(MONEY Magazine) – A few weeks before he was fired in August 1990, James O'Connor says, his boss told him that he was "too damn old" to travel around Virginia and the Carolinas overseeing the company's vending machines and cafeterias. That statement, which the company disputes, came as a shock to the 56-year-old O'Connor. Earlier in the year he had received the highest bonus of his 34-year career, a hefty $37,000.

But six months later O'Connor was replaced by a man who was 16 years younger. So O'Connor sued his employer for age discrimination in a case that would eventually work its way to the U.S. Supreme Court and make headlines this past April--even though it remains unresolved.

Three decades after Congress passed the federal Age Discrimination in Employment Act of 1967, allegations of age bias like the one O'Connor brought against his former employer are still difficult to prove. But a three-month investigation by MONEY shows conclusively that age discrimination remains pervasive. What's more, it appears to be getting worse. Here is what we found:

--Layoffs and plant closings are hitting older workers hardest. More than 16% of workers ages 55 to 64 lost their jobs owing to layoffs or downsizings between 1991 and 1993, the most recent period for which data are available. That's up from 11% between 1981 and 1983. By comparison, the portion of workers ages 20 to 24 who lost jobs fell from 19% in 1981 to 1983 to less than 16% in 1991 to 1993.

--Many older workers are being denied the opportunity to improve their skills. Fifty-five- to 64-year-olds are only a third as likely as 35- to 44-year-olds to receive training in the workplace, according to a study by the U.S. Department of Labor.

--Older workers have a harder time landing a new job. Right Associates, a Philadelphia-based consulting firm that works with laid-off middle managers and executives, found that it took clients 50 and older an average of 25 weeks to find a new job in 1994, compared with 18 weeks for clients under age 40.

--When older workers do get a job, they often have to take a pay cut. Workers 55 and older are nearly twice as likely as 25- to 34-year-olds to accept a salary at least 20% less than they made at their last job. Those who refuse to take a smaller paycheck risk pricing themselves out of the labor market. "Some companies are laying off older workers and bringing on younger ones who don't have the seniority and will be content to work at lower wages," Secretary of Labor Robert Reich told Money. Studies also suggest that companies see younger workers as more flexible and better able to use new technologies.

--Congress is legalizing discrimination. Despite a 5,000-page study commissioned by Congress that showed 40-, 50- or even 60-year-olds could handle such jobs, the House recently passed a bill (HR 849) that would allow cities and states to once again reject, simply because of their age, applicants who want to be police officers, firefighters and prison guards. The Senate may take up its version of the measure later this year. Says management consultant Frank Landy, who wrote the massive report: "Age is a lousy predictor of performance."

--The courts are making it harder for older workers to press their case. Though statistics are impossible to obtain, court watchers say judges are dismissing more and more age-related cases before those cases can reach a potentially sympathetic jury.

The widespread nature of age bias is especially troubling today. As the first baby boomers enter their fifties, the U.S. labor force is graying fast. People 40 and older will account for more than half of U.S. workers by 2005, up from 37% in 1994, according to the Bureau of Labor Statistics.

To better understand the obstacles facing older workers, MONEY interviewed more than 50 attorneys, professors, career counselors, government officials and other experts. Federal law holds that age discrimination begins at 40. So if you're over 40--or will be in the near future--read on.

THE DAMAGE DONE BY DOWNSIZING

"When you go to an outplacement seminar, you look around the room and see a lot of gray-haired people," says Gary Brooks, 59, a former McDonnell Douglas engineering supervisor who was laid off in 1992 after 34 years with the company. Brooks sued his former employer for age discrimination in 1995, but the case has not yet come to trial. (McDonnell Douglas says its policy is not to comment on cases still before the courts.)

One reason layoffs are hitting older workers hardest today is that many companies have decided they no longer need legions of middle managers, many of whom happen to be 40 or older. Another reason is that most 40-plus white-collar workers aren't protected by union seniority rules. By contrast, when downsizing struck the blue-collar work force a decade ago, it was younger workers with little seniority who suffered the greatest percentage of layoffs.

Larger paychecks also make older workers easy targets for budget cutters. "Older workers do tend to be paid more," says Michael Burke, a professor at Tulane University. He is quick to add, however, that "if you look at total costs, including benefits, they may not cost employers more." For example, older workers may cost less to insure because their children are often grown up and no longer on the employer's health plan.

TEACHING OLDER WORKERS NEW TRICKS

Top managers tend to believe that older employees lack up-to-date skills and are ill-equipped to use new technologies, says Cathy Ventrell-Monsees, managing attorney for the American Association of Retired Persons' Worker Equity Program. Some older workers feed these prejudices by turning down training opportunities. But in many instances, employers discourage older workers from obtaining training. "I never got my skills updated, even when I asked for several classes by name," complains Charles Eberhardt, 54, a systems developer for NCR who was laid off in 1991. "Young people went to many schools, but I was always told there was no education budget." Eberhardt settled his age-bias lawsuit against NCR last year. For its part, NCR denies Eberhardt's charges. "As an equal-opportunity employer, our company policy is to make training opportunities available to all our employees, regardless of their age," says spokesman Bob Farkas.

Some companies argue that it makes sense to invest most heavily in younger workers, since older employees may have just five or 10 years left in their corporate careers. "The economics of that are pretty clear," says Laurie Bassi, vice president for research at the American Society for Training and Development, a professional association. The statistics tell a different story, however. They show that workers 24 and up average less than six years with each employer. So training an older worker who plans to stick around awhile may be a sound business decision after all. "There's more of a case now for employers to invest equally in everybody," says Wharton Business School professor Michael Useem, an expert on corporate restructuring.

THE HIGHEST HURDLE: FINDING A NEW JOB

As bad as it is to lose your livelihood to age discrimination, trying to find a new job can be even more humbling. Nearly five out of 10 executive search firms say that age is a "significant and negative factor" to companies looking at job candidates ages 40 to 50, according to a 1996 survey by Exec-U-Net, a networking group for executives.

But if you're an older worker turned down for a job because of your age, try proving it. "Since you're not on the inside, you may not know that the person who was hired is younger than you," notes Joseph Cleary, head of the Equal Employment Opportunity Commission's age-discrimination unit. That may help explain why only 14% of the 17,425 age-bias claims received by the EEOC last year alleged discrimination in hiring.

One recent case involved the Upper Deck Co., a Los Angeles manufacturer of baseball cards and other sports memorabilia. According to age-discrimination charges filed by the EEOC last year, an Upper Deck employee marked a number of applications "too old" or simply "age," as a signal to reject the job seekers. The 600-person company, which settled the case in March without admitting guilt, says that at the time the comments were written, Upper Deck was interviewing hundreds of job applicants a day for jobs that involved some strenuous physical labor. The employee who marked the applications meant to indicate that the job seekers "would be unable to stand for 12 hours and lift 75-pound boxes. It was a regrettable thing for her to write," says Upper Deck attorney John Collins. He added that the company has regularly hired workers in their fifties and sixties.

Of course, most employers, or at least the shrewd ones, won't admit outright that they don't intend to hire older workers. Instead, help-wanted ads call for "recent college grads" or "one to three years' experience," and personnel officers are asked to find "rising stars" or someone on "the fast track." Executive recruiters quickly pick up the clues that the company's culture favors youth over experience.

Often even the most obvious benefits of experience can't overcome the drawbacks of age. Five years ago, Dorothy Kelly, then a 49-year-old Pan Am flight attendant, was certain she would be hired by United Airlines when it purchased the London-based Pan Am routes she was working. Kelly had spent 25 years with Pan Am and had even earned a silver medal of valor from the U.S. Air Force for rescuing a pilot and several passengers following the 1977 collision of two passenger planes at Tenerife in the Canary Islands, the deadliest accident in aviation history. But Kelly's bravery and experience weren't enough for United, which told her that other applicants better met its criteria. Those applicants, she says, included some 400 people who were mostly in their twenties. "My view is they just didn't want to hire a lot of people over 40," says Kelly, a member of a five-year-old, 35-person class-action lawsuit charging United with age discrimination. United says its policy is generally not to comment on pending litigation. However, company spokesman Richard Martin said that 66% of the former Pan Am flight attendants who were over 40 were hired by United and more than half of its current flight attendants are over 40.

WHY FEW FIGHT BACK

Most workers who believe they've been victimized by age bias make no attempt to invoke their rights under the law. Instead, they suffer in silence. In some cases, that's because it's so expensive and time consuming to pursue a claim: A typical age-discrimination lawsuit can easily cost $25,000 or more and last two to five years. Other older workers just want to take a new job--any new job--and get on with their lives. "The typical discrimination victim has aging parents, kids still in college and a mortgage," notes Howard Eglit, the author of a three-volume book on age-discrimination law and a professor at Chicago-Kent College of Law. "That's a person who's already facing tremendous psychological and financial stresses and may not have the economic or emotional wherewithal to pursue a claim."

Employers have also become considerably more sophisticated at countering age-bias claims. Attorneys now counsel companies on such matters as creating a paper trail before firing an older worker and sweetening a severance package just enough so that fired workers will waive their right to sue.

Federal law sets out standards for such lawsuit waivers, meant to allow workers to evaluate whether they should take their employers' offer (see the box below). But employees often feel they have little choice but to agree to their employers' terms. "You don't have to sign the release, but if you don't, you probably won't get anything," notes Chicago attorney Alan Serwer, who represents both employers and workers in age-bias cases.

A COLD SHOULDER FROM THE COURTS

older workers who decide to sue are finding it tougher to get their day in court than it was a decade ago. Both plaintiffs' and defense attorneys say that today's more conservative judges are throwing more claims out on "summary judgment," a process that stops a lawsuit before it can go to a jury trial. "Courts are often reluctant to second-guess business decisions," says Jeffrey Norris, president of the Equal Employment Advisory Council, an employer group. "They don't like being personnel officers."

One of the biggest legal setbacks for older workers came in 1993, when the U.S. Supreme Court held that it's not necessarily age discrimination to fire--or offer buy-out packages to--employees based on pension eligibility, even if that may be closely correlated with age. Some lower courts have taken that ruling a step further, maintaining that salary caps or layoffs that penalize workers with seniority aren't necessarily discriminatory.

Food-service veteran James O'Connor is hoping to beat the odds. At first his suit was rejected by a federal judge, who held that the firing wasn't discriminatory because O'Connor's replacement was 40 years old and therefore also an older worker under the federal law's definition. That ruling was reversed this past April by the U.S. Supreme Court, which said that what mattered was the fact that O'Connor was replaced by someone substantially younger. The court sent the case back to the appeals court for reconsideration. O'Connor's employer, Consolidated Coin, maintains its innocence. "Two courts have looked at all the evidence and have not found any credible evidence of age discrimination," says James Marshall, an attorney for the company. "We're confident that we will still prevail in this case under the new standard that was promulgated by the court."

Looking back on six years of litigation (and ahead to who knows how many more), O'Connor can only say: "I hope I'm alive when the verdict comes."