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Preventing Post-Employment Lawsuits: Releases That Do the Job

September 29, 1998

New guidance is available to employers who request that departing employees sign severance agreements in an attempt to limit future age discrimination lawsuits. A recent Supreme Court decision and newly published EEOC regulations clarify the factors used to determine whether waivers are "knowing and voluntary" under the terms of the Older Workers Benefit Protection Act ("OWBPA"), a 1990 amendment to the Age Discrimination in Employment Act ("ADEA").

SUPREME COURT UPDATE

The Supreme Court in Oubre v. Entergy Operations, Inc., 118 S.Ct. 838 (No. 96-1291, January 26, 1998), identified three potential problems employers may face when an employee signs a release of claims under the OWBPA. First, a release that does not fully comply with the requirements of the OWBPA will be void in its entirety and unenforceable. Second, an employee cannot ratify, and thereby make valid, an otherwise invalid release. Third, an employee may proceed with an age discrimination lawsuit without returning, or even offering to return, severance paid to the employee in exchange for the release.

The facts of the case are as follows. Entergy Operations offered Oubre severance pay, in excess of $6,000, and gave her fourteen (14) days to consider the offer. Oubre accepted the offer after reviewing it with an attorney. In exchange for the severance pay, Oubre signed a release in which she agreed to "waive, settle, release, and discharge any and all claims, demands, damages, actions, or causes of action" against Entergy. Despite the release, Oubre sued Entergy alleging the release did not comply with the OWBPA.

Two lower courts held Oubre could not sue because she had accepted the severance pay and thereby ratified the allegedly flawed agreement. The Supreme Court disagreed with the lower courts and held that an agreement that does not include a required clause or comply with the time limits of the Act is void in its entirety and cannot be ratified by the employee. In other words, general principles of contract law cannot be applied to alter the specific statutory requirements for ADEA releases.

The Court also held that a former employee is not required to return, or even offer to return, severance pay as a prerequisite to filing an age discrimination lawsuit. The Court noted such a requirement would frustrate the intent of the Act and encourage employers to draft invalid releases in the hope of trapping employees who are unable to make repayment.

CHECKLIST

The following checklist, based on the new EEOC regulations, will help ensure an employee's waiver of rights is knowing an voluntary. This checklist should be used to review all ADEA releases.

A. Content
1.      The release must be written.
2.      The release must be drafted in plain language and in a manner reasonably calculated to be understood by the individual or the average individual in the affected group. Employers should consider the level of comprehension and education of the typical affected employee.
3.      The release must not mislead or misinform the individual. For example, the agreement should not exaggerate the advantages derived from accepting the severance agreement while minimizing any disadvantages.
4.      In order to effectively waive an individual's right to file suit under the ADEA, the release must specifically state it is a waiver of rights and claims under the Age Discrimination in Employment Act.
5.      The individual must be advised in writing to consult with an attorney prior to executing the agreement.
6.      The release cannot bar future rights or claims. The release may, however, be used to waive rights and claims arising from a known employment action that will take place in the future. For example, a release executed at the beginning of a month covering a retirement effective at the end of the month is valid.
7.      No waiver may prevent the filing of a charge with the EEOC or participating in an EEOC investigation.
8.      No waiver may contain a condition or penalty for filing a charge or complaint or participating in an investigation.
9.      If an exit or termination program is offered to a group or class of employees, an employer may be required to provide additional written information to the targeted employees, including:
a.      Information describing the class, group or unit eligible to participate in the program, the eligibility factors for the program and the applicable time limits.
b.      The job titles and ages of all individuals eligible or selected to participate in the program and the ages of those in the same unit or class who are not eligible or selected to participate in the program. Information regarding the ages of employees may be grouped where the age difference between employees is one year or less.
c.      Consider whether there are any facts or circumstances, such as the employee's misunderstanding, omission of information or misstatements, that may affect whether the employee's waiver is knowing and voluntary.
B. Consideration
1.      The release must be supported by consideration to which the individual would not otherwise be entitled in absence of the waiver. Merely offering the employee payments or benefits that were eliminated contrary to law or contract will not be sufficient to support the severance agreement. An employer, however, is not required to give an employee in the protected class more severance pay or benefits than it would give to someone who is under the age of 40.
C. Time Requirements
1.      An employer must strictly comply with all of the time limits set by the Act.
2.      If a single employee is affected, that employee must be given a minimum of 21 days from the date of the final offer to consider the severance package.
3.      If a group or class of employees are affected, each must be given a minimum of 45 days from the final offer to evaluate the offer.
4.      If any material changes are made to the offer during the consideration period, the time period for review must begin anew as of the date of the final revised offer, unless the parties agree the changes will not restart the consideration time period.
5.      An employee may execute the waiver prior to the expiration of the consideration time period, provided the employee's consent is not the result of threats or fraud by the employer.
6.      Once an employee has executed a release, the employee has a minimum of seven (7) days to revoke her consent:
a.      An employee cannot consent to shortening the revocation period.
b.      The revocation period begins to run upon the employee's execution of the agreement, even if the agreement is signed prior to the expiration of the consideration period.

SUMMARY

In light of the Supreme Court's decision and the EEOC's regulations, employers cannot assume that an employee's signature on a general release will ensure there are no future lawsuits. Rather, failing to comply with the OWBPA may mean an employee can fund a lawsuit against her former employer with the very severance package paid by the employer.