On July 15, 2009, the EEOC published “Understanding Waivers of Discrimination Claims in Employee Severance Agreements,” a document directed to employees facing layoffs. The publication is not apparently intended to change existing regulations, but rather to summarize the legal requirements for severance agreements under the ADA, Title VII, the Equal Pay Act, and, separately, the Age Discrimination in Employment Act.
As noted by the EEOC’s summary, in order to minimize the risk of potential litigation, many employers provide laid-off employees with optional severance agreements, by which employees may obtain certain compensation or benefits in exchange for releasing the employer from liability. The EEOC document specifically addresses the validity of such releases, and it is therefore useful reading for employers as well.
Summary of Release Requirements for Discrimination Claims
According to the EEOC summary, all federal discrimination statutes require that any valid release:
- be “knowing and voluntary” on the part of the employee (this term of art has been construed differently for the different discrimination statutes);
- be exchanged for valid consideration, such as additional compensation to which the employee would not otherwise be entitled; and
- not require an employee to waive any future rights – i.e., for claims arising after the agreement is signed.
In determining whether a release is “knowing and voluntary,” the EEOC’s summary correctly points out that courts typically consider whether a given release:
- is written in a way that is clear and specific, so that an employee can understand it (the EEOC cautions against “technical jargon and long, complex sentences”);
- has been induced by fraud or duress initiated by the employer;
- provides the employee with sufficient time for consideration before signing;
- encourages or discourages review by the employee’s attorney; and
- is subject to input from the employee before signing.
For releases that include waivers of federal age discrimination claims under the ADEA, the EEOC’s summary notes additional specific requirements for validity dictated by the federal Older Workers Benefit Protection Act:
- Specific reference to release of employee rights under the ADEA by name;
- Advice in writing that the employee should consult an attorney before signing;
- A 21-day period to consider the employer’s offer before signing (45 days in the event of a “group layoff” consisting of two or more employees);
- A seven-day period during which the employee may revoke his or her signature after signing; and
- For a group layoff, the employer must also provide the employee with information in writing about the “decisional unit” from which the employee was selected for the layoff, eligibility factors for the layoff program, any time limits, and the titles and ages for all employees within the decisional unit who were either selected or not selected for layoff.
The summary correctly notes (with citations to the EEOC’s “Enforcement Guidance” from April 1997 and to 29 C.F.R. § 1625.22(i)(2)) that a release cannot lawfully prevent an employee from bringing a later charge of discrimination with the EEOC nor prevent an employee from participating as a witness in an EEOC investigation. In fact, the EEOC takes the position that obtaining such a promise from an employee constitutes unlawful “retaliation” against the employee.
Some Overreaching Apparent
The EEOC’s summary includes an appendix with a suggested “Employee Checklist” for employer severance agreements containing releases. For the most part, the checklist merely rehashes the same validity requirements outlined above for the statutes administered by the EEOC. Readers should be cautioned, however, that the appendix appears to overreach by providing employees with gratuitous “tips” falling outside the EEOC’s normal area jurisdiction, with questionable results. These comments are unfortunate because they are likely to confuse employees and make them unduly suspicious of properly drafted agreements and well-intentioned efforts to resolve matters. Specifically, in the final sentence of the appendix, the EEOC document advises:
"Make sure that your employer is not asking you to release your claims for unemployment compensation benefits, workers compensation benefits, claims under the Fair Labor Standards Act, health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), or claims with regard to vested benefits under a retirement plan governed by the Employee Retirement Income Security Act (ERISA).”
Unemployment and workers compensation benefits are creatures of state law, and while many states (including Ohio) prohibit voluntary waivers of these rights, the EEOC’s broad assertion to a national audience, on a topic generally outside the bounds of equal employment opportunity, probably assumes too much.
The EEOC’s glib dismissal of proposed waivers for COBRA rights seems similarly flawed. The U.S. Department of Labor, which has primary responsibility for administering COBRA and which has published is own set of “FAQs for Employees About COBRA Continuation Health Coverage,” specifically contemplates what happens “if a qualified beneficiary waives COBRA coverage,” including methods for later revoking such waivers. Certainly employees might want to think twice before signing such a waiver, but the EEOC’s attempt to give employees advice outside its area of expertise is both unusual and inaccurate.
Finally, the EEOC’s suggestion that employees should reject a release that waives ERISA claims does not seem to be based on any actual legal restriction prohibiting such waivers. ERISA does prohibit certain types of waivers, and rights arising in the future cannot be waived. But it is well established that potential ERISA claims can be waived by releases that are knowing and voluntary – the same requirement used by the EEOC for the statutes it actually administers. See, e.g., Leavitt v. Nw. Bell Tel. Co., 921 F.2d 160, 162 (8th Cir. 1990).
With these exceptions, the EEOC’s new publication is a useful compilation. As always, employers are well-advised to obtain help from a qualified professional before drafting their own release agreements for use in reductions in force or other employment terminations.