Indiana Business Lawyer Blog
In July of 2009, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued guidelines on employee severance agreements titled “Understanding Waivers of Discrimination Claims in Employee Severance Agreements.” Frequently, employers offer departing employees money or benefits in exchange for waiving liability for all future claims connected with the prior employment relationship, likely including discrimination claims as well as claims brought under the civil rights laws which the EEOC enforces.
The EEOC guidance states that a waiver in a severance agreement will generally be valid when the employee “knowingly and voluntarily consents to the waiver.” To determine whether the employee actually did know of and voluntarily waived his or her potential discrimination claims, most courts look beyond the language of the contract and consider the totality of the circumstances in order to determine whether the employee knowingly and voluntarily waived his or her right to sue. The following factors have been used by courts to determine the totality of the circumstances: (1) whether it was written in a manner that was clear and specific enough for the employee to understand based on his or her education and business experience; (2) whether it was induced by fraud, duress, undue influence or other improper conduct by the employer; (3) whether the employee had enough time to read and think about the advantages and disadvantages of the agreement before signing it; (4) whether the employee consulted with an attorney or was encouraged or discouraged by the employer from doing so; (5) whether the employee had any input in negotiating the terms of the agreement; and (6) whether the employer offered the employee consideration that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.
An employee, who has signed a waiver, may still file a charge with the EEOC if they believe that they have been discriminated against based on age, race, sex or disability, despite releasing an employer from all claims. Additionally, no agreement between an employee and an employer can limit the employee’s right to testify, assist or participate in an investigation hearing or proceeding conducted by the EEOC. Any provision in a severance agreement that attempts to waive any of these rights is invalid and unenforceable.
The Older Workers Benefit Protection Act (“OWBPA”) was passed in 1990 as an amendment to the Age Discrimination in Employment Act (“ADEA”), and it establishes specific requirements for a knowing and voluntary release of ADEA claims to guarantee that a severed employee has every opportunity to make an informed choice of whether or not to sign a waiver of age claims. OWBPA lists seven factors that must all be satisfied in order for a waiver of age discrimination claim to be considered knowing and voluntary. At a minimum: (1) a waiver must be written in a manner that can be clearly understood; (2) a waiver must specifically refer to rights or claims arising under the ADEA; (3) a waiver must advise the employee in writing to consider an attorney before accepting the agreement; (4) a waiver must provide the employee with at least 21 days to consider the offer; (5) a waiver must give an employee seven days to revoke his or her signature; (6) a waiver must not include rights and claims that may arise after the date on which the waiver is executed; and (7) a waiver must be supported by consideration in addition to that which the employee already is entitled. Even if a waiver complies with all of the above requirements, a waiver of age claims will be found invalid and unenforceable by a court if the employer used fraud, undue influence or any other type of improper conduct to coerce the employee to sign it, or if the waiver contains a material mistake, omission or a misstatement.
The new EEOC guidance also includes in Appendix A an employee checklist detailing what an employee should do if an employee’s employer offers a severance agreement. The checklist includes tips, such as making sure you understand the agreement, checking for deadlines, acting promptly, having an attorney review the severance agreement, and reviewing the agreement to ensure that it does not ask you to release non-waivable rights.
For additional information, the EEOC guidance also offers in Appendix B a sample waiver which illustrates a way that the required OWBPA information could be presented to employees.
It is recommended that employers review severance agreements with an attorney to make sure the agreements are consistent with the recent EEOC guidance.
For the full text of the EEOC guidance, please visit www.eeoc.gov/policy/docs/qandaseverance-agreements.html.
Jeremy L. Fetty is an associate at Parr Richey whose practice focuses on corporate law, utility law, municipal law, and labor and employment law. The statements contained herein are for information purposes only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have questions regarding this article, please contact an attorney.
