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EEOC Issues Final Regulations on Waivers of Age Discrimination Claims

January 8, 2001

It is common practice for employers to condition payment of severance to outgoing employees on the employees' consent to waive employment-related claims. In order to hold up in court, however, such waivers must meet a laundry list of requirements, particularly where waivers of claims under the Age Discrimination in Employment Act (the "ADEA") are concerned.

Adding substantially to the burdens placed on employers seeking to avoid litigation by trading severance pay for waivers, the U.S. Equal Employment Opportunity Commission (the "EEOC") released its final rule regarding "tender back" provisions in age discrimination waivers on December 11, 2000. The final rule, which takes effect on January 10, 2001, provides that an employee who files a complaint under the federal Age Discrimination in Employment Act need not return, or "tender back," to the employer any severance pay the employee received in exchange for waiving the right to file such a complaint in court.

According to the EEOC, an employer may recoup severance pay only if the older worker successfully challenges the validity of the waiver, proves age discrimination, and obtains a monetary award. In no event, however, may the employee be required to pay back more than the lesser of (i) the amount of severance received from the employer, or (ii) the amount of the monetary damages award.

The final rule represents a broad interpretation by the EEOC of a 1998 decision by the U.S. Supreme Court, Oubre v. Entergy Operations Inc., 522 U.S. 422 (1998). In Oubre, the Court held that, when a waiver fails to meet the specific requirements set forth in the Older Workers Benefit Protection Act (the "OWBPA") and is therefore unenforceable, the employee is not required to tender back to the employer severance pay already paid prior to challenging that waiver in court. According to the EEOC's final rule, an employee is never required to repay severance prior to filing suit, even if the waiver at issue is valid.

The final rule also provides that an employer may not require older workers to agree to pay damages to the employer or to pay the employer's attorney fees simply for filing suit, nor may an employer abrogate or avoid its obligations under the agreement even if the employee files suit. For example, an employer that has committed to making salary continuation payments for a specified period of time in exchange for a release is obligated to continue making those payments even after the employee files a lawsuit challenging the validity of the waiver.

Some good news for employers

In the final rule, the EEOC does throw this bone to employers: it acknowledges that a waiver is an affirmative defense to an ADEA claim (provided the employer meets its burden of proving in court that the waiver is valid), and it recognizes that an employer may recover attorney's fees if an employee files a lawsuit challenging the validity of an ADEA waiver in bad faith.

Concluding thoughts

Employers should consult with counsel before presenting to any current or former employee a separation agreement or settlement agreement which includes a waiver of federal age discrimination claims, to ensure that the agreement does not run afoul of the EEOC's final rule on ADEA waivers.

For further information regarding the EEOC's final rule, or regarding waivers of employment discrimination claims more generally, please contact any of the Firm's attorneys.