Eleventh Circuit Provides Guidance Regarding OWBPA Disclosure Requirements in Reductions in Force
December 5, 2006
Todd D. Steenson- Chicago
Employers offer severance benefits in order to obtain clarity and finality regarding their rights to discharged workers. However, the requirements to obtain a valid release of age discrimination claims under federal law have created substantial confusion and led to the invalidation of numerous releases sought by employers in exchange for severance programs.
Under the Older Workers Benefit Protection Act (better known as OWBPA), employers are required to provide employees affected by a reduction in force or similar group termination program with information regarding the program, including information about the ages and job titles of employees who were and were not chosen for termination and severance pay. Failure to provide the required information is a basis for invalidating any release of federal age discrimination claims obtained from an employee.
Unfortunately, neither the statute nor case law has provided employers with much guidance regarding the scope of the employer’s information obligation. The result has been not only great confusion, but a great deal of wasted effort as employers, in attempts to meet their obligations, have provided excessive information, often presented in inappropriate formats.
Recently, the United States Court of Appeals for the Eleventh Circuit in Atlanta issued a decision that gives employers much-needed guidance regarding the information they must give employees offered severance in connection with a group reduction in force. Essentially, the Court held that employers must give employees information about the “decisional unit” – the group of employees from which the employer decided whom to terminate and whom to retain. Burlison v. McDonald’s Corp., 455 F.3d 1242 (11th Cir. 2006).
OWBPA Establishes Minimum Requirements for Releases
OWBPA establishes the minimum requirements that a release agreement executed by an employee must meet to effectively waive a claim of age discrimination under the federal Age Discrimination in Employment Act (ADEA). In the context of an exit incentive or other employment termination program offered to a group or class of employees, OWBPA requires employers to provide affected employees with a written waiver that includes information regarding:
(i) 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 (ii) 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 unit who are not eligible or selected for the program.
These requirements were imposed to ensure that older employees receive information necessary to enable them to evaluate any potential ADEA claims they may have before electing to sign a release. Unfortunately, this language does not clearly tell employers the scope of the group of employees about whom information must be given, particularly in a nationwide reduction in force. What is the scope of the “program?” Does the statute require employers to share information regarding affected and non-affected employees on a company-wide basis, within the relevant business division or physical facility, or based on the relevant decision maker?
EEOC regulations interpreting OWBPA’s requirements suggested that, in providing the required information, employers should consider the “decisional unit” at issue: “[r]egardless of the type of program, the scope of the terms ‘class,’ ‘unit,’ ‘group,’ ‘job classification,’ and ‘organizational unit’ is determined by examining the ‘decisional unit’ at issue.” The EEOC defined a “decisional unit” as:
that portion of the employer’s organizational structure from which the employer chose the persons who would be offered consideration for the signing of a waiver and those who would not be offered consideration for the signing of a waiver. The term “decisional unit” has been developed to reflect the process by which an employer chose certain employees for a program and ruled out others from that program.
The EEOC regulations, however, did not clarify whether, in the context of a reduction in force affecting an entire company or a significant segment of a company, an employer should provide information on a company-wide basis, or limit the information to the relevant employee grouping or decision maker. Employers were effectively left to determine the appropriate “decisional unit” on their own, with little, if any, practical guidance.
Burlison v. McDonald’s Corporation
In 2001, McDonald’s Corporation undertook a substantial reorganization of its business operations. As part of this effort, it reduced its U.S. divisions from five to three and reduced the number of regions within those divisions from 38 to 21. As a result of this consolidation effort, the company’s former Atlanta region was merged with its former Nashville and Greenville regions to form a new, larger Atlanta region.
In addition to its organizational changes, the company also reduced its U.S. workforce by approximately 500 employees. Decisions on these reductions were made at the regional level. The Atlanta region’s general manager, with assistance from other senior managers, decided which of the 208 employees from the old Atlanta, Nashville and Greenville regions would remain with the company as part of the new, combined Atlanta region, and which would be selected for termination. Ultimately, 66 of those 208 employees were selected for termination as part of this workforce reduction.
All of the employees selected for discharge were offered a severance package in exchange for signing a release of employment claims, including age discrimination claims. McDonald’s provided terminated employees with the OWBPA-required information regarding the individuals who had been selected and not selected for termination on a region-specific basis. Thus, employees considered for the new Atlanta region received information including a list of the job titles and ages of all 208 employees in the three regions combined into the new Atlanta region and the identities of both the employees who were being retained and the employees who had been selected for involuntary separation and offered a severance package.
Five employees over age 40 who signed the releases and collected severance benefits from the company subsequently sued McDonald’s for age discrimination. These five individuals acknowledged that they had signed the releases, but claimed that the releases failed to comply with the OWBPA’s requirements and thus were void and unenforceable.
The United States District Court for the Northern District of Georgia agreed with the plaintiffs, finding that the information provided by McDonald’s was insufficient to meet the requirements of the OWBPA. In reaching this conclusion, the district court read Subsections (i) and (ii) of 29 U.S.C. § 626(f)(1)(H) separately, and ruled that McDonald’s should have provided age and job title information for all of the employees selected for discharge nationwide, and also should have provided age information regarding the employees retained in the new Atlanta region (which it found to be the relevant “decisional unit” for purposes of Subsection (ii)). The Court held that the releases were invalid and allowed the plaintiffs to continue with their age discrimination lawsuit.
McDonald’s was permitted to seek an interlocutory appeal on this issue to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit Decision Reverses in McDonald’s Favor
On appeal, the Eleventh Circuit reversed the District Court’s entry of summary judgment for the former employees and instead granted McDonald’s cross-motion for summary judgment, holding that the releases were valid and barred the plaintiffs’ lawsuit.
The Eleventh Circuit acknowledged that OWBPA does not clearly define the information that employers must provide. Given this ambiguity, the Circuit Court ruled that it must rely on the EEOC regulations’ reasonable explanation that information be given to employees in the same “decisional unit.” Taking these regulations into account, the Eleventh Circuit held that, rather than reading the two subsections of 29 U.S.C. § 626(f)(1)(H) separately, these provisions should be considered as a whole. As a result, the “job classification or organizational unit” limitations contained in Subsection (ii) should be read to limit the scope of an employer’s “program” to the affected employee’s relevant decisional unit for purposes of all of the informational requirements.
In reaching this conclusion, the Eleventh Circuit pointed out that the requirements imposed by OWBPA:
are designed to ensure that older employees are provided with information necessary to evaluate any potential ADEA claims they may have before deciding to release them … . In order to evaluate their claims, employees need appropriate data to conduct meaningful statistical analyses … to make meaningful comparisons to determine whether an employer engaged in age discrimination.
The Court explained that broadening the information beyond the relevant decisional unit would “in reality only obfuscate the data and make patterns harder to detect.”
After determining that OWBPA only required the disclosure of information regarding the decisional unit, the Eleventh Circuit then addressed the appropriate decisional unit in this case. Finding that the terminated employees were selected from the 208 employees in the three regions combined into the new Atlanta region, as part of a process that focused on these employees rather than on a wider pool of employees, the Eleventh Circuit held that the 208 employees combined into the new Atlanta region constituted the appropriate decisional unit.
In sum, the Eleventh Circuit concluded that McDonald’s complied fully with OWBPA’s informational requirements and that the releases executed by the five plaintiffs were valid. As a result, it ruled that their releases were enforceable and directed that summary judgment be entered in McDonald’s favor dismissing their age discrimination claims.
What This Means for Employers
The decision in Burlison v. McDonald’s makes clear that, when engaging in group termination and severance programs, employers must carefully consider their obligation to provide terminated employees with the information required by the OWBPA. In the Eleventh Circuit (which covers Alabama, Georgia and Florida), employers must carefully determine the appropriate decisional unit to whom information must be provided. Employers also should take pains to structure their reduction-in-force decision-making process to ensure that employees are not considered in multiple pools for positions, or that, if they are, they receive the appropriate information regarding the ages and job titles for all “decisional units” for which they are considered for positions.
A tricky issue arises when decisions are made on a regional basis, such as in the Burlison case, but higher-level employees with national responsibilities review the regional decisions before they are implemented. Review of the decisions by higher-level officials with national responsibilities does not necessarily expand the scope of the “decisional unit” or the informational requirements, provided that the higher-level official does not compare employees across “decisional units” to determine whom to terminate and whom to retain. If such “cross-comparison” occurs, however, the “decisional unit” will likely expand to include all employees in any unit considered or compared together.
Outside the Eleventh Circuit, the issue addressed by the Burlison decision has not yet been resolved and employers must proceed more carefully. Although it seems that other appellate courts are likely to follow the Burlison decision, employers must consider carefully whether to provide information on both a decisional unit and a nationwide basis in order to minimize the potential for challenge based on the informational requirements established by the OWBPA. Of course, this option presents its own perils – by doing so, employers may be providing plaintiffs with a large volume of data that can then be manipulated to create the appearance of discrimination where none exists.
In spite of their best efforts, employers remain at risk of litigation even when they have actively taken steps to eliminate these risks. Given these pitfalls, employers are well advised to consult with legal counsel before implementing any employment termination program.
For more information, e-mail Todd D. Steenson at todd.steenson@hklaw.com or call toll free, 1-888-688-8500.