Practical Tips From Practitioners
Drafting Enforceable Waivers of Age Discrimination Claims: The Basics and Beyond
Article Date: Wednesday, April 25, 2012
Written By: Jill Stricklin Cox
Most employment lawyers are familiar with the basic requirements for a valid waiver of claims under the Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621, et seq. (“ADEA”), as amended by the Older Workers Benefit Protection Act of 1990, 29 U.S.C. §§ 626 et seq. (“OWBPA”). Courts strictly interpret the OWBPA’s requirements and, unless an employer complies with the statute, an employee’s waiver of claims under the ADEA may not be effective.
The strict application of the OWBPA’s technical requirements has resulted in a number of cases in which courts have declared waivers and releases of ADEA claims to be invalid. Under U.S. Supreme Court precedent, Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998), as well as pertinent Equal Employment Opportunity Commission regulations, 29 C.F.R. § 1625.23, an employee is also not necessarily required to tender back (or repay) the money paid in exchange for a release in order to challenge the enforceability of a release under the OWBPA and pursue an ADEA claim. Consequently, the use of noncompliant ADEA waivers can be very costly for employers in terms of potential damages and legal fees, not to mention the amount originally paid out to employees in exchange for an invalid “release” of claims.
ADEA Waivers 101
In general, a waiver is valid when an employee knowingly and voluntarily consents to it. To satisfy this standard, an ADEA waiver must meet certain fundamental requirements. Specifically, the waiver must:
• be in writing and be understandable;
• specifically reference ADEA rights and claims;
• not waive rights or claims that may arise after the agreement is signed;
• be supported by valuable consideration (i.e., something over and above any benefits or pension to which the employee might already be entitled);
• advise the employee in writing to consult an attorney before signing the waiver;
• provide the employee at least 21 days (45 days in a group termination) to consider the agreement; and
• provide the employee with at least seven days to revoke the agreement after signing it.
If an ADEA waiver is requested in connection with a group termination or exit incentive program (such as a reduction in force), an employer must also provide: (1) specific information about the termination program (the covered group or decisional unit, eligibility factors and time limits); (2) the job titles and ages of individuals eligible or selected for the program; and (3) the ages of those in the same job classification or organizational unit who are not eligible or selected for the program. See 29 U.S.C. § 626(f)(1)(H); 29 C.F.R. § 1625.22(f). Congress intended these informational requirements to ensure that employees, when deciding whether to waive age discrimination claims, have the information necessary to assess the value of the rights they would be relinquishing.
Beyond the Basics
Although challenges to ADEA waivers may be based on a violation of any of the OWBPA’s mandates, such challenges most frequently relate to an employer’s failure to comply with the understandability requirement, as well as the additional informational requirements for group terminations or exit incentive programs.
What does it mean for a waiver to be “understandable”? The OWBPA requires that a waiver be written in a manner reasonably calculated to be understood by the individual or, in the case of a group termination or exit incentive, by the average individual eligible to participate. This means that waivers must be drafted in plain language (i.e., not “legalese”), without technical jargon or long, complex sentences. Moreover, the waiver must not have the effect of misleading, misinforming, or failing to inform participants.
What constitutes a group termination or exit incentive program for purposes of the OWBPA? A group termination or exit incentive program is typically one in which an employer offers severance pay or other benefits to two or more employees in exchange for a release. It need not involve an ERISA-covered plan.
In an exit incentive or group termination scenario, how does an employer define the decisional unit that applies to the discharged employee? The OWBPA’s supplemental information requirements are generally limited to the decisional unit that applies to the discharged employee. Depending on the particular circumstances of each termination program, the decisional unit might comprise the entire company, a division, a department, employees reporting to a particular manager, or workers in a specific job classification. The decisional unit typically should be limited to the portion of the employer’s organizational structure from which it selected the people who would be separated. Employers should resist the temptation to define the decisional unit too broadly, as courts have invalidated ADEA releases on the grounds that the decisional units were so broadly defined that the data become too confusing.
What “eligibility factors” must an employer disclose in connection with a termination program? The OWBPA does not define “eligibility factors,” but some courts have interpreted the term to mean the criteria, such as job performance experience level, or seniority, that an employer uses to determine who to terminate. This interpretation is by no means universally accepted, however, and the Equal Employment Opportunity Commission regulations provide the following alternate, less expansive example of eligibility in a situation where the employer terminates ten percent of the employees in its Construction Division as part of a reduction in force (“RIF”): “All persons in the Construction Division are eligible for the program. All persons who are being terminated in our November RIF are selected for the program.” See 29 C.F.R. § 1625.22(f)(4)(vii)(B).
Employment lawyers should bear the following pointers in mind when drafting or reviewing releases involving ADEA rights and claims:
• Verify that the release satisfies each and every technical requirement of the OWBPA. The statute’s language can serve as a useful compliance checklist.
• Focus on whether the language of the waiver is readable and understandable. Valid waivers are written in plain English, contain minimal technical jargon and terms of art, and clearly define the terms used.
• Carefully review the waiver for internal consistency.
• Verify the accuracy of supplemental information provided to employees who are offered ADEA waivers in connection with group termination or exit incentive programs. Bear in mind that workforce reductions can be fluid situations, so be sure you are working with current data. Given the court’s strict application of the OWBPA, even inadvertent misstatements or miscalculations might render all of the waivers invalid.
• In a group termination or exit incentive program, be sure the rationale for defining the decisional unit makes sense given the particular circumstances of the termination program.
• Consider the adequacy of the disclosures in light of the underlying purpose of the OWBPA’s supplemental informational requirement—namely, to enable employees to assess the value of any age discrimination claims they might be giving up.
• Use available resources when analyzing tricky issues related to ADEA waivers, such as the determination of the decisional unit or eligibility factors in group terminations. The Equal Employment Opportunity Commission has issued regulations concerning the OWBPA’s waiver requirements, codified at 29 C.F.R. §§ 1625.22 and 1625.23.Additionally, the Commission has issued guidance, entitled “Understanding Waivers of Discrimination Claims in Employee Severance Agreements,” which contains a section addressing waivers of ADEA claims. This guidance is available at http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html.
• Check other federal, state and local laws that might apply. Certain states might impose additional requirements to obtain an effective waiver of certain state law claims. In addition to waiver issues, workforce reductions, facility closures and other substantial business changes often trigger other legal obligations including, by way of example, rights arising under statutes governing notice and employee benefits, benefit plans, labor contracts, and individual employment agreements. •
Jill Stricklin Cox is a Partner with Constangy, Brooks & Smith, LLP based out of the firm’s offices in Winston-Salem and Asheville.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.