What is an ADEA severance agreement?
At its most basic level, an ADEA severance agreement is a mutual agreement between an employer and its employee that the employee will be paid certain severance funds in exchange for waiving their rights to bring claims against the employer under the Age Discrimination in Employment Act of 1967 (ADEA) and the Older Workers Benefit Protection Act (OWBPA). Specifically, the ADEA prohibits discrimination against employees who are 40 or over in regard to compensation, benefits, termination, hiring practices and other terms of employment. If signed, the ADEA severance agreement generally will foreclose employment-related claims by the employee against the employer. The Employee Retirement Income Security Act (ERISA) applies to retirement and health plans. Its provisions, including protection for plan participants and beneficiaries, apply even if the employer maintains the plans (e.g. severance payment schedules) outside of ERISA. ADEA severance agreements related to severance pay are exempt from ERISA , but they are still subject to scrutiny under the ADEA and OWBPA. An ADEA severance agreement is intended to comply with the requirements of the ADEA and the OWBPA. The ADEA is overseen by the EEOC, which interprets the statute, has promulgated minimum requirements under the OWBPA, and is responsible for investigating potential ADEA violations of its provisions. The regulations are set forth in 29 C.F.R. Part 1625. The courts have held that a waiver of ADEA rights is enforceable if it meets the requirements of the regulations, which require additional considerations when the employee is 40 years of age or older. Therefore, an ADEA severance agreement typically will need to include: Representatives from the same decison-making unit as the employee, along with a company representative, should review each ADEA waiver agreement.
Key components of ADEA severance agreements
There are several key components that should be included in an ADEA severance agreement. The first is a waiver of rights. Dismissal of an ADEA claim must be accompanied by a knowing and voluntary waiver of the employee’s ADEA rights. A question that often arises is whether a general release of claims explicitly stating that it waives ADEA claims is sufficient to also waive ADEA rights. The general consensus is that it is not enough.
The second essential element of a valid ADEA release is consideration for the waiver, which has been required by the regulations since 1993. Since 2011, the regulations require even greater consideration where the employee has filed a claim against the employer. The third critical component is the age-discrimination release language that is required by the Older Workers Benefit Protection Act of 1990, which amended the ADEA in certain respects. Those regulations are complex and are not summarized here.
Finally, the ADEA regulations require a period of at least seven days after termination for revocation of the waiver. Furthermore, an additional collective bargaining agreement may be required, at least where the waiver occurs under otherwise noncompliant circumstances.
Legal safeguards provided by the ADEA
The ADEA protects older workers (those 40 years of age and over) from age discrimination in all aspects of employment and prohibits discrimination against workers aged 40 and over in various conditions of employment such as hiring, firing, compensation, job assignments, promotions, layoffs, training, and any other terms or conditions of employment. The ADEA also prohibits employers from denying employee benefits to older workers. Retaliation is also prohibited under the ADEA, particularly against employees who report, or participate in investigations regarding, ADEA non-compliance by the employer.
The ADEA’s protections against age discrimination do not present a significant legal concern to either employers or employees in connection with the issuance of a severance agreement on the termination of an employee’s employment. The ADEA, however, does contain an additional requirement for employers when they seek an employee’s release of all claims (including ADEA claims) in connection with a severance agreement. If a release is requested in connection with a severance agreement which includes ADEA claims, the employee must be provided by the employer: (a) at least 21 days to consider the offer; (b) a period of at least 7 days after the employee signs the agreement to revoke his or her acceptance; and (c) the right to be given a list of any class or group of individuals covered by the severance agreement who are also being provided the same offer of an ADEA release.
Employees age 40 and over will now be the beneficiaries of these additional protections during the termination process:
The final bullet point is intended to ensure that the decision of the employer to offer the severance agreement to the employee is not part of a systematic effort by the employer to eliminate older workers in connection with the employer’s reduction in force or other restructuring plan.
Review and revocation periods under ADEA severance agreements
In addition to the requirements relating to consideration and age-related disclosure, severance agreements that include waivers of ADEA claims also include applicable ADEA mandatory notice requirements. The ADEA requires that any employee over age 40 who receives a severance offer that includes a waiver of the right to bring an ADEA claim must be given a minimum of 21 days to consider the offer, including all provisions of the offer, and an additional seven days to revoke acceptance of the offer after the severance agreement is accepted.
The notice requirements are triggered if the waiver included in the severance agreement applies to any ADEA claims. If no such waiver is included, the notice requirements under the ADEA do not apply. In addition, if the waiver is limited to Title VII claims or other employment-related legal claims (i.e., claims not covered by the ADEA), the notice requirements are not triggered under the ADEA.
This is true even if the waiver is included in a severance agreement as part of so-called "totality of consideration." For example, a typical totality of consideration provision might state that an employee agrees to waive all claims against the company in return for certain severance payments, bonuses, other consideration or other benefits of employment being extended to a remaining population of employees, and continued health care coverage at group rates under COBRA for 12 months. However, if the waiver only includes Title VII claims, the notice requirements under the ADEA are not triggered, even if the waiver also extends to ADEA claims.
Mandatory Notices
The law requires that all ADEA notices remain with the agreement and do not have to be separate documents. The disclosures that must accompany a severance agreement include: While waiving a right does not constitute age discrimination under the ADEA, a release or waiver of ADEA claims appears to fall within the broad scope of the prohibitions of 29 U.S.C. Sec. 623(f)(1). To clarify application of the ADEA notice provisions, the DOL revised its regulations in October 2008 to specifically exempt employers from the requirements of Section 7(f) of the ADEA when additional compensation is provided to older employees only when they waive their rights to sue for ADEA violations.
Common pitfalls in drafting ADEA severance agreements
There are a number of common mistakes of employers that can lead to making an ADEA release unenforceable. Employers should be on guard against making these errors in order to avoid the risk of having to defend against an ADEA age discrimination claim down the road against a former employee who has gotten a second chance at an employer’s expense.
The obvious pitfall is failing to give an ADEA-eligible employee over 40 years old at least 21 days to contemplate an ADEA-based severance agreement. Companies that offer severance agreements to groups of employees must generally offer them at least 45 days to consider acceptance.
Employers should also be aware that they may find their releases unenforceable if they don’t follow the proper opt out procedures for their employees under other laws. For example, if a company offers a severance agreement that is also protected by the Worker Adjustment and Retraining Notification (WARN) Act and the 1964 Civil Rights Act, a company cannot seek to restrict an employee’s right to file a lawsuit or government agency charge as a part of the release. The employer can contract with the employee on other matters in consideration of a severance payment for the employee.
Also, if an employment contract exists between the employer and employee, it is essential to note whether the employer has fulfilled all restrictions of the contract so that the release can be enforceable. If certain steps, such as notifying the employee in writing, have not been taken, then the release could be invalid.
Even before drafting the ADEA-based severance agreement, an employer should consider whether all other documents regarding a severance agreement contain explicit descriptions of the scope of rights being relinquished. The extent to which an ADEA release can be enforceable will be considered against the backdrop of whether an employee was aware of the full terms of the waiver , so offering him or her a fact sheet that explains the scope of the release should be part of every concession.
Additionally, anticipatory breach waivers in ADEA severance agreements usually will be found to be unenforceable. The First Circuit concluded that the waiver of possible claims that might be discovered in the future to be too broad and thus unenforceable in Flannery v. jittery Joe’s Coffee Co. The waiver in that case prohibited an employee from asserting any claim related to his employment or termination. The court ruled that the waiver contradicted the anti-retaliation purposes of the ADEA.
The Fourth Circuit held in EEOC v. Lockheed Martin Corp. that an employer’s unilateral right to terminate a release agreement made the agreement unenforceable because the employer could terminate the agreement based on the releasee’s assertion of a charge, and thereby cripple the intended effect of the release.
Consequently, employers should ensure that they have co-intending releases when entering into an ADEA release agreement. Many standard or pre-drafted releases contain unilateral termination provisions, so the employer should take great care to remove those clauses or to address the contractual rights of each party in a separate agreement.
The Fifth Circuit sided with the EEOC in rejecting release of claims under the ADEA from a state employee-plaintiff’s litigation. The Fifth Circuit rejected the argument that the waiver of the ADEA claims was successful due to the employee’s waiver of legal rights under the broader state law. The Court ruled that the inclusion of a specific release of ADEA claims was required to constitute an effective release of ADEA claims through general reference to state and federal anti-discrimination laws.
This ruling was clearly intended to diminish waiver overreaching on the part of employers. Several other courts have clearly stated that the critical element in the release of ADEA claims rests on execution of the release agreement itself.
Legal help with severance agreements
As with all severance agreements, it is wise to seek the advice of an experienced employment attorney when negotiating or reviewing an ADEA severance agreement. An experienced attorney can advise you on the best way to proceed when negotiating with your former employer’s attorney. For example, there may be a plan that you can work out with your employer that is fair and reasonable, yet does not require the employer to go to the time and expense of obtaining a release of claims from the EEOC.
Further, employers have been known to make mistakes in drafting ADEA severance agreements. If your employer does not provide you with the guidance outlined in Section 5 above, it can make an inadvertent misstep that invalidates the intended release of age discrimination claims (and then you are left holding the bag).
Recent cases and other legal developments
Recent cases concerning ADEA severance agreements include Kopera v. American Airlines, Inc., 2018 WL 4857900 (3d Cir. Oct. 5, 2018), and Guerriero v. Donahoe, 2018 WL 4846566 (E.D. Pa. Oct. 4, 2018). In Kopera, the Third Circuit Court of Appeals in Philadelphia held that a release of ADEA claims that was not communicated to the EEOC was invalid. The Third Circuit held that a release was ineffective because there was no "effective communication." In Guerriero, the Eastern District of Pennsylvania concluded that a non-compete provision in a severance agreement was not work-related , and therefore disapproved of its enforcement. Additional recent developments include a Maryland attorney’s advisory opinion that ADEA releases "by themselves are no longer adequate because they do not disclose the claims to the EEOC." Some commentators have suggested that employee benefits plans have "an impetus to avoid triggering minimum ADEA threshold amounts through intelligent drafting." These and other decisions, including one in Yost v. Smith’s Food and Drug Centers, Inc. (D. Nev.), have encouraged litigation on whether employers can use certain provisions in ADEA severance agreements to obtain valid releases of ADEA claims.