As promised, this week The Emplawyerologist will devote its time to the special rules that apply to severance agreements offered to employees over 40. The Older Workers Benefits Protection Act (OWBPA), which is part of the Age Discrimination in Employment Act (ADEA) imposes specific requirements regarding severance agreements, and particularly release provisions in severance agreements. While the OWBPA most often applies to involuntary terminations and reductions-in-force, its rules will also apply to early retirement plans, exit incentive plans and voluntary departures where the employer asks the employee to sign a release. First, a few general comments about the OWBPA and its requirements regarding release provisions contained in severance agreements: As you might already realize, the OWBPA provides additional protections to employees over 40. As I indicated above, the OWBPA is part of the ADEA, which prohibits age-based employment discrimination, and applies to employees who are forty years of age or over. It is an employee-friendly law that imposes strict requirements. Releases that do not fulfill the OWBPA’s requirements are not enforceable.
What are those requirements? Let’s take a look:
- The release must be in writing. This requirement may sound like it should be a given, but I assure you that many businesses, especially small ones, routinely operate without written agreements. While it is possible to have an implied employment agreement (Click here for a review of this concept) the law does not allow an implied release when the terminated employee is 40 years of age or older. Employers therefore cannot expect to hold an over-40 year old employee to an oral agreement that s/he will, in exchange for money, benefits or both, not file an age discrimination claim.
- It must be written in plain, clear language, in a manner which the employee is likely to understand ,and that avoids technical jargon, complex terms. If the employee needs a lawyer to read it for him or her before s/he can get any idea of what it says, it is probably unenforceable.
- The release must not exaggerate the benefits offered or the limitations imposed, or mislead or misinform in any way. If a severance agreement offers 4 months’ severance pay and continuation of medical benefits, it should say that, and no more and no less. The release cannot require the employee to give up the right to file EEOC or similar state charges or prohibit him or her from cooperating in an investigation by or testifying in a proceeding before either such agency, because that would mislead the employee into thinking that such a prohibition is legal and binding, when it is not.
- There must be a specific reference to the ADEA. Waivers of ADEA claims must be knowing and voluntary. A release devoid of any reference to the ADEA therefore cannot be a knowing and voluntary waiver of ADEA claims.
- It cannot require the employee to waive rights or claims arising after the date the employee signs the release. Claims triggered by facts occurring after the employee signs the release cannot be subject to the release.
- It must advise the employee to consult an attorney before signing.
- The release must give the employee twenty-one (21) days from the date of final offer to consider whether or not to sign. Unless the employer and employee agree otherwise, significant changes to the offer will “restart the clock”.
Except for the last item, the above requirements will apply to all releases in severance agreements, whether offered as part of an involuntary termination, reduction-in-force, early retirement or exit incentive plans. When an employer is looking for releases from two or more over-forty-year-old employees, however, there are more —yes more!– requirements. The employer must provide all such employees detailed information about the other employees to whom it is offering severance and requesting a release. The terminations do not need to be on the same day to qualify as multiple terminations under the OWBPA. Staggered terminations that are part of the same decision-making process will count as multiple terminations, subject to the additional information requirements. Also, the consideration period increases from 21 to 45 days. We are in the home stretch here, so let’s go through those additional requirements so we can call it a wrap:
- The class, unit or group of employees covered by the exit program, whether voluntary or involuntary;
- Factors used to determine eligibility for the program and time limits, if any, applicable to the exit program;
- Job titles and ages of employees eligible for voluntary exit incentive programs or who were selected for involuntary termination programs;
- Ages of all employees in the same job classification or organizational unit either ineligible for the voluntary exit incentive program, or not selected for an involuntary termination program.
Can you see a pattern to these additional information requirements? The law requires this information so that an employee can truly make an informed choice before waiving his or her rights under the ADEA. The required information will enable the employee to consider the possibility that s/he may be waiving a valid ADEA claim. If so, s/he can decide whether the benefits offered as part of the severance plan are enough to warrant waiving an ADEA claim that could ultimately provide him or her a larger sum of money. While an employee could still attempt to bring an ADEA claim, and while the ADEA does not require the employee to refund the severance pay or other benefits prior to filing suit, a court may well reduce any award s/he receives by the amount of severance pay s/he previously accepted from the employer.
As I said in the beginning, and as you can see, the OWBPA is fairly strict. If you are an employer, and you are considering termination of one or more employers over age 40, make sure you consult with either in-house or competent outside counsel before you either offer a release or develop and implement any type of exit incentive program!
Well, that’s a wrap for now! Next week The Emplawyerologist will begin a new adventure into the kingdom of pre-employment screening, so make sure not to miss it!
Disclaimer: The contents of this post are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
Click here to learn more about Janette Levey Frisch, author of The Emplawyerologist.
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