Can an employer validly require an employee to sign an agreement waiving his or her right to sue the employer under federal employment discrimination laws in exchange for severance benefits? Technical guidance issued by the Equal Employment Opportunity Commission (“EEOC”) on July 15, 2009 timely answers this question — with a qualified “yes” — and discusses the legal requirements governing release agreements for terminated employees. Laid out in an employee-friendly question and answer format and containing a checklist and a sample release, the technical guidance highlights essential elements of valid waivers while clarifying for employees their rights under federal employment law.
Employers favor broad waivers of liability from terminated or terminating employees but must adhere to certain legal requirements, especially for employees who are age 40 and over. The EEOC guidance reminds employers that an employee’s right to file a charge with the EEOC for discrimination based on age, race, sex, or disability rights and an employee’s right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC are not waiveable rights and any provision in a waiver that attempts to waive such rights is invalid and unenforceable.
In addition, waivers of discrimination claims in severance agreements must arise out of an employee’s knowing and voluntary consent to the waiver. While knowing and voluntary consent under the Age Discrimination in Employment Act (“ADEA”) is defined by statute in the Older Workers Benefit Protection Act of 1990 (“OWBPA”), knowing and voluntary consent under Title VII of the Civil Rights Act and other employment discrimination laws is derived from case law. Summing up case law related to waivers of rights under Title VII, the Americans with Disabilities Act, and the Equal Pay Act, the EEOC commented that most courts consider the following factors in determining whether knowing and voluntary consent was given:
• Whether the waiver was sufficiently clear and specific to be understood by the employee
• Whether it was induced by fraud, duress, or other improper conduct of the employer
• Whether the employee had sufficient time to read and consider the waiver
• Whether the employee consulted an attorney or whether the employer encouraged or discouraged such consultation
• Whether the employee had a say in negotiating the terms of the agreement
• Whether there was consideration (severance payment or other benefit)
A significant part of the EEOC guidance focuses on issues relevant to employees who are age 40 or over. Because employees age 40 and over have special rights under the ADEA, the OWBPA requires waivers to contain specific legal elements in order to be considered knowing and voluntary. At minimum, the waiver must:
• Be written so that it can be clearly understood.
• Specifically refer to rights or claims arising under the ADEA
• Advise the employee in writing to consult an attorney before accepting the agreement
• Provide at least 21 days for the employee to consider the offer (or 45 days if the employee is part of a group termination)
• Provide 7 days for the employee to revoke his or her signature
• Not include rights and claims that may arise after the date on which the waiver is executed (for example new acts of discrimination occurring after execution)
• Be supported by consideration
If any of these seven requirements is missing, the waiver of claims that could be brought under the ADEA is invalid and unenforceable. In addition, if the employee who is age 40 or over is part of a group termination such as a reduction in force (often considered “an exit incentive program”) or other employment termination program (whether through an ERISA severance plan or other), the employer must provide certain additional information in the connection with the waiver, such as selection criteria and details about the classes of employees selected for (or not selected for) the program.
The EEOC provides a checklist that reiterates the essential elements of releases of discrimination claims. While it is geared towards employees, the checklist is a useful tool for employers. The EEOC guidance also contains a sample agreement that highlights the various required elements of releases and may provide a starting point for drafting or updating employers’ severance release agreements. For further information, employers and employees alike may wish to review the EEOC technical assistance document on the Internet.