Many employers try to nip discrimination and wrongful discharge claims in the bud by offering terminated employees severance pay in exchange for a release and waiver of claims. Often, the employer and employee will strike such a deal before the employee brings a lawsuit, files a discrimination charge, or even hires a lawyer. A troubling ruling by the U.S. Court of Appeals for the Seventh Circuit (Chicago) in Pierce v Atchison, Topeka and Santa Fe Ry. Co. casts doubt on the enforceability of some of these releases, especially those entered into with a person not represented by legal counsel.
After Pierce's termination, the Santa Fe Railroad paid Pierce $36,800 in exchange for a release "of any and all claims of any nature, known or unknown, which I have or might have against [Santa Fe], including ... claims which derive from or are based on any aspect of my preceding employment relationship . . . ." Pierce had second thoughts, and later sued Santa Fe for age discrimination under the federal ADEA. The Seventh Circuit sustained a jury verdict finding that the release was not "knowing and voluntary" on the grounds that the release did not specifically mention age discrimination claims, as required by the Older Worker Benefit Protection Act, that Santa Fe gave Pierce less than a week to sign the release, and that Pierce was unable to find an attorney to advise him regarding the release.
By law, any waiver of rights under a federal anti-discrimination statute must be knowing and voluntary. In Pierce, the Seventh Circuit held that the party seeking to enforce a release, which is almost always the employer, has the burden of proof in establishing knowledge and voluntariness. A "totality of the circumstances" test governs the question.
Pierce is problematic because it suggests that notwithstanding the clarity of release language contained *in a severance agreement, the employee can get a discrimination claim to a jury so long as he raises a fact issue as to his subjective knowledge, or the voluntariness of his execution of the severance agreement.
It is now more important than ever for employers to seek competent legal counsel regarding the preparation of discrimination releases. For example, at a minimum, the release:
- should be written in plain English, or, if the employee does not understand English, her native language;
- should specifically recite the claims being released (e.g., "an age discrimination claim under the Age Discrimination in Employment Act"');
- should state that there are no agreements or understandings between the parties apart from the written text;
- should expressly encourage the employee to consult an attorney; and
- should afford the employee sufficient time to consider the offer.
Employers also should be aware that the ADEA mandates disclosure of certain information in connection with any employment termination program offered to a group or class of employees, including a severance package in exchange for a release of claims offered to two or more employees. An employer's failure to follow the technical rules governing releases most probably will mean that the release can be invalidated and that the employer paid severance and other benefits for naught.