Waivers: compliance tips

Waivers are designed to prevent employees from suing employers. But they must be written correctly and implemented fairly in order to prevent them from becoming the basis of employee lawsuits under the Older Workers Benefit Protection Act (OWBPA).

FAQs about waivers

The OWBPA outlines the following eight requirements for a knowing and voluntary waiver.

1. The waiver is part of an agreement between the employee and employer that is written in a manner calculated to be understood by the employee (i.e., lay off the legalese and use plain English).
2. The waiver specifically refers to rights or claims arising under the Age Discrimination in Employment Act (ADEA).
3. The employee does not waive rights or claims that may arise after the date the waiver is executed.
4. The employee waives rights or claims only in exchange for consideration in addition to anything of value to which the employee is already entitled.
5. The employee is advised in writing to consult with an attorney prior to executing the agreement.
6. The employee is given at least 21 days to consider the agreement. If the waiver is part of an exit incentive or other employment termination program offered to a group or class of employees, the employee must have at least 45 days to consider the agreement. (Note: Employees may sign the release prior to the end of the 21- or 45-day period.)
7. After signing the agreement, the employee has seven days to revoke it, and the agreement is not effective until the end of the seven days. (Note: This revocation period may not be waived.)
8. If the waiver is part of an exit incentive or other employment termination program offered to a group or class of employees, the employer must inform the employee (at the beginning of the 45-day consideration period) of the class, unit, or group of individuals covered by the program; any eligibility factors for the program; and any time limits applicable to the program. The waiver must also include the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program. This must be done in writing and in a manner calculated to be understood by the employee.

In 1998, the U.S. Supreme Court made a landmark ruling in Oubre v. Entergy Operations, Inc. that put the onus on employers to draft valid waivers. The High Court ruled that if a signed waiver is later deemed invalid, the employee: 1) can file a discrimination lawsuit; and 2) does not have to tender back (i.e., return) the consideration he/she already received in exchange for signing the waiver.

Under traditional contract law, an individual must tender back the payment received for signing a waiver before challenging it in court. If the individual fails to do so, the waiver is considered ratified, or approved, which prevents the individual from challenging a waiver in court. As evidenced by the Oubre ruling, those traditional tender back and ratification rules don’t apply when it comes to ADEA waivers. The Equal Employment Opportunity Commission (EEOC) put its two cents into the tender back fray by issuing guidelines, regarding the tender back rule and other issues related to waivers.

• Covenants not to sue, such as agreements in which the employee pays damages and attorneys’ fees to the employer if he/she files suit, should be subjected to OWBPA provisions regarding waivers.
• An employer may be able to get back the consideration it paid to an employee in exchange for signing the waiver. If the employee successfully challenges the waiver, proves age discrimination, and obtains a monetary award, the court may use its discretion to reduce the award. The reduction may not exceed the amount the employer paid for the waiver in the first place, or the amount of the worker’s monetary award, if it is less.
• An employer cannot avoid its ADEA waiver duties even when an employee has challenged it. Reason: Permitting an employer to stop making payments under the agreement would make it very difficult for the employee to exercise this right.

The burden is on employers to ensure that their waivers are valid. Some experts complain that older employees who are laid off have almost nothing to lose by signing a waiver, cashing the check, and then testing the validity of the waiver in court.

Generally, the courts look at the “totality of circumstances,” based on the following nonexclusive list of factors, to ensure the validity of a waiver.

• The employee’s education and business experience.
• The respective roles of the employer and the employee in deciding the provisions of the waiver.
• The clarity of the agreement.
• The amount of time in which the employee had to study the agreement.
• Whether the employee had independent advice, such as that of legal counsel.
• The consideration the employee received for signing the waiver, such as severance.

Here’s a list of things employers can do to make sure that their waivers are knowing and voluntary.

• Do make it clear that the employee has the right to contact any state or federal agency. While waivers may preclude employees from taking their claims to court, they should not prevent workers from, say, talking to the EEOC.
• Do list specific federal and state laws covered by the waiver. The more details you provide, the easier it will be for you to show that employees understood what rights they were waiving away. Also include claims for damages, attorneys’ fees, etc.
• Do understand that waivers apply to future legal action based on past incidents; they do not cover lawsuits arising from incidents that occur after the waiver is signed.
• Do consider following OWBPA guidelines for non-ADEA waivers. It’s a procedure that’s already been court-tested. Besides, setting up a standard waiver procedure will also make them easier to administer.
• Do keep in mind that you do not have to offer basic versus enhanced benefits. If you stop providing severance as a matter of course, you can have employees choose between receiving severance or nothing.
• Do document well that you have provided employees with all information required by law.

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