New Guidance from the EEOC on Waiver of Rights and Claims under the ADEA

In 1967, Congress enacted the Age Discrimination in Employment Act (ADEA) to combat discrimination in the employment of workers over the age of 40, thus subjecting employers to another legal requirement. In response to this and other legislation, employers have been forced to try to protect themselves from liability. One way in which employers have sought to limit their exposure to discrimination lawsuits is by requiring employees to sign certain agreements called waivers, which release employers from any future liability for claims such as age discrimination. Often, these waivers are used in conjunction with programs known as "exit incentives." These are voluntary severance programs, where employees who voluntarily elect to resign or retire are provided with additional compensation to which they would not be entitled if they did not accept the exit incentive. Usually, these employees are required to sign a waiver before they can be eligible to receive the extra compensation under the plan. Waivers are also utilized in connection with involuntary termination plans, usually mass layoffs or plant closings, wherein terminated employees receive compensation to which they would not otherwise have been entitled in return for executing waivers releasing employers from liability for various claims, usually including age discrimination.

In 1990, Congress passed the Older Workers Benefit Protection Act (OWBPA). Congress was concerned that the older workers were, in effect, being forced to retire early because they were given an unpalatable choice: either retire early, before they otherwise would have, and receive extra compensation, or face an uncertain future with an employer experiencing financial difficulty. Accordingly, many older employees opted to retire early and accept the extra compensation. It most cases, the extra incentive money required the employee to waive his rights to sue the employer under the ADEA, among other laws.

Early Retirement Agreements

The OWBPA was enacted to ensure that employees terminated in a mass layoff or accepting early retirement are fully informed about their situation before waiving all rights they may have against their employer. The specific provision of OWBPA are as follows:

The circumstances surrounding execution of the agreement must meet the following criteria:

  • The waiver is part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual, or by the average individual eligible to participate.
  • The waiver specifically refers to rights or claims arising under the ADEA.
  • The individual does not waive rights or claims that may arise after the date the waiver is executed.
  • The individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled.
  • The individual is advised in writing to consult with an attorney prior to executing the agreement.
  • Requires that an individual must be "given a period of at least 21 days" within which to consider the agreement; or
    If a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the individual is given a period of at least 45 days within which to consider the agreement.
  • The agreement provides that for a period of at least seven days following the execution of the agreement, the individual may revoke the agreement, and the agreement shall not become effective or enforceable until the revocation period has expired.
  • If a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the employer (at the commencement of the consideration period specified above) informs the individual in writing in a manner calculated to be understood by the average individual eligible to participate, as to-
    • any class, unit, or group of individuals covered by such program, any eligibility factors for such program, and any time limits applicable to such program; and
    • the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational units who are not eligible or selected for the program.

The primary aim of this legislation was to ensure any waiver signed by an employee in connection with an exit incentive plan or a mass layoff, or who simply is over 40 and is agreeing to waive his rights under the ADEA, would be "knowing and voluntary." The OWBPA attempted to set forth the minimum requirements a waiver must meet in order to be considered "knowing and voluntary." After OWBPA's enactment, the above rules presented employers with several uncertainties regarding its application; at times, employers were unsure just what they had to do to ensure that the waivers signed by their employees would meet the requirements of the new law.

In an attempt to clear up some of the confusion, the Equal Employment Opportunity Commission (EEOC) recently published additional regulations offering guidance on the conditions under which an individual may waive his or her rights under the OWBPA. The EEOC regulations, effective July 6, 1998, supplement the existing OWBPA regulations.

Knowing and Voluntary Waivers

The EEOC's new regulations clarify the requirements for a knowing and voluntary waiver in several ways.

  • First, the new regulations provide that an individual may waive the 21 or 45-day period. This 21 or 45-day period is referred to as the "consideration period." Thus, the new regulations allow an individual to sign a release before the 21 or 45-day period has ended, provided that the release is knowing and voluntary. This means the acceptance of the waiver agreement must not have been induced by fraud, misrepresentation or threat to withdraw or alter the offer. Significantly, an employer may not provide different terms to those who sign the release prior to the expiration of the consideration period than it provides to those who take the entire 21 or 45-day period to decide whether to accept the release agreement. Once the individual signs the release, a seven-day period during which an employee is permitted by law to revoke the release agreement is commenced. The individual may not contract to waive the seven-day revocation period.

According to the regulations, the employer's final offer triggers the commencement of the consideration period. If the employer makes material changes to the final offer, the consideration period is restarted. For example, assume an employer on Monday notifies employees that those who accept early retirement by December 31st will receive an additional $5,000 in exchange for retiring and releasing the company from potential ADEA claims arising from the agreement, but never provides the employees with a contract stating these terms. Then, on Thursday, the employer makes a similar offer, but says that the employees will receive consideration consisting of an extra $200 per month retirement benefit instead of $5,000. The change in the employer's offer would constitute a material change in the employer's offer. Thus, the consideration period would begin not on Monday, but on the Thursday, when employees receive notification of the employer's second and final offer.

  • Second, the EEOC regulations mandate that the entire waiver be in writing and drafted so that the individual about to sign the waiver is able to understand it. In this regard, employers are advised to consider "the level of comprehension and education of typical participants," and as such, employers should limit or eliminate "technical jargon and [sic] long, complex sentences."
  • Third, a waiver is not valid unless the individual receives consideration in exchange for the individual's release of his right to claims under the ADEA. "Consideration" merely means that an employee must receive something of value in return for signing the release. The regulations emphasize that the consideration must be in addition to anything to which the individual is already entitled. Thus, an employer may not require an employee to sign a release before an employee could receive salary, accrued vacation or other compensation that the employee had already earned and was already entitled to receive. An employer must offer an employee something new, such as extra money or increased retirement benefits, before the employer can require the employee to sign a release. Furthermore, the employer may not unlawfully eliminate a benefit and subsequently offer the benefit as consideration as a way to circumvent the rules.
  • Fourth, the new regulations offer guidance as to the type of information that must be disclosed to individuals when a group or class of employees is involved. In this regard, the disclosure must define the class, unit, or group of participants, as well as any constraints on the amount of time an employee has in which to accept the agreement. The regulations help to clarify the terms "class, unit, or group of participants." Those terms simply refer to the way in which the employer organizes its employees. Each participant must receive information sufficient to make an informed decision about whether to sign the waiver. The disclosure must include a description of the covered group of participants, eligibility requirements, a list of selected participants, the time by which the waiver must be signed, information regarding the seven-day revocation period, and the age, job title, and consideration given to each participant.
  • Fifth, the EEOC offered additional information regarding its own enforcement powers. To begin with, the ADEA states that a valid waiver cannot affect the participant's right to file a claim with the EEOC. The new regulations clarify this point by setting forth two limitations to the scope of a waiver's protection: a waiver agreement does not prohibit an individual from filing a charge that challenges the waiver's validity, if, for example, the individual claims that the release did not meet some of the statutory requirements or was otherwise defective; and a waiver agreement does not bar an individual from participating in an EEOC investigation or proceeding.

As a final matter, the EEOC declined to offer any guidance regarding situations where an employee accepts the employer's offer of extra money and signs a waiver in return for it, but later comes to believe that the waiver was somehow defective. This might make a situation where an employee accepts an offer of extra retirement benefits in exchange for early retirement and a release. After having executed the waiver agreement and accepted the extra retirement benefits to which he or she was not otherwise entitled, the employee realizes that he or she was only given four days in which to consider the offer, or was not provided any information concerning which employees were included in the offer. Either of these things would render the waiver invalid for failing to meet the minimum requirements set out in OWBPA. However, there had been a split among the federal courts as to whether, before the employee could bring suit, he or she would be required to "tender back" to the employer any benefits to which he or she was not otherwise entitled. The idea behind such a requirement is that the employee should not be able to retain the benefits of the waiver agreement if the employer was unable to enforce the agreement, i.e., the employee could still sue the employer.

The Supreme Court recently resolved this question, however, in Oubre v. Entergy Operations, Inc., 118 S.Ct. 838 (1998). The Court held that to require employees to tender back any benefit received from the agreement as a prerequisite to suit would defeat Congress' intent in passing the OWBPA. The Court held "retention of the consideration given in exchange for the waiver does not amount to a ratification of the waiver agreement." Therefore, it is now clear that a release which does not comply with the minimum requirements set out above cannot bar a plaintiff's ADEA claim and employees are not required to disgorge benefits obtained in return for the release.

Overall, the new regulations do not appear to adversely affect employers. Significantly, employers may now obtain a release prior to expiration of the consideration period, provided the release is made knowingly and voluntarily, and the employer respects the seven-day revocation period. As a result, the new regulations benefit employers by eliminating a significant portion of the time period during which employees may reject the agreement.

As for the Supreme Court's decision in Oubre, this case should not be harmful to prudent and thorough employers. Simply stated, the Court held that if an employer is diligent and careful to adhere to the minimum requirements set out above, releases which comply will be enforced. As long as the statutory minima are met, releases signed by employees will be upheld.

Despite the EEOC's guidance as to certain elements of an enforceable waiver, employers must be cautious. In cases where releases are to be used, some input from legal counsel would be advised.

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