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Gonsalves v. Caterpilla Tractor Co.

decided: November 24, 1980.


Appeal from the United States District Court for the Central District of Illinois, Springfield Division. No. 79-C-1084 -- J. Waldo Ackerman, Judge .

Before Pell, Circuit Judge, Skelton, Senior Judge,*fn* and Wood, Circuit Judge.

Author: Wood

This case involves plaintiff Gonsalves's appeal from a district court ruling that granted defendant Caterpillar Tractor Company's (Caterpillar's) motion for summary judgment and dismissed Gonsalves's claim that Caterpillar violated the Age Discrimination in Employment Act of 1967 (ADEA), Pub.L.No. 90-202, 81 Stat. 602 (1967), 29 U.S.C. § 621 et seq., when it terminated his employment in 1977 by involuntary retirement at the age of fifty-nine. The sole issue before us is whether ADEA as it stood in 1977 permitted an employer discretion to involuntarily retire an employee before the mandatory age specified in a long-standing pension agreement, where the express terms of the agreement allowed involuntary retirement. We affirm.

Section 4(a)(1) of ADEA provides that

It shall be unlawful for an employer to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age.

Section 4(f)(2) in 1977*fn1 provided that

It shall not be unlawful for an employer ... to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter, except that no such employee benefit plan shall excuse the failure to hire any individual.

29 U.S.C. § 623(f)(2).

On this appeal Gonsalves contends that the provisions of section 4(f)(2) apply only to the portions of an employer's pension plan that deals with mandatory retirement based on an employee's age. Gonsalves argues that since Caterpillar exercised some discretion when it retired him against his will before the mandatory age specified in Caterpillar's pension plan, section 4(f)(2) does not shield the company from liability under ADEA.

As it appears from the facts pleaded and admitted before the district court when it granted the summary judgment motion, Caterpillar's pension plan provided for mandatory retirement at age sixty-six and early retirement at the employee's option after thirty years of service or at age sixty-two. The affidavit of Caterpillar's Employee Benefits Manager stated that Caterpillar's employees are subject to involuntary retirement after age fifty if they have ten years' credited service or after thirty years' credited service regardless of age. Although he now asserts that there are no documents in the record to support the Manager's explanation of the pension plan's terms, Gonsalves did not contest that point before the district court. In fact he presumed it to be true in his answer to Caterpillar's motion for summary judgment, and we accept the point as true for purposes of this appeal. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S. Ct. 1652, 36 L. Ed. 2d 318 (1973).

The parties agree that the plan was a bona fide one since it actually paid out benefits. The plan was not a subterfuge within the meaning of ADEA since it was established decades before the passage of ADEA. See United Airlines, Inc. v. McMann, 434 U.S. 192, 98 S. Ct. 444, 54 L. Ed. 2d 402 (1977).

Gonsalves argues that Caterpillar was not passively "observing" the terms of the pension plan under section 4(f)(2) when it retired him involuntarily. Instead, he claims, Caterpillar was taking affirmative steps that impermissibly allowed age to become a potential factor in the retirement decision. Recent cases in this circuit have discussed when a company "observes" terms of a pension plan within the meaning of section 4(f)(2). Sexton v. Beatrice Foods Co., 630 F.2d 478 (7th Cir. 1980); Smart v. Porter Paint Co., 630 F.2d 490 (7th Cir. 1980). In considering the United States Supreme Court's decision in United Airlines, Inc. v. McMann, supra, the court in Sexton observed that "(b) oth the majority and dissenting opinions in McMann make sense only on the premise that the § 4(f)(2) exception is applicable only where the scope of involuntary termination is expressly provided for in an employer's retirement plan." Slip op. at 482. And in Smart v. Porter Paint Co., supra, the court restated the Sexton case's holding when it said that "for an employer to "observe the terms' of a retirement plan when it forces an employee to retire, either the plan must contain a mandatory retirement age or the plan must grant the employer the right to force retirement at an appropriate age of his choosing." Slip op. at 7. In the case before us, plaintiff specifically acknowledged that "Under the terms of the Defendant's Retirement Income Plan, an employee is subject to involuntary retirement after attainment of age fifty (50) and ten (10) years of credited service...." (Plaintiff's Response to Defendant's Motion for Summary Judgment, p. 7.) (Emphasis supplied.) In light of the Sexton and Smart cases, the record as it stands in this case shows that Caterpillar's retirement plan expressly provides for the scope of involuntary termination, that Caterpillar "observed" the terms of the plan and that, therefore, the section 4(f)(2) exception applies.

The Sexton and Smart opinions (and our decision in this case) are consistent with cases that indicate it is not a violation for the employer to retire an employee at the mandatory retirement age even though the employer could retain other employees past that age. See e. g., United Airlines v. McMann, 434 U.S. at 197 n. 4, 98 S. Ct. at 447 n. 4; Brennan v. Taft Broadcasting Co., 500 F.2d 212 (5th Cir. 1974). In those situations, the employee knows the date at which he may be retired, like it or not, but also knows that his employer may exercise an option to retain his services past that time if the employee agrees. As the court observed in Sexton, "one of the paramount purposes of a retirement plan or program is to put employees on notice when they may reasonably expect to be terminated, or retired." Slip op. at 489. Once the employer's pension plan puts the employee on notice of the time at which he may be retired, so long as that age is a reasonable one the employee is in the same situation as one who faces mandatory retirement only: the employee knows at what point the retirement decision may be made. Thus, "an employee having realistic notice that he may face early retirement may have an opportunity to make provision through savings, through the securing of a second job, and otherwise for the contingencies which he faces." Sexton, slip op. at 489. When the age for mandatory retirement arrives, the employee may be as loath to leave as he would have been had the employer exercised the earlier involuntary retirement option. The fact that the employee leaves against his will at an earlier time does not alter the similarity of the two situations of retirement, nor does it change the perception of fairness, see Sexton, slip op. at 488-89, involved in the employer's decision whether or not to retain the employee, so long as notice is given in both situations.

We acknowledge that there may be some greater opportunity for age considerations to enter the retirement decision when an early retirement system is involved. But section 4(f)(2) as it stood in 1977 permitted existing involuntary early retirement plans to continue in operation, so long as the terms of the plan were clear to employees. This view accords with decisions reached in this and other circuits on the application of the original version of ADEA to involuntary early retirement plans. See Minton v. Whirlpool Corp., 569 F.2d 1012 (7th Cir. 1978); Marshall v. Hawaiian Telephone Co., 575 F.2d 763 (9th Cir. 1978); Zinger v. Blanchette, 549 F.2d 901 (3d Cir. 1977). And the 1977 version of ...

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