Getting Ridof the Gray

Will age discrimination be the downfall of downsizing?

John Kelley, 48, had worked for Pacific Telesis for 23 years when the company fired him in a downsizing last December. Two weeks later, a company that contracts out engineers to PacTel offered him a freelance job.

“Who would I work for?” Kelley asked.

“Edna Rogers,” answered the caller.

Kelley burst out laughing. Rogers was the supervisor who had just fired him. “That was my job,” he explained. “You’re trying to replace me with myself.”

Kelley’s not the only one, says Mark Thierman, the lawyer representing Kelley and 1,468 other downsized PacTel employees in a $1.6 billion suit against the company. At the same time that PacTel eliminated 1,469 employees, it hired about 1,700 contractors. About 20 percent of them, Thierman estimates, were former employees hired back to do their old jobs — but without benefits. By firing Kelley two and a half years before he became eligible for his full pension, PacTel saved some $337,000 in pension payments and avoided the cost of the lifetime health insurance guaranteed to the company’s retirees.

Like many other downsizing companies, PacTel targeted what it believed to be its most expensive population: older, more experienced employees entitled to generous benefits. Most of the 1,469 people fired were just a few years short of full benefit entitlement, Thierman says. The company saved an average of $326,632 per firing on pensions alone.

Age discrimination is the dark underbelly of downsizing: Older workers fall out of downsizing statistics. Companies describe their departure as “early retirement,” and, with new jobs hard to get, most quickly drop out of the labor pool. Job discrimination lawsuits (filed against, among others, Digital Equipment Corp. and IBM) dramatize the problem but understate it: Many corporate employers demand a promise not to sue before they hand out severance payments.

“When you lose your job, you’re very emotional. You need the money, and you can’t think straight, so you sign the release,” says Robert St. Germain, fired at age 48 after 11 years with Digital Equipment Corp. He refused to sign and is suing. (A co-worker, Joyce K. Finley, fired at 61, was awarded more than $500,000. DEC is appealing.) Younger managers in his department were given four to six weeks to find other DEC jobs, St. Germain says; his boss told him on Tuesday his last day would be that Friday.

Managers lay off older workers not only for economic reasons, but also because managers see them as less flexible and innovative. Ken Olsen, DEC’s founder and former president, campaigned for younger workers. At IBM, says Lowell Hofmann, downsized at age 49, “we had a bunch of younger people coming in and learning the job as we were being pressured to leave.”

A recent study by the American Association of Retired Persons shows few employers have amassed any detailed information about the cost or productivity of older workers. In fact, says the AARP study, employers claim they recognize the commitment of older workers — workers like St. Germain, who continues to believe DEC played straight, blaming his treatment on “junior managers.”

“I really loved working there,” St. Germain says. “I just want to be reinstated.”


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