Adams v. Ameritech Services Inc.

• Citation: 231 F.3d 414
• Decision Date: 23 October 2000
• Docket Number: DEFENDANTS-APPELLEE,CROSS-APPELLEES,Nos. 98-1506,98-2259,DEFENDANT-APPELLE,98-2307,98-2522,98-2426,CROSS-APPELLANTS,PLAINTIFFS-APPELLANT,CROSS-APPELLANT,s. 98-1506
• Parties: (7th Cir. 2000) KIM ADAMS, ET AL.,, v. AMERITECH SERVICES, INC. AND INDIANA BELL TELEPHONE CO., INC., and DEBORAH ALLARD, ET AL.,, v. INDIANA BELL TELEPHONE CO., INC.,
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 414

231 F.3d 414 (7th Cir. 2000)

KIM ADAMS, ET AL., PLAINTIFFS-APPELLANTS, CROSS-APPELLEES, v. AMERITECH SERVICES, INC. AND INDIANA BELL TELEPHONE CO., INC., DEFENDANTS-APPELLEES, CROSS-APPELLANTS. and DEBORAH ALLARD, ET AL., PLAINTIFFS-APPELLANTS, CROSS-APPELLEES, v. INDIANA BELL TELEPHONE CO., INC., DEFENDANT-APPELLEE, CROSS-APPELLANT.

Nos. 98-1506, 98-2259, 98-2307, 98-2426, 98-2522

U.S. Court of Appeals, Seventh Circuit

Argued November 8, 1999

Decided October 23, 2000

Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. Nos. IP 93-0420-C M/S & IP 93-1346-C M/S--Larry J. McKinney, Judge. [Copyrighted Material Omitted] David L. Rose (argued), Rose and Rose, Washington, DC, Arend J. Abel, Mark R. Waterfill, Leagre, Chandler & Millard, C. Warren Holland, Holland & Holland, Indianapolis, IN, for Plaintiffs-appellants.

Ariane Schallwig Johnson (argued), Kim F. Ebert, Ogletree, Deakins, Nash, Smoak & Stewart, Lee B. McTurnan, Wayne C. Turner (argued), McTurnan & Turner, Indianapolis, IN, for defendants-appellees.

Before Posner, Ripple, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

Throughout the decade of the 1990s, corporate downsizing was a popular strategy for companies that believed they had become indolent, complacent, inefficient, or otherwise unsuited to the ever-increasing pace of competition in their markets. Ameritech Corporation was no exception. With the advent of more competition in the telecommunications market and the promise of much more change to come in the near future, see Goldwasser v. Ameritech Corp., 222 F.3d 390, 392-393 (7th Cir. 2000), its management came to the conclusion in 1992 that drastic measures were necessary if it was to succeed in its new environment. And drastic measures were taken. Both Ameritech Services, Inc. (ASI), a company jointly owned by Ameritech's five independent operating companies, and Indiana Bell Telephone Company, one of those operating companies, slashed their middle management ranks dramatically as part of a comprehensive restructuring and reduction in force.

The two cases we have consolidated for decision today both arise out of these measures. In Adams v. Ameritech Services Inc., Nos. 98-1506, 98-2259, and 98-2307, the nineteen plaintiffs remaining on appeal claim principally that both ASI and Indiana Bell discriminated against them on the basis of age, in violation of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. sec.sec. 621 et seq., and that both companies violated their rights under sections 502 and 503 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. sec.sec. 1132, 1133. In Allard v. Indiana Bell Telephone Co., Nos. 98-2426 and 98-2522, another set of 35 plaintiffs (plus two would-be plaintiffs to whom the district court denied permission to opt in to the case) claim the identical violations of the law from the same basic course of conduct by Indiana Bell alone; five of the Allard plaintiffs also raise constructive demotion claims. We do not fully understand why the district court agreed to handle these intertwined cases as separate matters, but, at least for purposes of appeal, they are functionally identical. Unless the context requires otherwise, our discussion therefore applies with equal force to both cases.

With the exception of some incidental issues, the district court disposed of all the claims in a series of orders granting summary judgment for the defendants. It then certified those orders as final for purposes of appeal under Fed. R. Civ. P. 54(b). While we appreciate the herculean efforts the district court made to wade through the voluminous materials on summary judgment that both sides presented, we conclude that the plaintiffs presented enough evidence to withstand the defendants' motions. We therefore reverse and remand for further proceedings.

I.

Ameritech is one of the regional telephone companies that was created with the 1984 break-up of the old American Telephone & Telegraph Company system. It became the parent company of the five Bell operating companies in Indiana, Illinois, Michigan, Ohio, and Wisconsin. Those companies in turn created and now own ASI in equal shares. ASI exists to perform services for the operating companies, including "access services" (marketing, sales and service to long distance companies), billing, finance, human resources, information technology, and so forth. Ameritech itself sponsors and administers the Ameritech Management Pension Plan (the Plan), in which employees of all the operating companies and ASI participate. (Ameritech's subsidiaries have some responsibility for administering the Plan.)

Through 1992, both Indiana Bell and ASI considered as part of their "management" workforces all salaried, non-union employees, from secretaries to company officers. Managers were divided into Salary Grades (SG), which reflected knowledge, skill level, and degree of accountability. Jobs with duties that were entirely pre-set were classified as SG1, while jobs with complete independence in achieving goals within company and budgetary constraints were in the higher SG levels, for example, SG5 and above at Indiana Bell. (Administrative and secretarial assistants were classified in a slightly different system.) Not all jobs within a particular salary grade were the same, however, except insofar as the grade reflected increasing degrees of decisionmaking authority.

Richard Notebaert became ASI's president in June of 1992, at a time when Ameritech as a whole was seeking to improve its competitiveness. Shortly before Notebaert took over his new job, Ameritech's operating committee began to discuss what it perceived as a surplus of employees, and it began to explore with ASI what to do about it. It contacted the other Bell operating companies and concluded that they too had a surplus. Both ASI and Indiana Bell (along with the other operating companies) decided that they had to undertake a significant management workforce reduction--in plain English, they had to get rid of large numbers of managers, either by persuasion or by force. We describe here the process that the companies used and the structure of the Plan; we save until later a consideration of the arguments that age discrimination tainted this process.

A. The Reductions in Force

To carry out its plans, Ameritech (working with a consultant) designed a comprehensive workforce reduction program. Ameritech eventually selected a benefit enhancement package that calculated a manager's service pension eligibility as if she had remained employed until December 31, 1994. The package offered 2% of current pay for each year of service, with a minimum of 8% and a maximum of 50%. Under that package, about 80% of the managers over the age of 50 were eligible for a service pension, and managers began to become eligible between the ages of 45 and 49.

After they received the consultant's report, Indiana Bell and ASI each designed its own resizing program (though the two programs were, for all intents and purposes relevant here, identical). ASI hoped to reduce its management workforce of 6,695 people by 15%; Indiana Bell set a target for reducing its management force of approximately 1,250 by 10%, or between 125 and 150 people. The companies planned on achieving these goals with a combination of voluntary and involuntary components. Ameritech as a whole hoped that its management workforce of just over 21,000 would be reduced by 2,500 as of March 31, 1993, and by as much as 6,000 over the following two to three years.

When the "resizing" was announced, employees were told that if they voluntarily retired during a six-month window (between August or September of 1992 and March 1993), and if they signed a waiver and release, they would receive the full complement of benefit enhancements. If they did not sign the waiver, they would receive a reduced package of enhancements. In addition, at Indiana Bell, employees in SG3 and lower grades were told they could apply for available nonmanagement (or craft) positions. Five of the Allard plaintiffs chose that option.

The companies dubbed the involuntary termination program the Company Resizing Program, or CRESP for short. Gary Morris, an employee of ASI, designed CRESP, which ASI then used. Indiana Bell used a variant of CRESP that was developed by its director for human resources, Robert T. McFeely. The program took a three-stage approach.

Stage 1 was the "mechanical" phase in which employees were placed in groups of similar skill and salary level. At ASI, employees were placed in 102 groups, with the basic salary groupings being SG5 and below, SG6 to SG9, and SG 10 and above. At Indiana Bell, employees in SG3 and below were ranked together as were those in SG4 and SG5. (The workforce reduction of the few Indiana Bell employees in SG6 and above was not handled through this process.) Employees in the groups were ranked and the lowest 30 to 35% of each group--the "at risk" employees--was then identified. (Volunteers were ranked on the "at risk" list along with everyone else, because of the chance that they might revoke their voluntary retirement election.) In implementing the mechanical rankings, ASI used the managers' 1990 and 1991 merit pay data. (For ASI employees in SG6 and above, an additional factor based on leadership development and potential accounted for 20% of the score.) At Indiana Bell the Stage 1 rankings were compiled using the most recent evaluations of employees' managerial skills and "promotion potential," as well as their performance over the past two years as indicated by performance ratings, lump sum merit awards, and salary target rates.¹

After the initial Stage 1 lists were made, higher level managers refined them, moving people in and out of consideration for Stage 2; managers were instructed to consider factors such as an employee's recent promotion or upgrade or irreplaceable skill...