In light of the economic downturn, the Equal Employment Opportunity Commission (“EEOC”) recently issued a guidance entitled “Understanding Waivers of Discrimination Claims in Employee Severance Agreements.” To minimize the risk of potential litigation, many employers offer departing employees money or benefits in exchange for a release (or “waiver”) of liability for all claims connected with the employment relationship, including discrimination claims under the civil rights laws enforced by the EEOC. These departing employees are typically offered severance and asked to sign a waiver at the time of separation. When presented with severance and a waiver, many employees wonder if it is legal, and whether the employee should sign it. The EEOC guidance is intended to answer questions employees may have about being offered severance in exchange for a waiver of discrimination claims.
Validity of Waivers
The EEOC guidance highlights the following criteria for a waiver to be enforceable:
- The waiver must be supported by “consideration.” The consideration offered for the waiver may not be something the employee is already entitled to, but rather, must be something of value in addition to any of the employee’s existing entitlements.
- The employee must knowingly and voluntarily consent to the waiver. To determine whether the employee knowingly and voluntarily waived the right to sue, courts consider the following circumstances and conditions under which the waiver was signed:
- Whether the waiver was written in a manner that is clear and specific enough for the employee to understand based on his/her education and experience;
- Whether the waiver 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 exceed what the employee already was entitled to by law or contract and the employee accepted the offered consideration.
The guidance also explains that even though an employee signs a waiver releasing the employer from all claims, the employee may still file a charge with the EEOC if the employee believes he or she was discriminated against during employment or wrongfully terminated. However, a waiver with severance may require an employee to return any severance payment attributable to a claim the employee pursues (under a “tender back” provision), or any recovery on the employee’s behalf. A release may not require an employee to waive his or her right to bring an EEOC charge or cooperate in an EEOC investigation. A release also may not waive an employee’s future rights.
The guidance also explains the additional requirements under the Older Workers Benefit Protection Act (OWBPA) that must be met for an effective release of an age claim under the ADEA. Specifically:
- A waiver must be written in a manner that can be clearly understood.
- A waiver must specifically refer to rights or claims arising under the ADEA.
- A waiver must advise the employee in writing to consult an attorney before accepting the agreement.
- A waiver must provide the employee with at least 21 days to consider the offer.
- A waiver must give an employee seven days to revoke his or her signature.
- A waiver must not include rights and claims that may arise after the date on which the waiver is executed.
- A waiver must be supported by consideration in addition to that to which the employee already is entitled.
When an employer decides to reduce its workforce by laying off or terminating a group of employees under an “exit incentive program,” a waiver of an age claim also must give the employee 45 (instead of 21) days to consider and identify the decisional unit, eligibility factors, time limits, job titles and ages of all individuals who are eligible for the program, and the job titles and ages of all individuals in the same job classifications or organizational units who are not eligible for the program.
While the EEOC guidance does not define any new waiver requirements, employers should, nonetheless, review existing waivers for compliance with the EEOC guidelines and ensure that future waivers comply with applicable state and federal law. For employees 40 and over, employers should confirm that the waiver complies with the additional requirements of the OWBPA.
To learn more about how waivers in severance agreements may affect your company or if you have any questions regarding these issues, be sure to contact your employment counsel at Smith, Gambrell & Russell, LLP.