Unseen Epidemic: Corporate Executives on the Chopping Block Because of Age
February 23rd, 2023
A shocking, but all too familiar, pattern has emerged in corporate America as businesses have responded to the Covid-19 pandemic. Like never before, 50+ year olds in executive positions are being ousted from their jobs. Another spike in an epidemic decades long. So what’s going on?
It appears that the time has come for a major reshuffling or readjustment within the leadership ranks of U.S. Fortune 500 companies. Baby Boomers and Gen Xers (ages 50-75) are being replaced by substantially younger, lower paid employees through forced retirements, RIFs, and reorganizations. The new mantra of the day seems to be: out with the old, in with the new. New blood, new ideas, new direction—it’s where its at. Forget loyalty or years of successful performance—it appears to be of no moment.
The reality is that employers think Baby Boomers and Gen Xers are costing them too much money—pure and simple—including handsome pay packages (high base salaries, stock options, restricted stock awards, short and long term incentives, substantial bonuses, and the like) that often reach well into the six figures. As more senior employees, many of these executives also benefit from very generous pension plans that have grown over their 20-30-year careers. So, from a business perspective, it becomes quite evident who best to eliminate when the corporation sets out to cut costs.
The modus operandi most commonly employed by corporations to rid themselves of 50+ leaders is what’s called a Reduction in Force (RIF) or a Reorganization (Reorg)—both mechanisms typically involve the elimination of people through elimination of their positions. Under the law, the decisional process for making these employment decisions must be based upon objective criteria or factors that are neutral. An employee’s protected status, like age, cannot play any role in the process. However, it almost always does.
As an example, let’s say Acme Company, a 5,000 employee manufacturing facility, is seeking to reduce labor costs in order to increase profit and shareholder return. Upon review of its workforce, Acme determines it is paying its director-level employees substantially when considering total compensation. Specifically, it is paying employees in this job classification $125,000 per year over market. It is determined that the reason for this is because the average age of an Acme Company Director is 58 years old, with an average seniority of 25 years with the company. There are 20 Directors at Acme. Acme would not be able to terminate these people without the risk of an age discrimination lawsuit unless it was able to replace them with employees roughly the same age. This is not a likely scenario because it would require paying the replacements the same as the replaced Directors. This reality would defeat the entire labor reduction cost objective. So, what to do?
Acme may choose to simply eliminate the Director position altogether and terminate all employees who hold those positions. By elimination of the position, Acme is able remove the age of the replacements as a consideration. Or, instead, Acme can simply create supposedly “new” positions that have no incumbents. Of course, the “new” positions are not new at all, but are rather the same job with slight cosmetic differences (e.g., a new job title or minor change in job duties). Acme calls this a “restructure” or “reorganization,” and believes it can get away with filling the position with anyone it wants—including much younger employees, to whom it will pay a lot less money. Problem solved—or is it?
Actually, Acme’s problems have likely just begun. State and federal laws prohibit using any protected status, like age, in making any employment decisions—whether promotion, pay, or termination. The lawyers at Halunen Law have seen it all. We have successfully challenged virtually every form of illegal discrimination and retaliation in the workplace across most industries. Contact our office today.