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.
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 case law. 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.
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.
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.
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