When employers offer severance packages to employees age 40 or older, those packages must comply with the federal Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA).
These two companion laws govern how employers can write such packages and the way they’re presented to departing employees.
Most employers run afoul of these laws when they ask employees to sign a waiver promising not to sue the company in exchange for the severance. The ADEA requires such age-bias lawsuit waivers to:
- Be in writing and be understandable.
- Specifically refer to ADEA rights or claims.
- Not waive rights or claims that may arise in the future.
- Be in exchange for a consideration (extra pay or another benefit).
- Advise the employee in writing to consult an attorney before signing the waiver.
- Provide the employee with at least 21 days to consider the agreement and at least seven days to revoke the agreement after signing it.
WHAT’S NEW: The EEOC has recently stepped up its enforcement of the ADEA, particularly in the area of waivers. Two recent court cases illustrate the EEOC’s strategy:
Case 1: Land O’Lakes set the EEOC churning when it offered a severance package containing language stating the employee has “neither filed nor intends to file a discrimination charge.” The EEOC interpreted this to have a chilling effect on employees who might wish to report legitimate discrimination in the future.
Since the OWBPA prohibits employers from making employees agree not to sue over future actions, the EEOC thought this agreement violated the law.
Case 2: Lockheed Martin flew onto the EEOC’s radar when one of its employees sought to alter a severance agreement after she had collected her severance money. She felt her layoff was discriminatory and wished to file charges with the EEOC. Lockheed’s agreement stated that the woman could not sue for monetary gain, only injunctive relief.
But when Lockheed dug its heels in during negotiations, the woman sued. The federal district court sided with her because Lockheed had insisted that she drop her EEOC lawsuit before it would modify the agreement. The court decided that Lockheed was not going to allow the woman to sue under any circumstances, therefore the agreement violated the law.
HOW TO COMPLY: When drafting ADEA waivers, you should have an attorney experienced in such matters review all severance packages and waivers to ensure the wording complies with the law.
Furthermore, you should map out a timetable for offering the package and the date by which it must be returned, following the ADEA rules explained above. That timetable should be part of a larger overall procedure to offer severance packages that apply uniformly to all workers to whom you offer packages.
Of course, prevention is the key. Employers should review the entire severance package process to see if they are discriminating.
Ask yourself: Are workers offered packages based on who they are, or the job they perform? You legally can’t target workers for separation solely because of their age.
To stand up in court, your reasoning for whom you terminate must be based on business necessity, not age. A fair process will eliminate most lawsuits before they are filed.
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