O'Brien v. Caterpillar Inc.

• Decision Date: 20 August 2018
• Docket Number: No. 17-2956,17-2956
• Citation: 900 F.3d 923
• Parties: Timothy O’BRIEN, et al., Plaintiffs-Appellants, v. CATERPILLAR INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

900 F.3d 923

Timothy O’BRIEN, et al., Plaintiffs-Appellants,

v.CATERPILLAR INC., Defendant-Appellee.

No. 17-2956

United States Court of Appeals, Seventh Circuit.

Argued March 28, 2018

Decided August 20, 2018

George F. Galland, Jr., Attorney, David Baltmanis, Attorney, Matthew James Owens, Attorney, Miner, Barnhill & Galland, Suite 350, 325 N. LaSalle Street, Chicago, IL 60610-0000, Athena M. Herman, Attorney, Benassi & Benassi, 300 N.E. Perry Avenue, Peoria, IL 61603-0000, for Plaintiffs-Appellants.

Heather S. Lehman, Attorney, Joseph James Torres, Attorney, Derek G. Barella, Attorney, Winston & Strawn LLP, 35 W. Wacker Drive, Chicago, IL 60601-9703, for Defendant-Appellee.

Before Easterbrook, Kanne, and Sykes, Circuit Judges.

Sykes, Circuit Judge.

For more than half a century, Caterpillar Inc. paid unemployment benefits to laid-off employees at its manufacturing plant in Joliet, Illinois. This arrangement lasted until Caterpillar and the local union agreed to end the program in their 2012 collective-bargaining agreement. In exchange for the elimination of the benefits, Caterpillar distributed $7.8 million to certain employees who had participated in the plan. Retirement-eligible employees received a pro rata share if they agreed to retire. Those who were ineligible to retire received the same pro rata share of the fund but with no strings attached.

Timothy O’Brien and 47 other retirement-eligible employees who refused to retire brought this lawsuit, alleging that the liquidation plan violates the Age Discrimination in Employment Act of 1967 ("ADEA"), 29 U.S.C. §§ 621 et seq. The district judge entered summary judgment for Caterpillar, and we affirm. Though the liquidation plan has a disparate impact on older workers, it was justified by several "reasonable factors other than age." Id. § 623(f)(1). The plan achieved one of Caterpillar’s long-standing financial objectives—namely, the elimination of costly unemployment benefits. It also saved money by incentivizing early retirement and reducing administrative expenses, and contributed to labor peace between Caterpillar and the union.

I. Background

Caterpillar, a Delaware Corporation headquartered in Peoria, Illinois, operates a manufacturing plant in nearby Joliet. Employees at the Joliet plant are represented in collective bargaining by a local lodge of the International Association of Machinists and Aerospace Workers. Since the 1950s, Caterpillar and the union have agreed to a series of collective-bargaining agreements. Every agreement has included a pension plan and, until 2012, a supplemental unemployment benefit plan ("unemployment plan"). Under the unemployment plan, Caterpillar made monthly contributions into a trust based on the number of hours employees worked and paid benefits out of that fund to laid-off workers.

As early as 1999, Caterpillar made the elimination of the unemployment plan an important financial objective in collective bargaining. Because layoffs—and therefore, payouts—were infrequent, Caterpillar believed that the tied-up capital could be put to better use. Caterpillar also sought to reduce expenses related to the administration of the plan. In particular, the plan’s administration system was outdated and would soon require a costly investment. The union resisted full elimination of the unemployment plan but made an important concession in the 1999 agreement: newly hired employees could no longer participate in the unemployment plan.

Six years later Caterpillar extracted other concessions from the union. The 2005 agreement created a two-tiered compensation scale with all subsequently hired workers in the lower tier. Moving forward, new hires earned approximately $18 less per hour in wages and benefits compared with previously hired employees.

During the 2012 agreement negotiations, Caterpillar’s first proposed labor contract eliminated the unemployment plan. As part of its proposal, Caterpillar offered to liquidate the unemployment plan’s trust fund—which had grown to $7.8 million—in pro rata shares to unemployment-plan participants who were eligible to retire under the pension plan and agreed to retire. Caterpillar’s proposal would therefore accomplish two goals: first, it would incentivize union members to eliminate the unemployment plan, and second, it would incentivize retirements, which would allow Caterpillar to hire replacements subject to the reduced compensation package created in the 2005 agreement.

On April 18, 2012, the union formally rejected Caterpillar’s proposal. O’Brien, who served on the union’s bargaining committee, commented that the proposal "short changed" the unemployment-plan participants who were not eligible to retire. Caterpillar quickly proposed a new labor contract but did not address the union’s concerns about how the trust would be liquidated. The union rejected the new proposal and stated that it would not eliminate the unemployment plan.

On April 24 Caterpillar presented a modified proposal that altered how the trust would be liquidated. The modified proposal distributed the funds in equal shares to (1) unemployment-plan participants who were eligible to retire and agreed to retire; and (2) unemployment-plan participants who were not eligible to retire. Caterpillar’s negotiators hoped that this change would broaden the appeal of the proposal. The union rejected the modified proposal, however, and reiterated in "very strong language" that it would not agree to eliminate the unemployment plan.

The collective-bargaining agreement expired on May 1, and the union went on strike. A three-month standoff ensued, during which the parties met with a federal mediator three times. The union blinked first: on June 27 it proposed an over-all labor contract that eliminated the unemployment plan and liquidated the funds in accordance with the modified proposal. On August 14 the union and Caterpillar agreed to a tentative agreement that included this concession. The Joliet bargaining unit subsequently ratified the agreement. At that time there were 269 employees who participated in the unemployment plan. Of those, 184 were eligible to retire, and 136 opted to retire to collect a share of the fund. Caterpillar ultimately issued a pro rata share of $37,836.51 to each employee entitled to a distribution.

The plaintiffs are the 48 retirement-eligible employees who opted not to retire and as a result did not receive a distribution. Their lawsuit alleges that Caterpillar’s liquidation of the trust had a disparate impact on older workers and accordingly violated the ADEA. In support of their claim, the plaintiffs presented an expert report by Whitman Soule, who analyzed the ages and retirement eligibility of the unemployment-plan participants. Soule took two approaches in his analysis. First, he compared the ages of retirement-eligible and nonretirement-eligible participants. On average the retirement-eligible employees were 61.57 years old, and nonretirement-eligible employees were 47.81 years old. Second, Soule performed a "tabular analysis" comparing the percentage of employees eligible for retirement at each age. He concluded that "the retirement eligible employees are substantially and significantly older than the employees who were not eligible for retirement."

Caterpillar retained Dr. Jonathan Guryan to review Soule’s expert report. Dr. Guryan opined that Soule’s report is "wholly unnecessary as the relationship between age and retirement eligibility is definitional: it is defined in paragraphs (a) and (b) of subsection 4.1 of the Supplemental Agreement Relating to [the] Non-Contributory Pension Plan dated August 17, 2012." The plan provides that participating employees become retirement eligible by meeting one of the following criteria:

(a) the employee reached age 65 with 5 or more years of credited service, including at least one hour of credited service on or after December 1, 1989;

(b) the employee reached age 60 with 10 or more years of credited service;

(c) the employee reached age 55 and his/her age plus years of credited service totaled at least 85; or

(d) the employee at any age accumulated 30 or more years of credited service.

Three of these factors depend explicitly on age and the fourth depends on years of service, which is correlated with age.

Caterpillar moved for summary judgment, and the judge granted the motion. She held that the plaintiffs could not make out a prima facie case of age discrimination because (1) the unemployment-plan liquidation was a one-time decision that did not constitute a practice or policy and (2) the liquidation treated workers differently based on retirement eligibility, not age. In the alternative she held that any disparate impact on older workers was based on a reasonable factor other than age under § 623(f)(1). In particular, she noted that Caterpillar saved money and created a retirement incentive so that it could hire cheaper labor.

II. Discussion

We review a summary judgment de novo, construing the evidence and drawing inferences in the plaintiffs’ favor. Indianapolis Airport Auth. v. Travelers Prop. Cas. Co. of Am. , 849 F.3d 355, 361 (7th Cir. 2017). We may affirm on any ground supported in the record so long as it was adequately addressed below and the plaintiffs had an opportunity to contest the issue. W. Side Salvage, Inc. v. RSUI Indem. Co. , 878 F.3d 219, 222 (7th Cir. 2017).

The Supreme Court has held that the ADEA encompasses disparate-impact liability. Smith v. City of Jackson , 544 U.S. 228, 243, 125 S.Ct. 1536, 161 L.Ed.2d 410 (2005) (interpreting 29 U.S.C. § 623(a)(2) ). Section 623(a)(2) makes it unlawful for an employer "to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s age." Unlike claims of disparate treatment, a disparate-impact claim does not require proof of discriminatory intent.

To state a prima...