Please Release Me:

The Downsizing Employer's Favorite Refrain Gets a New Tune From EEOC

In an attempt to help employers and employees comprehend the requirements for valid releases and waivers of discrimination claims, the Equal Employment Opportunity Commission (EEOC) issued a technical assistance memorandum titled, "Understanding Waivers of Discrimination Claims in Employee Severance Agreements," on July 15, 2009. In a colossal understatement, EEOC acting chair Stuart Ishimaru observed that the rules governing releases under the Age Discrimination in Employment Act (ADEA) and other discrimination laws "can be confusing." The document can be found on the EEOC Web site.

As most sectors of the economy continue to under perform, employers all over the U.S. are reducing their workforces. Euphemistically lumped under the label "right sizing," frequently these reductions are achieved through voluntary exit incentive programs and involuntary termination programs. In the voluntary programs, companies usually offer a package of severance pay and/or benefits enhancements to encourage employees to voluntarily resign or take early retirement. In the involuntary programs, employers inform the affected employees that their employment is being terminated and offer them a combination of severance pay and benefits sweeteners.

One of the common ingredients in these group reduction programs is a release, also known as a waiver of rights and claims. From the employer's perspective, this is the carrot it wants from the departing employees in exchange for its offer of severance pay and benefits to them. Under the terms of a typical release, the employee gives up all legal claims he/she may have against the company, including breach of contract claims, wage claims and discrimination claims.

Releases of liability have been commonly used for centuries, and courts have generally upheld them if they were "knowing and voluntary" waivers on the part of the individuals signing them. However, in 1990, concerned that older workers were being pressured into signing releases in which they unknowingly or unintentionally forfeited claims under the ADEA, Congress passed the Older Workers Benefit Protection Act (OWBPA).

The OWBPA imposed several new requirements on releases. Unless those requirements are strictly complied with, the release will not absolve an employer from age discrimination liability regardless of how much it gave the employee in severance pay and benefits. In other words, the employee can sign the invalid release, receive the severance pay and sue the employer for age discrimination without giving back any of the severance money.

What must an employer do to make sure the release it "buys" from a departing employee with severance pay isn't just a "pig in a poke?" The basic requirements under the OWBPA are specifically listed and include the following:

· the release must be "written in a manner calculated to be understood" by the individual being asked to sign the release, or, in the case of a group voluntary or involuntary program, by the average individual eligible to participate in the program.

· the release must specifically refer to rights or claims under the ADEA.

· it must not release claims arising after the date the release is signed.

· the release must be given in exchange for something of value which the employee was not already entitled to receive (such as severance pay and/or benefits enhancements or extensions).

· the employee must be advised in writing to consult with an attorney about the release.

· in the case of an individual resignation or termination, the employee must be given 21 days to consider the release and accompanying offer, plus seven days to revoke it after signing it.

· in the case of a group exit incentive or termination program ("group" means two or more individuals), each employee receiving the offer must be given 45 days to consider the release and offer, plus seven days to revoke it.

Although most of the above requirements are reasonably straightforward, some provisions of the OWBPA have given rise to considerable uncertainty and litigation between employers and releasing employees. One such provision is the mandate that the release not prohibit the employee from filing a charge of discrimination with the EEOC. Courts confronted with this issue have concluded that, unlike the other OWBPA requirements summarized above, a prohibition in a release against the filing of EEOC charges would not make the release invalid or unenforceable. Instead, this OWBPA provision simply means that such a prohibition in a release has no effect on the EEOC's right and responsibility to investigate such a charge. Nevertheless, an employer is well-advised to clearly state in its release that, while the releasing employee is not prohibited from filing a charge of age discrimination, he/she may not seek personal relief when filing such a charge because the employee is releasing all claims for monetary damages.

Similarly, the EEOC regulations interpreting the OWBPA effectively prohibit employers from including covenants not to sue in releases. In the typical covenant not to sue, the individual agrees never to file a lawsuit against the party receiving the covenant based on any claims arising before it was signed. The EEOC regulations declare invalid any releases that discourage employees from contesting the validity of waivers they signed or penalize them for filing charges or lawsuits challenging the validity of the releases.

The most perplexing requirements of the OWBPA are the employer's obligations regarding the information it must give in connection with a group voluntary exit incentive or involuntary termination program. Among other things, the employer must inform the employees in the group of the eligibility factors for the program, the job titles and ages of all individuals eligible or selected for the program, and ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program. In expounding on these terms, the EEOC regulations state that the required information must be given to each person who is asked to sign a release in the "decisional unit" which must be determined on a case-by-case basis. The regulations indicate that the decisional unit is typically no broader than the facility. However, in some instances, it may be a subgroup of a facility's work force, and in others, it may appropriately comprise several facilities. The employer's task in deciding who it must inform about the group program can be mind-numbingly complex.

The EEOC's recently issued technical assistance document provides information in question and answer format regarding the rules on releases. It also contains a checklist for employees to follow when they are presented with a severance agreement and excerpts from a sample agreement for an employer to use in group programs. Needless to say, employers should not simply cut and paste from the EEOC's sample agreement. The proper drafting of an enforceable release and making determinations required by the OWBPA, such as the eligibility factors, the appropriate "decisional unit," what information should be disclosed, and to whom, should not be undertaken by any employer without the assistance of labor and employment counsel familiar with the applicable rules.

Wayne "Skip" Adams is a partner in Ice Miller's Labor and Employment Practice Group. Adams' practice has been devoted to the representation of employers primarily in labor and equal employment matters. He has substantial experience in defending employers in employment discrimination cases, wrongful discharge lawsuits and labor arbitrations.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.