The United States Supreme Court recently held that a former employee who received severance payments from her employer for signing a release of all legal claims was not prevented from bringing an age discrimination claim under the Age Discrimination in Employment Act ("ADEA") where the release did not comply with the Older Workers Benefit Protection Act's ("OWBPA") requirements for "knowing and voluntary" waiver. Oubre v. Entergy Operations, Inc., No. 96-1291, 1998 WL 23157 (Jan. 26, 1998). In a 6-3 decision, the Court rejected the employer's contention that the petitioner, Delores Oubre, ratified and validated the ADEA release because she did not return the severance benefits she received.
Summary of Oubre v. Entergy
Oubre worked as a scheduler at a power plant run by her employer, Entergy Operations, Inc. In 1994, she received a poor performance rating. Oubre met with her supervisor, who gave her the option of either improving her performance or accepting a voluntary severance package. She received information about the severance package and was given 14 days to decide whether to accept the package. On the 14th day, Oubre, after consulting with attorneys, signed a release in which she agreed to "waive, settle, release and discharge any and all claims, demands, damages, actions, or causes of action ... that I may have against Entergy . . ." In return, she received six severance payments over four months, totaling $6,258.
Errors with the Release
The release, drafted by Entergy, violated at least three requirements of the OWBPA. First, Oubre was not given the minimum 21 days to consider the release. Second, Oubre was not given 7 days after the signing of the release to change her mind. And third, the release did not make specific reference to the waiver of ADEA claims.
After receiving the final severance payment, Oubre filed a charge of age discrimination with the EEOC, which dismissed her charge on the merits but issued her a right to sue letter. Oubre then sued Entergy in the District Court for the Eastern District of Louisiana, alleging constructive discharge on the basis of her age in violation of the ADEA and state law. Oubre did not return, nor did she offer to return, the severance pay she received. The Louisiana District Court entered summary judgment for Entergy on the grounds that Oubre had ratified the defective release by failing to return the severance. Oubre v. Entergy Operations, Inc., No. CIV A. 95-3168, 1996 WL 902063, at *2 (E.D. La. May 23, 1996). The District Court held that where the employee chooses to retain and not tender back the benefits paid in consideration for the agreement, she manifests an intention to be bound by the waiver and makes a new promise to abide by its terms." Id. The Fifth Circuit summarily affirmed in November 1996. Oubre v. Entergy Operations, Inc., No. 96-30654, 112 F.3d 787 (5th Cir. 1996).
Supreme Court Reversed Lower Court
The Supreme Court reversed the Fifth Circuit. Justice Kennedy, writing for the majority, distinguished the application of common law contract principles of ratification and tender back from this case, where the (OWBPA) statutory standard makes non-conforming releases ineffective. Justice Kennedy stated: "The statutory command is clear. An employee 'may not waive' an ADEA claim unless the waiver or release satisfies the OWBPAs requirements.... The OWBPA implements Congress' policy via a strict, unqualified statutory stricture on waivers, and we are bound to take Congress at its word. Congress imposed specific duties on employers who seek releases of certain claims created by statute. Congress delineated these duties with precision and without qualification: An employee 'may not waive' an ADEA claim unless the employer complies with the statute. Courts cannot with ease presume ratification of that which Congress forbids."
The Court also appeared persuaded by the policy argument that many discharged employees may have spent the money received in exchange for executing releases and, thus, would lack the means to return the money. The Court posited that these "realities might tempt employers to risk noncompliance with the OWBPA's waiver provisions, knowing it will be difficult to repay the monies and relying on ratification. We ought not to open the door to an evasion of the statute by this device. Id. at *4.
Restitution of Severance Pay Not Necessary
The Court did briefly comment that courts may need to inquire whether an employer may have a claim for restitution, recoupment, or setoff against an employee who retains the severance while suing for an ADEA violation. The Court recognized that these claims may be complicated by the fact that the release may be effective for some claims while ineffective for the ADEA claim. Id .
In dissent, Justice Thomas, joined by Chief Justice Renquist, found that the ADEA did not supplant the common law doctrines of ratification and tender back because the statute did not do so specifically. Therefore, Justice Thomas concluded that the common law doctrines of ratification and tender back should apply to this case.
The bottom line seems to be that employers seeking to obtain valid ADEA releases from employees must carefully follow the dictates of the OWBPA. Those who don't may be faced with ADEA suits that will not be barred by the failure of the employee to return the consideration for the release.