Age-Wave Waivers: Experiencing the Enforcement Riptide
 
July 3, 2001
 

Your company has fired a worker due to her misconduct. As she is being terminated, the worker claims the termination is the result of sex discrimination. Although you are comfortable with your decision to terminate, to avoid the nuisance of a lawsuit, you agree to pay the employee in exchange for a release of all claims that she could have against the company, including any employment discrimination claims. Although the worker is over 40, you do not believe that there are any Age Discrimination Employment Act (ADEA) issues implicated. You know that the Older Workers Benefit Protection Act (OWBPA) imposes certain requirements for age-claim waivers, but meeting those requirements is, in your opinion, over-kill for the situation. When you consider the consequences of asking for an invalid age waiver as part of the release of all claims, you believe that the only risk is that the employee could come back and file an age claim against your company. You conclude that there is no basis for an age discrimination claim, so you do not comply with all of OWBPA's requirements.

Is your decision this simple?

Not according to the court in Commonwealth of Massachusetts v. Bull HN Information Systems, Inc., an opinion from the U.S. District Court, District of Massachusetts (May 29, 2001). Among other things, Bull HN involved allegations by the Equal Employment Opportunity Commission (EEOC) and the Commonwealth of Massachusetts that General Release and Severance Agreements (Releases) used by Bull HN from July 1994, through 2000 in connection with a series of reductions-in-force violated OWBPA and ADEA. In addition, an individual claimant (Robert F. Madigan) asserted that the release he signed violated the OWBPA and the ADEA. In partially granting the EEOC's and the Commonwealth of Massachusetts' Motion for Summary Judgment, the court found "The Commonwealth and the EEOC are entitled to judgment as a matter of law on their allegations regarding the unlawful Releases used by Bull from July 1994 - December 1997." The court granted equitable relief to Madigan solely on the basis of the invalidity of the waiver he signed when he was laid off. While it declined to grant monetary damages on the basis of his waiver claim, the court issued a declaration that the waiver was invalid, ordered that the employer provide all employees who entered into similar waivers with a copy of the court's decision, and ordered that the employer provide Madigan with the information mandated by OWBPA for an effective waiver.

Bull HN builds on the 1998 U.S. Supreme Court decision in Oubre v. Entergy Operations, Inc. (1998), which held in a non-RIF situation that an invalid waiver could not bar an employee's age discrimination claim even though the employee had not returned the money she received for signing a general waiver of all claims. The court failed to address whether an employer could claim that a payment made in exchange for an invalid wage could reduce the damages awarded to an employee who later prevailed on a substantive age discrimination claim. The EEOC issued regulations, 29 C.F.R. § 1625.23 (2000), effective January 10, 2001, based on Oubre. These regulations include a provision stating that courts have the discretion to determine whether an employer is entitled to a reduction of the employee's monetary award in the amount of the waiver payment.

Loosely basing its decision on the holding from Oubre that the contract law doctrine of ratification could not save a release that violates OWBPA, Oubre, Bull HN found that an invalid waiver could expand the statute of limitation for age claims and warrant other equitable relief. According to Bull HN, to find otherwise would "permit[ ] (indeed encourage[ ]) employers to design unlawful waivers that do not recommend consulting an attorney, or that otherwise mislead employees about their potential age discrimination claims, in the hopes that after they leave their position, they will be sufficiently confused to sit on their rights until the ADEA's limitations period has expired."

Shortly after the decision, the EEOC issued a press release (June 12, 2001) touting the decision as a victory and characterizing Bull HN as a ruling that the company had "discriminated against older workers in severance programs." The press release also quoted Commission Chairwoman Ida L. Castro as saying "unlawful waivers that strip older workers of their rights under the ADEA will be pursued by the EEOC to the fullest extent of the law." It should be of special concern to employers that the EEOC has seized upon Bull HN's finding that an invalid waiver is a violation of ADEA and OWBPA and that it has already expanded upon the apparent application of that case. The EEOC's position also appears to be inconsistent with the cautious concurrence in Oubre (by Justices Breyer and O'Connor) that finding a waiver invalid under the OWBPA means that the contract between the employer and employee is voidable, but that it still carries legal effect.

At this point, the cumulative message of OWBPA, Oubre, Bull HN, and the EEOC's enthusiasm about the Bull HN decision is clear: Employers who consider using invalid age waivers face more than just the possibility of a substantive claim under ADEA. The employer could also face enforcement action by the EEOC. The employer should consider that a court may treat the invalid waiver as an independent violation of law and may order the employer to provide additional equitable relief to the plaintiff, including providing plaintiff with all of the information required by OWBPA, even without the expectation of a valid waiver in return.

Until there is further guidance on the issue of age waivers, employers should avoid using waivers of claims for the growing population of workers in the Age Wave without full compliance with OWBPA, meaning:

• the waiver must be in writing and be understandable

• it must specifically refer to ADEA rights or claims

• it may not waive claims that arise in the future

• it must be in exchange for payment

• it must advise the individual in writing to consult an attorney before signing the waiver

• it must provide the individual at least 21 days to consider the agreement (or at least 45 days if part of a reduction-in-force) and at least 7 days to revoke the agreement after signing it, and

• if it is part of a reduction-in-force, it must inform the individual in a manner calculated to be understood by the average individual eligible to participate, as to -

• the group of individuals eligible to be or actually laid-off, any eligibility factors for the lay-off, and any time limits of the lay off, and

• the job titles and ages of all individuals eligible to be or actually laid-off, and the ages of all individuals in the same job classification or organizational unit who are not eligible to be or actually laid-off

For more information please contact Madonna A. McGwin at 1-888-688-8500 or at mamcgwin@hklaw.com.