Marshall v. Baltimore & OR Co.

• Decision Date: 05 December 1978
• Docket Number: Civ. A. No. N-74-637.
• Citation: 461 F. Supp. 362
• Parties: Ray MARSHALL, Secretary of Labor, United States Department of Labor, v. The BALTIMORE AND OHIO RAILROAD COMPANY and the Chesapeake and Ohio Railway Company.
• Court: U.S. District Court — District of Maryland

461 F. Supp. 362

Ray MARSHALL, Secretary of Labor, United States Department of Labor, v. The BALTIMORE AND OHIO RAILROAD COMPANY and the Chesapeake and Ohio Railway Company.

Civ. A. No. N-74-637.

United States District Court, D. Maryland.

September 6, 1978.

On Motion for Partial Reconsideration December 5, 1978.

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Carin Ann Clauss, Sol. of Labor, Washington, D. C., Marshall H. Harris, Regional Sol., Kenneth L. Stein, Deputy Regional Sol., Joan M. Roller, Philadelphia, Pa., and Thomas J. Allen, Washington, D. C., on the briefs; Russell T. Baker, Jr., U. S. Atty. for the District of Maryland and Daniel Clements, Asst. U. S. Atty., Baltimore, Md., for plaintiff.

Joseph B. Geyer, Gen. Atty., Fenton L. Martin and H. Russell Smouse, of Baltimore, Md., and Thompson Powers, Ronald S. Cooper and Morgan D. Hodgson, Michael P. Berman, Washington, D. C., for defendants.

NORTHROP, Chief Judge.

This action was filed on behalf of the Secretary of Labor on June 19, 1974. In the complaint, the Department of Labor (Department) charged the Baltimore and Ohio Railroad Company (B & O) and the Chesapeake and Ohio Railway Company (C & O) with violating Section 4 of the Age Discrimination in Employment Act of 1967, (29 U.S.C. § 621 et seq.). Counsel for both plaintiff and defendant railroads have submitted the following issues to this Court for resolution:

(1) Whether the Department satisfied the conciliation requirement of the Age Discrimination in Employment Act prior to filing his complaint; and if not, the legal effect of the parties' subsequent conciliation discussions.

(2) Whether the Secretary's complaint includes individuals terminated from non-contract status after March 1, 1972.

(3) Whether the selection in the force reduction of the 142 individuals at issue on the basis of their entitlement to an unreduced pension under defendants' pension plans constituted discrimination on the basis of age in violation of Section 4(a) of the Act.

(4) Whether the termination of 142 employees at issue was exempt under the Act by virtue of Section 4(f)(2).

(5) Whether the lowering of the mandatory retirement age under defendants' pension plans from 65 to 62 constituted discrimination on the basis of age in violation of Section 4(a) of the Act.

(6) Whether the retirement of employees at the mandatory age of 62 under defendants' pension plans, as amended in 1972, was exempt under the Act by virtue of Section 4(f)(2).

(7) Whether, based on their reliance on written interpretations of the Act by the Department, defendants are exempt from any liability in this action by virtue of Section 10 of the Portal-to-Portal Act of 1947, 29 U.S.C. § 259 (1970).

Issues (1) and (2) were tried on April 27 and 28, 1978. The remaining issues were tried on May 17-25, 1978. Counsel for both plaintiff and defendants have submitted exhaustive pretrial and post-trial memoranda. Prior to the disposition of the above issues, the Court will outline the relevant background facts in this case in conformance with the mandate of Rule 52 of the Federal Rules of Civil Procedure. Additional facts will be added throughout the opinion where necessary.

Facts

Defendant railroads are common carriers engaged in the transportation of freight by rail. It is clear that they are employers affecting commerce within the meaning of Section 11(b) of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. § 630(b).

On December 17, 1962, the Interstate Commerce Commission approved the acquisition by C & O of B & O through the purchase of B & O capital stock, effective February 4, 1963. Thereafter, the management of the railroads was consolidated.

In 1971, a nationwide coal strike by the United Mine Workers Union precipitated several actions by defendants. Since this suit concerns, inter alia, the legality of defendants' response to the strike, the facts underlying the decisions made by defendants' management must be explored.

During the years preceding 1971, defendants' financial position was declining. During the period 1965-70, the defendants' level of traffic had not increased, and their expenses had increased more rapidly than their revenues.

The defendants' declining financial position was reflective of the general trends in the railroad industry, particularly in the Northeast. This situation was accentuated by the failure of the Penn Central Railroad which went into receivership in June 1970.

In April 1971, Mr. Hays T. Watkins became President and Chief Executive Officer of defendants. Mr. Watkins believed that the existing economic and financial situation required that defendants streamline their operations and eliminate unnecessary expenses. To achieve this goal, Mr. Watkins established two priorities: the abandonment of unprofitable branch lines and a reduction in the size of the work force. Steps were taken immediately to carry out these objectives.

The goal of reducing the size of the work force was based upon top management's belief that defendants had too many employees relative to their level of traffic. This overstaffing was present to approximately the same extent in both the contract (union) and non-contract (supervisory personnel) ranks.

In September 1971, Mr. Norman Halpern became Assistant Vice President—Executive Department. In order to implement the reduction of staff, he ordered that no new non-contract employees could be hired without the specific approval of Mr. Watkins. Other methods for reducing the work force were discussed.

On October 4, 1971, a nationwide coal strike began. Although defendants were aware that the contract between the United Mine Workers Union and the coal operators would expire on September 30, 1971, they did not anticipate a strike since there had not been a nationwide coal strike since 1949. Moreover, early indications were that the parties would be able to agree on a contract and thus avoid a strike.

The coal strike represented a severe financial threat to defendants since coal constituted approximately 50% of defendants' traffic and 35-40% of their operating revenue. Since it appeared that the strike would be protracted, defendants believed that they were required to take immediate action to reduce expenses.

The first step taken by defendants involved a reduction in their contract work force which comprised 93% of defendants' employees. Although defendants furloughed many employees in order to cut down expenses, defendants also decided to reduce their contract work force by approximately 20%. Management subsequently decided that a comparable reduction in the non-contract work force was necessary.

Meetings by defendants' top management resulted in a program for reducing the size of the work force. Preliminarily, all poor performers were eliminated, but this resulted in only a 1% reduction. The next step was an attempt to eliminate as many jobs as possible and to consolidate the rest.

One of the criteria used to select individuals to be terminated was "pension entitlement." Through pension entitlement, management designated individuals who were entitled to substantial pension benefits if terminated. Management decided that it would be preferable to terminate these employees since they would be less adversely affected by the loss of a job than individuals who were not entitled to receive pension benefits. In this way management hoped to reduce the impact upon employees who were let go. Out of the employees terminated in this reduction, 142 were selected because of their entitlement to pension benefits.

Although other methods of reducing the size of the work force were considered, they were rejected either because they were not suited to a solution of defendants root problem (overstaffing) or because of the lack of empirical data necessary to implement them. For example, defendants did not attempt to merely furlough many of their employees since one of defendants' basic problems was their overstaffed condition. Neither did defendants attempt to rank their employees by performance since such an attempt would not have been practical.

During the period of time in which the feasibility of using pension entitlement as a criterion for selecting employees for termination was discussed, defendants' law department was consulted as to the legality of the proposed reduction. At that time Mr. Owen Clarke was defendants' Vice President of Personnel and Labor Relations and an experienced attorney. Mr. Frank Householder was an Assistant Vice President in charge of Equal Employment Opportunity Services. Messrs. Clarke and Householder discussed the effect of the ADEA upon the proposed reduction. They concluded that, based upon published opinions of the Wage-Hour Administrator, the proposed reduction was exempted from the ADEA under the provisions of § 4(f)(2). This determination was relayed to Mr. Watkins and relied on by top management in deciding to go forward with the reduction.

The reduction of employees took place in accordance with the above plans. During mid-October 1971 to March 1, 1972, most of the employees were terminated, although some of them were carried on defendants' payroll for some time later.

On November 15, 1971, the coal strike ended. Defendants' Board of Directors advised their stockholders that, as a result of the coal strike, defendants would not pay any dividend for the fourth quarter of 1971. This represented the first occasion since 1922 that defendants had failed to pay a dividend.

In December 1971, the Department instituted an investigation into alleged violations of the ADEA by defendants. This investigation was undertaken by Assistant Area Director Anthony Kiggins.

Mr. Kiggins met with several of defendants' officers in early 1972 to talk over the legality of defendants' reduction in force. During the course of several meetings, information was provided by defendants and both sides discussed the reduction and defendants' legal defenses....