AARP v. EEOC, No. 05-4594 (3d Cir. June 4, 2007)
The U.S. Court of Appeals for the Third Circuit (PA, NJ, DE, VI) has ruled that the U.S. Equal Employment Opportunity Commission (EEOC) has the authority to create an exemption under the federal Age Discrimination in Employment Act (ADEA) to allow employers to offer retirees health plans that are coordinated with Medicare. In Erie County Retiree Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000), the Third Circuit had held that health benefits offered to retirees had to meet the ADEA’s "equal cost or equal benefit" test, meaning that employers could not offer retirees health benefit plans that are cut off or reduced when the retiree becomes eligible for Medicare. In response, the EEOC issued final rules intended to reverse that holding. The American Association of Retired Persons (AARP) challenged these rules, and a U.S. district court initially agreed that the EEOC lacked the authority to issue them because they conflicted with the Third Circuit's earlier ruling. While an appeal of the this decision was pending, the district court did an about face in light of the U.S. Supreme Court's new ruling in National Cable and Telecommunications Association v. Brand X Internet Services, 125 S.Ct. 2688 (2005). In Brand X, the Supreme Court held that "a court's interpretation of a statute only bars an agency from interpreting that statute differently from the court if the court has determined the only permissible meaning of the statute." Brand X also clarified the degree of deference a court must give to an agency's interpretation under the Supreme Court's ruling in Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984). The AARP now challenges the district court’s new ruling.
The Third Circuit identified the issues in the case as: (1) whether the proposed regulation is within the EEOC’s authority under the ADEA; and (2) whether the regulation is valid under the federal Administrative Procedure Act (APA). Addressing the issue of the EEOC’s authority under the ADEA, the court stated that the "precise question in this case is whether the EEOC has the power to issue a regulation exempting from the prohibitions of the ADEA employer-sponsored benefits plans." The court concluded that the language in section 9 of the ADEA "clearly and unambiguously" gives the EEOC authority to provide, at least, narrow exemptions from ADEA’s prohibitions. The court rejected AARP’s argument that the EEOC’s proposed exemption exceeds the agency’s authority under section 9 because the exemption would allow certain employer practices otherwise prohibited under the ADEA. It, instead, found that "[b]ecause section 9 clearly grants such authority to the EEOC, the fact that the proposed regulation would allow certain practices not otherwise permitted under section 4 does not render the regulation invalid." While acknowledging that the EEOC’s authority to grant exemptions is not unlimited and must, as section 9 mandates, be shown to be "reasonable" and "necessary and proper in the public interest," it concluded that under the circumstances the "EEOC has shown that this narrow exemption from the ADEA is a reasonable, necessary and proper exercise of its section 9 authority, as over time it will likely benefit all retirees." As a result, the court concluded that the regulation was consistent with the ADEA’s purposes and intent, and was a reasonable exercise of the agency’s authority as delegated to it by the U.S. Congress.
Turning to the regulation’s validity under the APA, the court rejected AARP’s argument that EEOC acted arbitrarily in disregard of its regulations, which instruct the agency to exercise caution and due regard for the remedial purpose of the ADEA when using its exemption authority. This argument was unavailing, the court found, because it had already concluded that the proposed regulation, being narrowly drawn to meet the goals of the ADEA and being in the public interest, is expressly authorized by the ADEA. The court rejected AARP’s contention that the proposed regulation was arbitrary and capricious because it represented a change in agency policy unsupported by existing law. The EEOC had engaged in "a reasoned analysis" that was neither arbitrary nor capricious, the court found. The court also dismissed AARP’s argument that "EEOC acted arbitrarily by failing to consider all relevant factors and possible alternatives in proposing the exemption." Based on its review of the record, it concluded "EEOC’s proposed regulation was supported by the agency’s full consideration of the relevant factors, potential effects, and possible alternatives to such a policy, and was not arbitrary or capricious." Lastly, the Third Circuit disposed of AARP’s challenge to the regulations based on the EEOC’s failure to comply with the notice and comment requirements of the APA. EEOC had provided "general notice of the proposed rulemaking, including the terms of the rule and a lengthy explanation of its rationale, and provided an opportunity for interested parties to participate in the rulemaking through the submission of comments." These actions satisfied the plain language of the APA, which only requires "[g]eneral notice of proposed rule making . . . in the Federal Register, including either the terms or substance of the proposed rule, and "an opportunity to participate in the rule making through submission of written data, views, or arguments."
AARP v. EEOC, No. 05-4594 (3d Cir. June 4, 2007)
[Full opinion]
[Editor’s Note: The district court opinion explaining its reasons for changing its earlier ruling is summarized below. For more background information on this case, Council of School Attorneys members can access the Inquiry & Analysis article at the second link below.]
[NSBA School Law pages on AARP v. EEOC]
[Inquiry & Analysis article on AARP v. EEOC]