The Equal Employment Opportunity Commission ("EEOC") has recently issued new regulations concerning severance agreements executed by potential age discrimination claimants. The twenty-three page regulations are bad news for employers because they make it even easier for a disgruntled employee to collect severance pay from his employer while simultaneously challenging claim releases or waivers contained in his severance agreement.
The Age Discrimination in Employment Act of 1967 ("ADEA") applies to employers with 20 or more employees and prohibits age discrimination against employees 40 years of age or older. An employer may, in exchange for providing severance benefits, ask a departing employee to "waive" his right to file any kind of claim against the company, including an ADEA claim. A waiver, under the ADEA, is a legal agreement between an employer and employee in which the employee gives up the right to pursue an age discrimination claim against the employer in exchange for receiving something of value, usually severance pay or early retirement benefits.
Congress, concerned older employees might be coerced into unknowingly or involuntarily waiving valuable claim rights, passed the Older Workers Benefit Protection Act ("OWBPA") as an amendment to the ADEA. The OWBPA established certain minimum requirements that must be met in order for an ADEA waiver to be valid. Those minimum requirements, among other things, require waivers be written in plain English, impose a twenty-one day consideration period, encourage employees to consult legal counsel and provide a seven-day revocation period.
During the 1990's, legal disputes arose concerning whether an employee could challenge an ADEA waiver in court without first having to return or "tender back" the severance money the employee received from the employer for the waiver. In Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998), the United States Supreme Court resolved this issue, holding that older workers are not required to "tender back" severance payments to their employers before filing ADEA lawsuits. The Court's rationale was that older workers often need the severance payments to live on and, therefore, typically have spent the payments for living expenses so that, in most cases, they do not have the money to tender back before filing suit.
In December 2000, the EEOC issued new regulations reaffirming and expanding the U.S. Supreme Court's decision. The regulations, entitled Waivers of Rights and Claims: Tender Back of Consideration, became effective January 10, 2001 and, in summary, provide:
- An older worker does not have to "tender back" severance pay or other benefits before filing a lawsuit to challenge the validity of an ADEA waiver;
- An employer cannot avoid the "no tender back" rule by contractually requiring an employee to pay damages, costs or attorneys' fees for having filed suit;
- An employer may only recover severance monies paid if the employee successfully challenges the validity of his waiver and prevails on his age discrimination claim, but…the employer is, at the court's discretion, limited to recovering the lesser of: (a) the amount the company paid for the ADEA waiver; or (b) the amount of the employee's ADEA award;
- An employee's lawsuit does not abrogate the employer's commitments under the severance agreement (i.e. the employer must continue making severance payments it agreed to provide to the employee); and
- Waiver is an affirmative defense to an ADEA lawsuit so a case will only be dismissed if the employer can prove the employee's waiver was valid under the OWBPA.
The regulations and accompanying press release, as well as Questions and Answers, can be viewed on the EEOC's web site at www.eeoc.gov.