About 75 million people — roughly half the nation's work force — are covered by the decision. However, the unanimous ruling makes it clear that older workers will have a high threshold to prove their claims.
Justice John Paul Stevens wrote that in some cases employers are within their rights to treat workers differently because of age.
"Age ... not uncommonly has relevance to an individual's capacity to engage in certain types of employment," wrote Stevens, who at 84 is the court's oldest member.
The ruling sides with older police officers in Jackson, Miss., in saying they do not have to prove that the city deliberately tried to discriminate against them, just that the policies disproportionately harmed them. Nevertheless, the high court dismissed the suit, saying officers did not demonstrate that.
The ruling means that older workers now have less of a burden to raise their claim in court when suing under federal law, although ultimately it may still be hard for them to win.
Chief Justice William H. Rehnquist did not participate in the decision, which was heard in November when he was being treated to thyroid cancer.
The Supreme Court already has said the so-called disparate impact claims are allowed under Title VII of the 1964 Civil Rights Act, which bans discrimination based on sex, religion or race. On Wednesday, justices said it should be no different for age discrimination, although it ruled the scope of liability is narrower.
At issue was workplace polices that appear neutral but actually disproportionately hurt older workers. Advocates for the aging say few employers would ever be up front about intentionally favoring younger workers, making age bias claims hard to win absent the rare "smoking gun."
But employers say allowing disparate impact claims under the Age Discrimination in Employment Act would hinder their ability to make necessary decisions based on age-neutral factors, such as training or performance, even if the impact happens to be greater on older workers.
The ruling in some ways strikes a compromise between the two.
On the one hand, it allows older workers to make a disparate impact claim under the ADEA regardless of intent; but at the same time, it permits an employer to cite "reasonable" factors, such as cost-cutting, to justify a practice that penalizes older workers so it prevails at trial.
Because older workers tend to be longtime employees with higher pay, a business could not cut expenses without violating the law even if no ill intent was involved, Stevens wrote in the opinion.
Currently, there are more than 70 million workers who are age 40 or older, and the number is growing. The federal government predicts that by 2010, more than half of all workers will be 40 or older.
Despite the aging trend, lawyers say employers often have economic incentives to weed out older workers. That's because longtime employees may have higher medical bills and have locked in more expensive salary and benefit agreements.
In the Mississippi case, 30 officers and dispatchers sued over a pay performance plan they said gave substantially larger pay raises to employees with five or fewer years of tenure; as a result, that had an unfavorable impact on employees 40 and over.
The lower courts threw out the suit, reasoning that disparate impact claims were barred.
In its ruling Wednesday, the Supreme Court said that while police officers can get into court to show unfavorable impact, they failed to do so here. It said the city's explanation that it was trying to make salaries for junior officers more competitive with similar positions was "reasonable."
"The city's decision to grant a larger raise to lower echelon employees for the purpose of bringing salaries in line with that of surrounding police forces was a decision based on a 'reasonable factor other than age' that responded to the city's legitimate goal of retaining police officers," Stevens wrote.
Federal appeals courts previously were sharply divided over whether the 1967 age bias law permits impact suits. Legal experts have said workers making age bias claims generally win their lawsuits less than one-third of the time.
The case is Smith v. City of Jackson, 03-1160.