In the midst of layoffs and reductions in force by U.S. employers, the Equal Employment Opportunity Commission (EEOC) has issued new guidance to educate employees about severance and release agreements.
Although courts may not ultimately agree with everything in the document, employees and their lawyers have a new resource (including a checklist) that will be used to evaluate and possibly challenge the validity of release agreements.
Human resources (HR) professionals should familiarize themselves with this EEOC guidance, and evaluate whether to revise their severance agreements to withstand likely challenges. Now more than ever, it is unwise to recycle prior severance agreements without first updating the waiver/release of claims and related provisions.
The guidance is written for employees, but even experienced HR professionals will find it informative. It explains that a release agreement is an enforceable legal contract, provided it meets certain requirements. It then details what the EEOC believes those requirements are for workers both over and under age 40.
Plain Language, "Consideration" and Future Claims
Regardless of a worker’s age, the EEOC indicates a release agreement must be written in plain language geared to an individual’s level of comprehension and education. Technical jargon, internal inconsistencies, and long, complex sentences, according to the EEOC, may impact an agreement’s validity and enforceability.
Workers of any age also must be offered something of value (called “consideration”) in exchange for their release of employment-related claims—and the guidance explains that this must be something which the worker was not already entitled to receive. For example, if an employer’s policies or state law entitle an employee to be paid for unused vacation upon termination of employment, something more must be given to the employee through the severance agreement in exchange for the employee’s release of claims.
The EEOC advises that regardless of age, a worker cannot release future claims, which might arise after signing the agreement. (An example might be a future claim for retaliation under Title VII.) State laws, however, may differ on this issue, and employers should check the law in their state as to the enforceability of future waivers with respect to employment claims arising under state law.
The guidance also states that there may be state laws that impact the enforceability of a release agreement, depending upon where the individual is employed. For example, California requires that certain statutory language be included in a release agreement whenever an individual is releasing “unknown claims.” Thus, multistate employers need to be cognizant of state-specific requirements when release agreements are used with employees located at facilities (or who work out of their homes) in other states.
Waivers and Releases for Workers Over 40
When a worker is over age 40, the Older Worker’s Benefit Protection Act (OWBPA) requires that a release agreement specifically recite that the waiver of employment claims includes claims under the Age Discrimination in Employment Act. (It is also advisable, regardless of the employee’s age, that release agreements give examples of other types of discrimination or employment-related claims—whether based on federal or state statutes or state common law—that are being waived). The guidance also specifically advises older workers that they are not entitled to more severance than younger workers solely because they are protected by the OWBPA.
Employees over 40 must be informed in the release agreement they have the right to consult with an attorney before signing the agreement. They must also be given at least 21 days (or 45 days in the event of a group severance program) to consider the severance offer and sign the release agreement. The guidance states that this consideration period runs from the employer’s “final offer” if material changes are made to the agreement after it is initially offered to the employee. Older workers must also be given a nonwaivable seven-day period after signing the agreement in which to revoke their signature.
The guidance details the other OWBPA requirements when releases are used as part of a voluntary (e.g., an early retirement) or involuntary (e.g., a group layoff with severance) group severance program. When there is a group program, the older workers must receive a separate notice (the OWBPA notice) at the start of the 45-day consideration period.
In this OWBPA notice, the employees must be told of the “decisional unit” for the group (e.g., the departments and facilities in which employees were considered for layoffs); the “eligibility factors” for selection (e.g., the general criteria for selecting employees within the decisional unit for layoff); the job titles and ages of incumbents who were eligible (selected) and not eligible (not selected) to participate in the severance program; and reiterate the time limits applicable to the severance program (e.g., at least 45 days to consider the agreement and seven days to revoke it after signing).
The EEOC maintains that employees who sign release agreements may still file charges with the EEOC if they believe they were discriminated against based on a characteristic protected by federal law. The guidance also informs employees that no agreement can limit an individual’s right to testify, assist or participate in an EEOC proceeding. The EEOC’s position is that contrary provisions constitute “unlawful retaliation” and are invalid and unenforceable.
Though the EEOC’s position on these issues may continue to be litigated, its guidance acknowledges that in the event a charge is filed with the EEOC and an adverse finding is entered against the employer, any severance received under the release agreement would reduce the amount of any recovery by a charging party.
Not surprisingly, the EEOC advises employees that they should have an attorney review the severance agreement. The checklist at the end of the guidance also informs employees that they should not sign agreements that waive claims for unemployment, worker’s compensation, insurance benefits under COBRA, vested retirement benefits governed by the Employee Retirement Income Security Act, or claims under the Fair Labor Standards Act (e.g., federal minimum wage and overtime claims).
The recent EEOC guidance is not law or even a regulation. It reflects the commission’s position on a number of issues which may or may not ultimately be accepted by the courts. However, proactive employers should read the EEOC’s guidance and consider whether their release agreements should be updated in light of the EEOC’s interpretation of the federal laws that it enforces. If Davis Wright Tremaine can be of assistance, please don’t hesitate to contact us.