There, the Court rejected an ADEA claim brought by a plaintiff who was fired shortly before the expi- ration of the ten-year vesting period for his pension benefits. The Court reasoned that because “age and years of service are analytically distinct, an employer can take account of one while ignoring the other, and thus it is incorrect to say that a decision based on years of service is necessarily ‘age based.’” 507 U.S. at 611. Nevertheless, the Court left open the possibil- ity that an employer could violate the ADEA if the employer 12 No. 16-3665 treated pension status as a proxy for age, “in the sense that the employer may suppose a correlation between the two fac- tors and act accordingly.” Id. at 613. In such a situation, the employer might indirectly invoke the disparaging stereotypes (“Older employees are likely to be ___”) that Congress sought to prohibit. Id. at 612. There is no evidence that the County engaged in any pro- hibited stereotyping. It did not “suppose a correlation” be- tween plaintiffs’ Medicare status and age and “act accord- ingly.” Id. at 613. Rather, it fired only those employees who were enrolled in the Aetna supplement, leaving unaffected a large number of employees age 65 or older who had not en- rolled in the supplement. The combination of current employ- ment and supplemental insurance participation—not age— was the decisive factor that distinguished the population of terminated employees from the larger County workforce. And the undisputed facts show that economic and regulatory pressures—not generalizations about the capabilities of el- derly employees—drove the County’s decision. 5 Even a government policy that affects different age groups differently may not necessarily discriminate because of age. 5Cf. Tramp v. Associated Underwriters, Inc., 768 F.3d 793 (8th Cir. 2014) (where former employee refused employer’s request that she use Medi- care instead of company health plan, and where—shortly after firing em- ployee—employer asked insurance carrier about rate decrease now that “oldest and sickest” employees were no longer employed, reasonable jury could conclude that employer drew a correlation between healthcare costs and plaintiff’s age and acted accordingly); Erie County Retirees Ass’n v. County of Erie, 220 F.3d 193 (3d Cir. 2000) (policy that provided all Medi- care-eligible retirees with allegedly inferior insurance option as compared with non-Medicare-eligible retirees could trigger ADEA liability). No. 16-3665 13 The question is fact-sensitive. In Kentucky Retirement Systems v. EEOC, 554 U.S. 135 (2008), the EEOC challenged a state re- tirement scheme for employees in hazardous occupations. Under the scheme, an employee could ordinarily retire after twenty years of service or after just five years of service if the employee was at least 55. If, however, the employee became disabled under qualifying circumstances, the employee could retire immediately. In that situation, the employee’s retire- ment benefits would be calculated in part on the basis of “im- puted” years, that is, the number of years it otherwise would have taken for the employee to become eligible for retirement benefits. Given the two routes to ordinary retirement eligibil- ity (the twenty-year route for most workers and the five-year route for older workers), a younger worker disabled on the job would often receive more imputed years than would an older worker. Id. at 139–40. The Supreme Court held that this scheme did “not, on its face, create treatment differences that [we]re ‘actually moti- vated’ by age.” Id. at 147. The Court relied on a series of fac- tors, several of which are instructive here. For instance, the Court noted that “as a matter of pure logic, age and pension status remain ‘analytically distinct’ concepts.” Id. at 143 (cita- tion omitted). Likewise, age and insurance eligibility are ana- lytically distinct. In both Kentucky Retirement Systems and this case, there was no evidence of stereotypical assumptions, the likes of which Congress sought to suppress through the ADEA. Id. at 146. Rather, in both cases the defendant asserted a “clear non-age-related rationale” for its policy: in Kentucky Retirement Systems, an effort to ensure that disabled workers had access to retirement benefits, id. at 144–45, and in this case, an effort to preserve affordable health insurance for re- tirees. 14 No. 16-3665 We recognize that one of the Kentucky Retirement Systems factors seems to tilt (slightly) in plaintiffs’ favor. The Court in that case was skeptical about the chances of “finding a rem- edy that [could] both correct the disparity and achieve the … legitimate objective.” Id. at 147. The problem was thorny; the state devised a scheme that was reasonable under the circum- stances. In this case, the County believed it faced a dilemma in the fall of 2013: it could either (1) terminate the rehired re- tirees enrolled in the Aetna insurance or (2) risk forfeiting the insurance (or paying a much higher premium) for all retirees covered by the supplemental policy. However, the County might have had a third option. It might have explained its pre- dicament to the small group of affected part-timers and then offered each a choice between continued insurance or contin- ued employment. That alternative approach might have been more respectful of plaintiffs’ individual preferences. The fact that the County might have opted for a more sen- sitive solution to its problem does not change the bottom-line result in this ADEA case, though. The County could not fire its employees because of their age, but we see no evidence of such disparate treatment in the record. As a thought experi- ment, consider a scenario in which the “65 or older” criterion was eliminated and there was no evidence that any County official took account of the ages of plaintiffs. The outcome in this scenario would be unchanged. Exactly the same group of rehired retirees would be terminated. The plaintiffs were fired not because of their age but because they were impermissibly enrolled in a retiree-only Medicare supplement while also working part-time. Other employees of a similar age who were not enrolled in the Aetna supplement kept their jobs. No. 16-3665 15 We agree with the district court that “being age sixty-five or older was a necessary but insufficient factor to become a member of the affected group.” Carson, 2016 WL 4798965, at *11. The County did not violate the ADEA. b. McDonnell Douglas Burden-Shifting Though plaintiffs rely primarily on what they characterize as direct evidence of a facially discriminatory policy, they pro- pose in the alternative to prove their disparate treatment claim through the McDonnell Douglas burden-shifting frame- work. Under McDonnell Douglas, where a plaintiff establishes a prima facie case for discrimination, the burden shifts to the employer to offer a legitimate, non-discriminatory reason for the challenged employment action. If the employer does so, the burden shifts back to the plaintiff to prove pretext. Simp- son, 827 F.3d at 661. We need not concern ourselves in this case with burden- shifting or pretext because plaintiffs have not established a prima facie case. Plaintiffs must show they were treated less favorably than similarly situated employees outside their pro- tected class, that is, younger employees. Plaintiffs have not done so. Plaintiffs were among the small group of rehired re- tirees who were employed part-time and insured under Med- icare and the Aetna supplement. All such employees were fired. All employees (regardless of age) who remain em- ployed by the County are not enrolled in the Aetna supple- ment. All retirees who benefit from the supplement are no longer employed by the County. Without an appropriate com- parator group, plaintiffs cannot make out a prima facie case for discrimination and cannot prevail under the McDonnell Douglas framework. 16 No. 16-3665 3. Disparate Impact Next, plaintiffs suggest that they may prove age discrimi- nation under a theory of disparate impact. While the ADEA authorizes recovery in disparate impact cases, Smith, 544 U.S. at 232, disparate impact is a poor fit for plaintiffs’ age-discrim- ination claim. The crux of plaintiffs’ claim is that they were the victims of an impermissibly discriminatory policy. (They were not, as we have explained above.) But to state a claim for disparate impact, plaintiffs would have to show that a “specific, facially neutral employment practice caused a significantly dispropor- tionate adverse impact based on age.” Karlo v. Pittsburgh Glass Works, LLC, 849 F.3d 61, 68 (3d Cir. 2017) (emphasis added). Plaintiffs would have to “proffer statistical evidence that the policy caused a significant age-based disparity,” id. at 69, which they have not done. On the contrary, plaintiffs devote just two paragraphs of their appellate briefs to their conclu- sory disparate impact theory. Even if plaintiffs could put together a prima facie case for disparate impact, the County would easily survive summary judgment under the “reasonable factors other than age” de- fense. See 29 U.S.C. § 623(f) (“It shall not be unlawful for an employer … (1) to take any action otherwise prohibited … where the differentiation is based on reasonable factors other than age[.]”). Here, the undisputed facts show that the County took an adverse action against a subset of older work- ers not because of their age but because it wished to preserve its supplemental insurance plan and to comply with federal law. Those reasonable factors amply support the County’s de- cision. No. 16-3665 17 B. Equal Protection Plaintiffs also argue that their terminations violated the Equal Protection Clause of the Fourteenth Amendment, and they seek relief under 42 U.S.C. § 1983. Plaintiffs’ equal pro- tection argument fails for essentially the same reason that their McDonnell Douglas burden-shifting argument fails: they have not identified a suitable comparator group. See Whitaker ex rel. Whitaker v. Kenosha Unified School District No. 1 Board of Education, 858 F.3d 1034, 1050 (7th Cir. 2017) (“The Equal Pro- tection Clause of the Fourteenth Amendment ‘is essentially a direction that all persons similarly situated should be treated alike.’”) (citation omitted); Alston v. City of Madison, 853 F.3d 901, 906 (7th Cir. 2017) (“To prove discriminatory effect, [plaintiff] must show that he was a member of a protected class and that he was treated differently from a similarly situ- ated member of an unprotected class.”). Even if plaintiffs could surmount that hurdle, the Equal Protection Clause subjects age-based distinctions to rational- basis review, the most deferential form of judicial scrutiny. See City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 440–41 (1985) (“The general rule is that legislation is presumed to be valid and will be sustained if the classification drawn … is ra- tionally related to a legitimate state interest. … We have de- clined … to extend heightened review to differential treat- ment based on age[.]”); Levin v. Madigan, 692 F.3d 607, 619 (7th Cir. 2012) (same). The County chose to terminate a group of at-will part-time employees whose continued employment would have imperiled the County’s already fragile financial situation or jeopardized an insurance plan that benefited plaintiffs and many other retirees. The County’s choice pre- served plaintiffs’ eligibility for the supplemental insurance 18 No. 16-3665 under the Aetna plan. That choice was rational; the Constitu- tion requires nothing more. AFFIRMED.