Employment Law Advisory - National Bank Act Does Not Preempt Age Discrimination Claims

National Bank Act Does Not Preempt Age Discrimination Claims
Did you know that the National Bank Act allows covered banks to discharge bank officers “at pleasure”?  US Bank did, and it raised that statutory privilege as a defense in a recent age discrimination lawsuit.  Unfortunately, on December 23, 2005 , the Ninth Circuit Court of Appeals (which governs most of the western states, including California and Arizona) held that the National Bank Act did not preempt a fired bank manager’s age discrimination claim under a Washington state anti-discrimination law.  Notably, the Ninth Circuit stated that it would have reached the same conclusion under the federal Age Discrimination in Employment Act, which applies in Arizona to employers with more than 20 employees.

The case at issue was Kroske v. US Bank Corp., which involved a branch manager, Kathy Kroske, who the bank discharged for poor performance. Kroske initially worked for US Bank as a teller. She worked her way up the “corporate ladder” and eventually was appointed to the position of Vice President.  Later, following a merger, the Bank demoted Kroske to a branch manager.  While she was a branch manager, the Bank informed Kroske on several occasions that her branch was not meeting its business goals.  The Bank eventually terminated Kroske’s employment for failing to meet those goals.  Kroske was 51 years old at the time of her discharge.

Kroske sued the Bank and alleged that the Bank gave other branch managers (who were in their twenties and thirties) a reasonable opportunity to meet their business goals, but denied Kroske that same opportunity.  Kroske also contended that the Bank replaced her with an employee who was in his mid-twenties and possessed less experience than Kroske.  The trial court dismissed Kroske’s age discrimination claim on the grounds that the National Bank Act preempts the field of law regulating the Bank’s employment practices and grants banks the power to dismiss officers “at pleasure.”

The Ninth Circuit Court of Appeals disagreed and reversed the trial court’s decision.  The Ninth Circuit recognized that the National Bank Act grants banks the power “[t]o elect or appoint directors, and by its board of directors to appoint a president, vice president, cashier, and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places.” 12 U.S.C. § 24(Fifth) (emphasis added).  However, it then stated that Congress’ intent behind the “at pleasure” provision was to ensure financial stability in banking institutions by affording banks the opportunity to discharge employees who compromised the bank’s integrity; the Act was not intended to preempt other state or federal anti-discrimination laws (including Title VII and the ADEA).  As a result, the Ninth Circuit concluded that the “dismiss-at-pleasure” provision of the National Bank Act was repealed by implication to the extent necessary to give effect to the ADEA (and its state law counterparts).

Accordingly, Arizona banks covered by the National Bank Act should not rely on the Act to make employment decisions simply “at their pleasure.”  Instead, Arizona banks should remember that state and federal anti-discrimination laws will apply to any employment decision that they make and should also remember to consult with their labor and employment counsel before taking any adverse employment actions.

Steptoe & Johnson’s Labor & Employment Law group represents clients in complex and high visibility labor relations matters nationwide.   If you want to subscribe to Steptoe & Johnson’s Labor & Employment Law Update or get further information, send an e-mail to Steptoe & Johnson partner Steve Wheeless or call him at 602-257-5234 .