91 F.3d 1529 (2nd Cir. 1996), 1208, E.E.O.C. v. Johnson & Higgins, Inc.

Docket Nº:1208, Docket 95-6216.
Citation:91 F.3d 1529
Party Name:EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff-Appellee, v. JOHNSON & HIGGINS, INC., Defendant-Appellant.
Case Date:August 08, 1996
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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91 F.3d 1529 (2nd Cir. 1996)



JOHNSON & HIGGINS, INC., Defendant-Appellant.

No. 1208, Docket 95-6216.

United States Court of Appeals, Second Circuit

August 8, 1996

Argued March 4, 1996.

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John F. Cannon, New York, New York (Robin D. Fessel, Sullivan & Cromwell, Andrew D. Rotstein, of counsel), for defendant-appellant.

Karen M. Moran, Equal Employment Opportunity Commission, Washington, DC (C. Gregory Stewart, General Counsel, Gwendolyn Young Reams, Associate General Counsel, Vincent J. Blackwood, Assistant General Counsel, Equal Opportunity Commission, Washington, DC), for plaintiff-appellee.

Before: MINER, JACOBS, and CABRANES, Circuit Judges.

JOSE A. CABRANES, Circuit Judge:

The question presented is whether the Age Discrimination in Employment Act of 1967 (the "ADEA" or "the Act"), 29 U.S.C. § 621 et seq., is applicable to a firm's mandatory retirement policy for its Board of Directors where the directors are also full-time employees of the firm. Defendant-appellant Johnson & Higgins, Inc. ("J & H") appeals from a July 7, 1995, order of the United States District Court for the Southern District of New York (Leonard B. Sand, Judge ) granting summary judgment in favor of the Equal Employment Opportunity Commission ("EEOC") based on its finding that J & H's retirement policy for members of its Board of Directors violated the ADEA, and enjoining J & H from further enforcement of the policy.


The following facts--drawn primarily from the district court's opinion--are undisputed. See EEOC v. Johnson & Higgins, Inc., 887 F.Supp. 682 (S.D.N.Y.1995). J & H, an international insurance brokerage and employee benefits consulting firm, is a private corporation incorporated under New Jersey law with its principal place of business in New York City. Its charter and by-laws provide that the firm be managed by a Board of Directors ("the Board") consisting of at least twenty and no more than forty-four members. When the EEOC brought the present action in May 1992, J & H had thirty-five directors.

J & H's directors are nominated by the Chairman of the Board after consultation with other members, and must be elected by a two-thirds majority of the entire Board. Candidates are chosen exclusively from among the officers and senior managers of J & H or its subsidiaries. According to Board policy, a director is selected based on (1) his outstanding performance in senior managerial positions and (2) the Board's belief that his ability to contribute to J & H "in his or her current and possible future roles would be significantly enhanced by the added authority and status that a Directorship at J & H entails." A new director is required to tender a letter of resignation to become effective at the pleasure of two-thirds of the Board.

Although the J & H directorship is characterized somewhat differently by each party, it is undisputed that a person continues to perform his duties as an officer of J & H after he has been named a director. In a letter to the EEOC regarding the instant matter, J & H described a director's role as follows:

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[Directors] are given the opportunity to become owner-managers of J & H because the existing owner-managers believe that as Board members they will contribute in a material way to the future success of the firm. By whatever route an individual becomes a Director, the understanding is that he will continue in J & H's active service as an officer and employee of J & H or one of its subsidiaries.

(Emphasis added.) Directors receive certain new duties as a result of their election to the Board, including mandatory service on various committees and attendance at Board meetings. J & H emphasizes that an officer's position at the firm is altered in many intangible ways by elections to the Board. Gardner Mundy, the General Counsel and Senior Vice President, notes:

[A]t J & H when someone becomes a Director, and thus a member of the relatively small group that owns and manages a world-wide organization employing over eight thousand people, virtually everything changes in ways too numerous and subtle to catalog. One's personal stature and credibility within the organization, the prestige associated with one's existing position in the organization, and one's ability to get things done within and without one's particular area of responsibility, are all enormously enhanced. When individuals are offered the opportunity to become Directors of J & H it is because the existing Directors are persuaded that they will contribute to the future success of the firm as Board members in ways they could not as officers and employees only. If status as a Director is accepted, "employment" continues, but it becomes but an aspect of the fundamentally entrepreneurial relationship that the Directors have among themselves and to the firm as a whole.

J & H's directors report to one of the six senior Board members for annual performance reviews. A director's compensation--consisting of a certain percentage of the firm's profits determined annually by the Directors' Compensation Committee--is based primarily on these individual performance reviews.

According to its charter, J & H shares may not be owned by any person "other than an individual who is an officer, director or employee of the Corporation and actively engaged in its service." Indeed, J & H stock is owned almost exclusively by its directors.

[1] Under the firm's by-laws, each J & H director must own at least 500 shares of J & H stock, and a director who ceases to own 500 shares automatically loses his seat on the Board. Additional stock is also made available to individual directors during their tenure. If a director leaves the Board for any reason, including retirement, he is required to surrender his stock, which is then allocated to the others.

A retiring director must surrender his stock pursuant to a purchase contract and consulting and non-competition agreement referred to by J & H as the "Ten-Year Contract." Under this contract, J & H promises to pay the retiring director the equivalent of the dividends that would have been payable for the next ten years if the director had continued to hold the stock, and the outgoing director promises not to compete with J & H and to be available as a consultant if necessary. When a director retires pursuant to this policy, he not only ceases to be a director, but he also ceases to be a stockholder, officer, and employee of the company. According to Mundy, "retirement as a director entails retirement in all other capacities as well."

J & H's mandatory retirement policy for its Board of Directors--adopted unanimously by the Board in 1983 by an amendment to the by-laws--provides that:

the normal retirement date for Directors [shall] be the earlier of (a) the end of the year in which the age 62 is attained or (b) the end of the year in which age 60 is attained and 15 years of service on the Board is completed. With respect to (b), in cases of corporate need determined by the Chairman and approved by the Executive Committee, a Director may continue on a year-to-year basis up to but not beyond the end of the year in which age 62 is attained.

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The EEOC first became aware of J & H's mandatory retirement policy when a director, forced to resign for reasons unrelated to the policy, filed a charge of age discrimination. In the course of its investigation, the EEOC learned of the mandatory retirement policy, and on May 21, 1992, it informed J & H that it was under investigation for its alleged violation of the ADEA. Although no retired or current directors claimed to be aggrieved by the alleged discriminatory practices, the EEOC pursued the ADEA investigation on its own initiative. On June 19, 1992, an EEOC investigator informed J & H's counsel that the EEOC had determined that J & H's mandatory retirement policy violated the ADEA.

[2] On July 2, 1992, at J & H's request, its representatives met with Harold Wilkes, an EEOC enforcement manager, and with Kevin Marrazzo, an EEOC trial attorney, to discuss the allegations. The EEOC issued a "Letter of Determination" on July 8, 1992, indicating that it found reasonable cause to believe that J & H's mandatory retirement policy for directors violated the ADEA, and inviting J & H, pursuant to 29 U.S.C. § 626(b), to "conciliate" the matter to avoid a lawsuit. In a letter dated July 23, 1992, J & H reiterated its position that its retirement policy did not violate the ADEA:

[W]e may make a formal request that you reconsider your Letter of Determination on the ground that, although under the challenged policy a retiring Director's employment terminates along with his directorship and stock ownership at age 60 (or 62), the policy is driven by the directorship and stock-ownership factors and thus involves a "differentiation based on reasonable factors other than age" (ADEA, Sec. 4(f)(1)). At this point, however, J & H is willing to conciliate if some basis can be found that will both vindicate the Commission's interpretation of the ADEA and accommodate J & H's desire to manage its directorships and stock ownership in accordance with the needs of its business, as it has since the J & H partnership incorporated itself under New Jersey law in 1899.

In a letter to J & H, dated September 15, 1992, the EEOC outlined its procedures and requirements for conciliation, including a request for the production of the records of former directors' salaries. J & H responded by letter on September 16, 1992, indicating that it did not regard the EEOC's September 15 letter as "an acceptable response from an agency of the United States to a corporate citizen whose almost...

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