Special Rules on Release Agreements for Workers Raise Questions and Create
Litigation Risks
March 2007
Severing the employment relationship with
the assurance that everyone will "shake hands and have a nice life" is becoming
more difficult. Agreements that attempt to release employers from all claims
arising from the employment relationship and that will withstand judicial scrutiny
are proving elusive.
by Paul
J. Siegel, Esq.
Jackson Lewis
LLP
With all separating employees, employers must ensure that such agreements
are knowingly and voluntarily entered into, are not overly broad, and do not
on their face violate antidiscrimination and other laws. Employers also must
comply with special release requirements for employees age 40 and over.
To release any claim under the Age Discrimination in Employment Act (ADEA)
(covering individuals age 40 and over), the agreement must comply with the requirements
of the Older Workers Benefit Protection (OWBPA) Act. The OWBPA imposes specific
requirements for individual separations and additional requirements for group
terminations (e.g., termination or exit incentive programs involving more than
one employee separation).
Recent court decisions—addressing issues ranging from the scope of an enforceable
release to unlawful release language to compliance with the group termination
requirements in general—make it increasingly clear that these agreements must
be carefully crafted.
Scope of an Enforceable Release—Guidance as to Appropriate Release Language
In at least two instances, courts in 2006 issued decisions that underscore
the need for employers to ensure that all release agreements contain carefully
scripted waiver language and that payment under the agreements not be premised
on any unlawful considerations.
A decision by the National Labor Relations Board (NLRB) illustrates a position
taken by other administrative agencies with regard to the waiver of the right
to file charges of alleged violations of antidiscrimination laws, such as the
National Labor Relations Act. Governmental agencies, such as the Equal Employment
Opportunity Commission and now the NLRB, take the position that such rights
are unwaiveable, thereby limiting the use of broad waiver language in release
agreements. In fact, the OWBPA regulations specifically provide that:
- [n]o waiver agreement may include any provision prohibiting any individual
from [f]iling a charge or complaint, including a challenge to the validity
of the waiver agreement, with [the] EEOC.... No waiver agreement may include
any provision imposing any condition precedent, any penalty, or any other
limitation adversely affecting any individual's right to [f]ile a charge
or complaint, including a challenge to the validity of the waiver agreement,
with [the] EEOC.
See 29 CFR §§ 1625.22(i)(2)(i), 1625.22(i)(3)(i).
In this case, the NLRB found an arbitration clause unenforceable because
it attempted to release claims arising under the NLRA. This and similar rulings
require employers to ensure that, when providing money and benefits in return
for release agreements, individuals understand that a release cannot prevent
the filing and investigation of agency claims. Further, employers should consider
including language specifically noting that the release:
- does not limit either party's right, where applicable, to file or participate
in an investigative proceeding of any federal, state or local governmental
agency.
U-Haul Co. v. California, 347 NLRB No. 34
(2006).
A ruling from a federal district court in Maryland underscores the importance
of carefully crafted waiver and release language. The U.S. District Court for
the District of Maryland has held that an agreement, which stated that the employee
had released all claims, was retaliatory on its face and constituted unlawful
interference with protected activity. The court indicated that such language
unlawfully implies to employees that they do not have the right to file an EEOC
charge after executing a release. EEOC v. Lockheed Martin
Corp., No. 05-cv-0287 (RWT) (D. Md. Aug. 9, 2006).
In the same case, the court ruled that the employer's attempt to require
individuals to withdraw any pending EEOC charges before receiving the stipulated
payment was retaliatory and unlawful. In so finding, the court first noted that
filing an EEOC charge is protected activity. Additionally, the denial of severance
benefits is an adverse employment action under the U.S. Supreme Court's 2006
decision, Burlington Northern & Santa Fe Railroad Co.
v. White, and previous rulings from the U.S. Court of Appeals for the
Fourth Circuit with jurisdiction over Maryland federal district courts. Finally,
the court noted that the link between the employer's action and the protected
activity rendered the release retaliatory on its face.
Employers must treat employees who have filed charges with the EEOC or other
fair employment practices or administrative agencies very carefully to avoid
charges of retaliation, in addition to any other claims that may arise. When
dealing with those employees, employers must consider the special circumstances
and may choose to seek legal counsel to devise specific strategies for executing
and enforcing waiver and release agreements.
Group Terminations—Back to the Future
When a group of employees will be terminated, waiver and release agreements
for separating employees age 40 and over must comply with the OWBPA and the
implementing regulations issued by the EEOC. Those regulations require employers
to provide the ages both of the discharged and the retained workers who are
"comparable" to the employees being asked to sign the release. The release also
must articulate the eligibility/selection criteria, as well as any program time
limits. Specifically, the OWBPA provides as follow:
- (H) if a waiver is requested in connection with an exit incentive or
other employment termination program offered to a group or class of employees,
the employer (at the commencement of the period specified in subparagraph
(F)) informs the individual in writing in a manner calculated to be understood
by the average individual eligible to participate, as to—
(i) any class, unit, or group of individuals covered by such program,
any eligibility factors for such program, and any time limits applicable
to such program; and (ii) the job titles and ages of all individuals
eligible or selected for the program, and the ages of all individuals
in the same job classification or organizational unit who are not eligible
or selected for the program.
29 U.S.C. § 626(f)(1)(H).
Compliance with some of these technical requirements—providing information
as to selected and unselected employees, eligibility and selection criteria,
applicable time limits—is a challenge because of the amorphous language contained
in the statute and the regulations, and because of a dearth of interpreting
caselaw. While three court decisions were issued in 2005 and early 2006, they
do not provide employers with hard-and-fast rules on which to rely. In fact,
one of these decisions subsequently was reversed on appeal, a second was withdrawn,
and the third provides little guidance for employers.
Determining Which Positions To Include in Job Title List
Compliance with the requirement to list job titles and ages of employees
selected for a termination program is one of the challenges posed by the OWBPA.
Indeed, it is unclear whether an employer must list only terminated employees
in a particular decisional unit, or all employees who have terminated employment
under similar programs. In 2005, in Burlison v. McDonald's
Corp., 401 F. Supp. 2d 1365 (N.D. Ga. 2005), the U.S. District Court
for the Northern District of Georgia took the more expansive approach. In analyzing
the appropriate scope of the list of affected employees, the court held that
such list must include not only those in the separating employees' "decisional
unit" but all employees being separated, including those from different regions.
As stated by the court:
- [t]his Court's reading of the statutory language is consistent with
the legislative intent of the OWBPA by ensuring an employee faced with a
decision whether to sign a release will be provided with information necessary
to evaluate any potential age discrimination claim.
On appeal, the U.S. Court of Appeals for the Eleventh Circuit (which governs
Alabama, Georgia, and Florida) came to the opposite conclusion. It held that
the listing of selected employees could be limited to the affected employee's
decisional unit—the portion of the employee's organizational structure from
which the employer chose the persons who would be offered consideration for
the signing of the waiver. That court upheld the waiver which only listed those
employees separated from the relevant decisional unit—a specific region of the
employer—despite the fact that employees also were separated in other regions.
The court pointed out that the informational requirements of OWBPA are designed
to ensure that older employees are given the information needed to evaluate
any potential ADEA claims before deciding to release them.
To make an informed decision, employees need appropriate data to conduct
meaningful statistical analyses. In the discrimination context, the data must
permit employees and their attorneys to make meaningful comparisons to determine
whether an employer engaged in age discrimination. The Eleventh Circuit stated
that:
- [t]he data must allow the employee to consider whether anything suggests
that older employees in their unit were unjustifiably terminated in favor
of younger ones. Extending the information requirement beyond a decisional
unit will in reality only obfuscate the data and make patterns harder to
detect.
Accordingly, the court determined that the appropriate decisional unit includes
those who were considered for jobs in the same process as the terminated employees. SeeBurlison v. McDonald's
Corp., No. 05-13991, 2006 U.S. App. LEXIS 17260 (11th Cir. Jul. 11, 2006).
In this area of OWBPA compliance, there is uncertainty as to whether an employer
is required to provide information regarding separating and remaining employees
outside of the decisional unit to obtain an enforceable ADEA waiver.
Defining Eligibility and Selection Criteria
Another tricky aspect to OWBPA compliance for group terminations is the requirement
that the release provide information about "eligibility factors." In 2005, consistent
with the position taken by the EEOC, the U.S. Court of Appeals for the Tenth
Circuit held that a group termination release was invalid if the release did
not expressly set forth the criteria used by the employer in selecting employees
for separation. This decision was consistent with the holding of the U.S. District
Court in Massachusetts v. Bull HN Info Sys., Inc.,
143 F. Supp. 2d 134 (D. Mass. 2001), the only previous federal court decision
analyzing an employer's compliance with this OWBPA requirement.
The Tenth Circuit stated that the information provided should be similar
to a response to a litigation interrogatory as to the basis of separation. However,
without further analysis, in May 2006, the court withdrew its holding on this
issue while finding the release invalid on other grounds. SeeKruchowski v.
Weyerhaeuser Co., 446 F.3d 1090 (10th Cir. 2006).
Thus, there remains uncertainty in this area as to whether an employer is
required to provide eligibility and selection criteria to obtain an enforceable
waiver of the ADEA.
Time Limits
Further complicating an employer's compliance strategy is a decision issued
earlier this year by the U.S. District Court for the Northern District of Ohio.
In this decision, the court, without detailed analysis, invalidated the waiver
of an ADEA claim because the employer did not list the time limits applicable
to such a program. Thus, to be safe, release agreements and related severance
plans should note the time period during which the group termination program
was in effect.
Conclusion
The lack of judicial guidance in this area, coupled with the exposure both
to claims of intentional discrimination and disparate impact, including claims
for disparate impact based on age under the ADEA pursuant to the U. S. Supreme
Court's 2005 decision in Smith v. City of Jackson,
544 U.S. 228; 125 S. Ct. 1536 (2005)1, make it critical
that employers consult with legal counsel when preparing termination agreements.
Inclusion of appropriate language is necessary to help to protect the organization
from a claim that the release cannot be enforced. Further, the above decisions
demonstrate that courts closely scrutinize employer compliance with the OWBPA's
technical requirements, and simply reusing an "old" form release may open the
door to significant legal challenges. Drafting release agreements with the advice
of counsel knowledgeable as to the most recent judicial and regulatory pronouncements
is essential to reducing the risk of employment litigation.
| This article is provided for informational
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or recipients. Readers should consult counsel of their own choosing
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