Waivers - Release of Claims
Date: 8/28/09
Title: Waivers - Release of Claims
Whether you are reducing staff due to reorganization or a result of the economic downturn, you will want to use a waiver of all discriminations claims in your severance agreements.
The use of waivers, which offer departing employees money or other benefits in exchange for signing a waiver or release of liability, is a good way of minimizing the risk of potential litigation associated with terminations. Well written waivers release the employer from discrimination claims under the Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA), the Equal Pay Act (EPA), and all other state and local laws and regulations.
As a contract, the severance agreement must offer the employee something of value to which the person is not already entitled to receive, such as a lump sum payment, that is given in exchange for an agreement (waiver) to do, or refrain from doing, something. In the typical case, the waiver offers additional monies as calculated by years of services or a flat amount in exchange for signing a release of all claims.
It the waiver is challenged in court by the employee, the court will determine if the waiver is valid. Generally, the waiver is valid if the employee knowingly and voluntarily consents to it. Under Title VII and the ADEA/Older Workers Benefit Protection Act (OWBPA), a valid waiver must also:
§ offer some type of consideration in exchange for the employee’s waiver of the right to sue;
§ not require the employee to waive future rights (only past rights); and
§ comply with applicable state and federal laws.
In determining whether the employee “knowingly and voluntarily" entered into contract, the courts will consider the following conditions: ¹
§ whether it was written in a manner that was clear and specific enough for the employee to understand based on his education and business experience;
§ whether it was induced by fraud, duress, undue influence, or other improper conduct by the employer;
§ whether the employee had enough time to read and think about the advantages and disadvantages of the agreement before signing it;
§ whether the employee consulted with an attorney or was encouraged or discouraged by the employer from doing so;
§ whether the employee had any input in negotiating the terms of the agreement; and
§ whether the employer offered the employee consideration (e.g., severance pay, additional benefits) that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.
The ADEA/OWBPA defines specific requirements for a “knowing and voluntary” release of ADEA claim. Under the law, a waiver must:
§ offer consideration in addition to what the employee is already entitled.
§ be written in a manner that can be clearly understood by the majority of people who would be expected to sign it. It cannot be misleading or over-emphasize the benefits or minimize the limitations.
§ Specifically refer to the rights or claims arising under the ADEA.
§ Advise the employee to consult an attorney before signing the waiver.
§ Provide the employee with a minimum of 21 days to consider the terms and conditions of the waiver.
§ Not address future claims and rights that may occur after the waiver is executed.
Under the OWBPA, the employee has the right to have a court determine a waiver’s validity. Even if the waiver complies with all of the conditions described above, if the court finds that the employer used undue influence, fraud, or improper conduct to force the employee to sign the waiver, they will deem it to be invalid. When the employer is having a group layoff or exit incentive program, the employer must provide the affected employees with information about the factors it used in making selection decisions. Specifically, the affected employees must be given the job titles and ages of all individuals who are eligible and ineligible for the program who are in the same job classifications or organizational unit. The “group” must be given a written notice of the layoff and at least 45 days to consider the waiver.
Keep in mind that waivers must not prevent an employee from filing a discrimination charge with the EEOC. EEOC will not refuse to take the charge because a waiver has been signed. If the employee files a discrimination suit, under ADEA, they would not be required to return the severance pay. However, under other laws, it is unclear and determined by the court. In any event, if the employee wins their suit, they would have to reduce the amount of the award money by the amount received as severance. Therefore it is important to clearly state that you will offset money that is paid in exchange for waiving the employee’s rights if the employee successfully challenges the waiver, proves age discrimination, or obtains a monetary award. Needless to say, the employer’s recovery may not exceed the amount paid to the employee in exchange for signing the waiver. Waivers cannot lawfully limit the employee’s right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by EEOC or a state anti-discrimination agency.
¹ EEOC
The foregoing was prepared for the general information of clients and friends of Workplace Dynamics LLC. It is not meant to provde legal advice with respect to any specific matter and should not be acted upon without professional counsel.