By James Vicini

WASHINGTON (Reuters) - The U.S. Supreme Court said on Monday it would decide whether a federal law barring age bias in the workplace allows for reverse discrimination lawsuits by employees in their 40s who claim older workers are better treated.

The high court agreed to hear an appeal by a subsidiary of General Dynamics Corp. arguing the law does not allow for such lawsuits.

General Dynamics, supported by various business groups, called the question "an important and recurring one" and said a U.S. appeals court ruling allowing such lawsuits would have a "burdensome impact" that required Supreme Court review.

The federal law at issue prohibits an employer from discriminating against any employee age 40 or older based on his or her age.

General Dynamics operates manufacturing plants in Lima, Ohio, and Scranton, Pennsylvania, with the employees represented by the United Auto Workers.

The agreement in force until mid-1997 provided full health benefits to all employees who retired with 30 years of seniority. The company and union then negotiated a new collective bargaining agreement which offered retiree health benefits only to those at least 50 years old on July 1, 1997.

Nearly 200 present or former employees who are in their 40s sued, saying the limitation amounted to age discrimination.

A federal judge dismissed the lawsuit on the grounds that the law did not cover reverse discrimination. But the appeals court reinstated the lawsuit.

The appeals court noted the Equal Employment Opportunity Commission, a federal agency that helps enforce the age bias law, had issued a regulation that said it covers reverse discrimination against those 40 or older.

The issue has produced conflicting appeals court rulings.

The Chamber of Commerce, the National Association of Manufactures and other business groups supported the company's appeal.

The business groups said the appeals court ruling created "significant uncertainty in an area of substantial importance to employers" and jeopardized employer-sponsored benefit plans. They said the ruling would subject employers to significantly more discrimination claims over personnel actions.

The high court will hear arguments in the case and issue a decision during its term that begins in October.