By Nancy E. Joerg, Esq.
Many of our clients decide to fire one or some of their employees from
time to time and then offer severance (usually money) to the departing
employees in exchange for the employees signing a release agreement. Such
release agreements (commonly used across the United States) can give anxious employers a measure of
comfort and certainty while at the same time voluntarily offering severance
to fired employees (to tide them over during what can sometimes be a difficult
transitional period to other employment).
PURPOSE OF
A RELEASE AGREEMENT: When an
employer offers an employee a severance and release agreement, the employer usually
wants to “be done” with the employee in terms of any problems. The employer is
therefore paying severance in exchange for finality. The employer wants protection from being sued by the disgruntled employee.
“OLDER
EMPLOYEES” (40 YEARS OF AGE AND OLDER): When a departing employee is 40 years of age or older and the
employer wants the employee to give up potential claims under the Age
Discrimination in Employment Act of 1967 (ADEA), the release agreement (to be
legally enforceable) must meet all of the legal requirements of the federal
law, the Older Workers Benefit Protection Act (OWBPA) of 1990 (and any state
laws which apply as well).
The OWBPA was enacted by Congress to make sure that “older employees”
(40 and over) across the United States are not coerced by employers into giving
up their rights to sue employers under the Age Discrimination in Employment Act
(ADEA) of 1967. By incorporating the OWBPA legal requirements into a release
agreement, the employer avoids having an unenforceable agreement.
GROUP
TERMINATION: When
release agreements are offered to two or more departing employees (for example, as part of a reduction
in force), this fact pattern creates a group termination situation
under which there are further legal curve balls for the employer. The employer
will need to use a very special kind of "group release."
Many employers incorrectly believe that the usual release
agreement they may have used frequently for situations where they have terminated
one employee who is 40 years of age or older will also be sufficient for the
group release situation - it isn't.
Let us compare the strict legal requirements of
the two kinds of releases:
LEGAL REQUIREMENTS WHEN ONLY ONE OLDER
EMPLOYEE IS BEING TERMINATED: Below are
the OWBPA requirements for the single older employee being terminated
(i.e., not part of a group):
- the release agreement between the older employee and the employer is written in a manner calculated to be clearly understood by the older employee;
- the release agreement specifically refers to rights or claims arising under the ADEA;
- the older employee is not asked to waive rights or claims that may arise after the date the release agreement is executed;
- the older employee waives rights or claims only in exchange for "consideration" in addition to anything of value to which the older employee already is entitled;
- the
older employee is advised in writing to consult with an attorney prior to
executing the release agreement;
- the
older employee is given a period of at least 21 days within which to
consider the release agreement; and
- the release agreement provides that for a period of at least 7 days following the execution of such release agreement, the older employee may revoke the release agreement, and the release agreement shall not become effective or enforceable until the 7-day revocation period has expired.
LEGAL REQUIREMENTS WHEN A GROUP
(I.E., TWO OR MORE EMPLOYEES) IS BEING TERMINATED: For a group release (when 2 or more
employees are being terminated), the seven requirements listed above apply.
However, the 21-day period to consider
the release agreement is extended to a 45-day period. The employer must
also attach to the group release agreement a SPECIAL DISCLOSURE FORM presenting
in writing the following five elements:
- the class, unit or group of employees covered by the termination program
- the factors affecting eligibility for the termination program
- any time limits that apply to the termination program
- the job titles and ages of all employees eligible for the termination program
- ages and titles of employees in the same class, unit, or group who are not eligible or selected for the termination program.
Of course, like with any contract, there must be legal
consideration to seal the release agreement. Consideration is
something of value (usually money) passing between the employer and the
departing employee such as severance. It must be severance that the employee is
not already entitled to (by virtue of the employee handbook or an
employment agreement). Consideration must be “above and beyond” what the
employer was already required to give the departing employee.
If the release agreement is not in full compliance with the OWBPA
group release requirements, a court may permit the employees under this group
termination program to pursue their ADEA claims against the employer (even though the employees signed the waiver
and release agreements and accepted a severance package).
The terminations do not need to be on the same day to qualify as
multiple terminations or group terminations under the OWBPA. Staggered
terminations that are part of the same decision-making process will count as
multiple terminations.
Group terminations for older workers (those 40 years of age and
older) are unusually technical. The legal requirements are very strict. Failure
by an employer to meet all the legal requirements means that the employer may
be giving the older workers severance for signing the group release, but, if
the group release is not legally enforceable, those older workers can still
bring lawsuits against the employer for age discrimination and the employer
is unlikely to recoup any portion of the severance paid.
Courts have found ADEA waivers invalid for failing to meet just
one of the many statutory requirements, especially when groups of employees are
involved. Examples of problems include failing to provide information
concerning group members, eligibility factors, applicable program time limits,
and failing to list accurately job classifications and ages of employees
selected for termination.
Caution: Different states may have
different laws about releases. Therefore, state laws should be carefully
researched before drafting a release agreement.
Questions about terminations or releases? Call Attorney Nancy E. Joerg of Wessels
Sherman's St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.
