Older Workers Benefits Protection Act

A valid release will likely be an employer's primary defense against employee workplace claims if the employer is sued on a matter covered by the release. A release, however, will not, by itself, prevent an employee from filing a lawsuit. An employer will incur attorneys' fees, even when successfully obtaining dismissal of employee suits using the release.

In order to discourage and, possibly, sanction an employee for bringing a suit, even where he or she has signed a release, employers have historically added to the release agreement a covenant not to sue. That covenant usually includes a promise that the employee will not sue, and that, if the employee does file suit, he or she must pay the employer's defense costs in addition to his or her own attorneys' fees and costs.

Recent cases have called into question the viability, utility, and even the lawfulness of covenants not to sue, such that employers may well decide to forego them when drafting releases of age discrimination claims.

Issues Raised by the OWBPA and EEOC Regulations

As is well known, if the scope of the release includes a claim of age discrimination under the Age Discrimination in Employment Act ('ADEA'), then the release must satisfy the requirements of the Older Workers Benefits Protection Act ('OWBPA') in order to be valid. The OWBPA, added as a series of discrete amendments to the ADEA, imposes mandatory requirements for waivers of ADEA rights and claims. The statutory provisions were intended to prevent older workers from being coerced or manipulated into waiving their ADEA rights. The OWBPA sets up its 'own regime for assessing the effectiveness of ADEA waivers, separate and apart from contract law'[and] creates a series of prerequisites for knowing and voluntary waivers.' Oubre v. Entergy Operations, Inc. 522 U.S. 422, 427 (1988).

An overriding requirement of the OWBPA is that a waiver must be 'knowing and voluntary.' 29 U.S.C. ' 626(f). To meet this standard, a waiver must be part of an agreement between the employer and the individual that 'is written in a manner calculated to be understood by the individual, or by the average individual eligible to participate' in a reduction in force. 29 U.S.C. ' 626(f)(1)(A). Employees must also be advised in writing to consult with an attorney prior to executing the agreement. Id. ' 626(f)(1)(E). To satisfy the 'manner calculated' requirement, 'waiver agreements must be drafted in plain language geared to the level of nderstanding of the individual party to the agreement or individuals eligible to participate' in an exit incentive or other employment termination program. 29 C.F.R.
' 1625.22(b)(3). Employers are instructed to 'take into account such factors as the level of comprehension and education of typical participants.' Id. Generally, this requires limiting or eliminating 'technical jargon and long, complex sentences.' Id.

The Complications of a Covenant Not to Sue

At the same time, EEOC regulations prohibit employers from requiring employees to waive their right to file a claim of age discrimination with the EEOC, or participate in an EEOC investigation or proceeding. Id. ' 1625.22 (i)(2).

Failure to comply with these requirements will invalidate the ADEA release, leaving the employee free to bring a claim for age discrimination. The employee may also be able to retain the consideration he or she received for signing the release. Recent case law demonstrates just how difficult it can be to comply with the OWBPA's requirements.

Thomforde v. International Business Machines, 406 F.3d 500 (8^th Cir. 2005)

In July 2001, Dale Thomforde, an engineer living in Rochester, NY, was selected for termination as part of a company-wide involuntary termination program at IBM. Thomforde was offered severance, provided he signed IBM's release form. He asked his supervisor if he could sign the form and still sue IBM for age discrimination.

The supervisor forwarded Thom-forde's inquiry to IBM's legal department. Undoubtedly mindful of the EEOC regulation against prohibiting the filing of an EEOC charge, the company responded to Thomforde, via e-mail, as follows: 'the wording is as intended by IBM. [Legal] was not comfortable providing an interpretation for you and suggested you consult with your own attorney.' Thomforde's own attorney told him to sign the release, take the money and file an age discrimination charge with the Equal Employment Opportunity Commission ('EEOC'). Thomforde did just that. Although both the EEOC and the District of Minnesota (see Thomforde v. IBM, 304 F.Supp.2d 1143 (D.Minn. 2004)), determined that the release met all of the OWBPA's requirements, the Eighth Circuit unanimously reversed.

IBM's release agreement combined both a general release and a covenant not to sue in a single document. IBM's basic release and waiver language was not a problem. The release unequivocally released all employment claims, specifically including claims under the ADEA. The general covenant not to sue language that followed the release was also typical. However, the Eighth Circuit had a problem with the next two sentences:

This covenant not to sue does not apply to actions based solely under the [ADEA], as amended. That means that if you were to sue IBM ' only under the [ADEA], as amended, you would not be liable under the terms of this Release for their attorneys' fees and other costs and expenses of defending against the suit.

Again, this language was obviously intended to comply with the above-cited EEOC regulation. Thomforde, however, claimed that this language meant that he could sue IBM if the case was limited to ADEA claims. The Eighth Circuit agreed, holding that this was 'one plausible reading of the document.'

IBM argued accurately, but in vain, that the release and the covenant not to sue were 'entirely different' provisions. It protested that the latter did not 'undo' the former but merely, as EEOC and court rulings suggest, exempted the employee from automatic liability for attorneys' fees associated with defending an ADEA suit.

However, the court suggested that IBM should have carefully explained the differences between a release and a covenant not to sue because, despite their distinct purposes, those differences 'are fairly amorphous and may not be readily apparent to a lay reader.' Further drafting improvements suggested by the court were: 1) not referring to the general release and covenant not to sue throughout as simply the 'Release' since the two concepts are not interchangeable; and 2) adding side headings showing the release and the covenant not to sue are different and distinct topics.

Finally, although IBM's release, in conformity with another OWBPA requirement, urged Thomforde to consult with his own attorney before signing, that did not help the employer; the court found that the agreement was still not written in a manner calculated to be understood by an employee, as the OWBPA requires. Notably, the court stated:
'It seems axiomatic that if an agreement needs clarification, it is not written in a manner calculated to be understood.'

The court held, in conclusion, that IBM's release was 'ineffective as a matter of law to waive' rights under the ADEA.'

The conclusion of this article will discuss Syverson v. International Business Machines, 461 F.3d 1147 (9^th Cir. 2006) and considerations for employers in preparing releases.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a partner, and Randy S. Gidseg is an associate, in Nixon Peabody LLP's employment law group in New York City.

A valid release will likely be an employer's primary defense against employee workplace claims if the employer is sued on a matter covered by the release. A release, however, will not, by itself, prevent an employee from filing a lawsuit. An employer will incur attorneys' fees, even when successfully obtaining dismissal of employee suits using the release.

In order to discourage and, possibly, sanction an employee for bringing a suit, even where he or she has signed a release, employers have historically added to the release agreement a covenant not to sue. That covenant usually includes a promise that the employee will not sue, and that, if the employee does file suit, he or she must pay the employer's defense costs in addition to his or her own attorneys' fees and costs.

Recent cases have called into question the viability, utility, and even the lawfulness of covenants not to sue, such that employers may well decide to forego them when drafting releases of age discrimination claims.

Issues Raised by the OWBPA and EEOC Regulations

As is well known, if the scope of the release includes a claim of age discrimination under the Age Discrimination in Employment Act ('ADEA'), then the release must satisfy the requirements of the Older Workers Benefits Protection Act ('OWBPA') in order to be valid. The OWBPA, added as a series of discrete amendments to the ADEA, imposes mandatory requirements for waivers of ADEA rights and claims. The statutory provisions were intended to prevent older workers from being coerced or manipulated into waiving their ADEA rights. The OWBPA sets up its 'own regime for assessing the effectiveness of ADEA waivers, separate and apart from contract law'[and] creates a series of prerequisites for knowing and voluntary waivers.' Oubre v. Entergy Operations, Inc . 522 U.S. 422, 427 (1988).

An overriding requirement of the OWBPA is that a waiver must be 'knowing and voluntary.' 29 U.S.C. ' 626(f). To meet this standard, a waiver must be part of an agreement between the employer and the individual that 'is written in a manner calculated to be understood by the individual, or by the average individual eligible to participate' in a reduction in force. 29 U.S.C. ' 626(f)(1)(A). Employees must also be advised in writing to consult with an attorney prior to executing the agreement. Id. ' 626(f)(1)(E). To satisfy the 'manner calculated' requirement, 'waiver agreements must be drafted in plain language geared to the level of nderstanding of the individual party to the agreement or individuals eligible to participate' in an exit incentive or other employment termination program. 29 C.F.R.
' 1625.22(b)(3). Employers are instructed to 'take into account such factors as the level of comprehension and education of typical participants.' Id. Generally, this requires limiting or eliminating 'technical jargon and long, complex sentences.' Id.

The Complications of a Covenant Not to Sue

At the same time, EEOC regulations prohibit employers from requiring employees to waive their right to file a claim of age discrimination with the EEOC, or participate in an EEOC investigation or proceeding. Id. ' 1625.22 (i)(2).

Failure to comply with these requirements will invalidate the ADEA release, leaving the employee free to bring a claim for age discrimination. The employee may also be able to retain the consideration he or she received for signing the release. Recent case law demonstrates just how difficult it can be to comply with the OWBPA's requirements.

Thomforde v. International Business Machines , 406 F.3d 500 (8 th Cir. 2005)

In July 2001, Dale Thomforde, an engineer living in Rochester, NY, was selected for termination as part of a company-wide involuntary termination program at IBM. Thomforde was offered severance, provided he signed IBM's release form. He asked his supervisor if he could sign the form and still sue IBM for age discrimination.

The supervisor forwarded Thom-forde's inquiry to IBM's legal department. Undoubtedly mindful of the EEOC regulation against prohibiting the filing of an EEOC charge, the company responded to Thomforde, via e-mail, as follows: 'the wording is as intended by IBM. [Legal] was not comfortable providing an interpretation for you and suggested you consult with your own attorney.' Thomforde's own attorney told him to sign the release, take the money and file an age discrimination charge with the Equal Employment Opportunity Commission ('EEOC'). Thomforde did just that. Although both the EEOC and the District of Minnesota ( see Thomforde v. IBM , 304 F.Supp.2d 1143 (D.Minn. 2004)), determined that the release met all of the OWBPA's requirements, the Eighth Circuit unanimously reversed.

IBM's release agreement combined both a general release and a covenant not to sue in a single document. IBM's basic release and waiver language was not a problem. The release unequivocally released all employment claims, specifically including claims under the ADEA. The general covenant not to sue language that followed the release was also typical. However, the Eighth Circuit had a problem with the next two sentences:

This covenant not to sue does not apply to actions based solely under the [ADEA], as amended. That means that if you were to sue IBM ' only under the [ADEA], as amended, you would not be liable under the terms of this Release for their attorneys' fees and other costs and expenses of defending against the suit.

Again, this language was obviously intended to comply with the above-cited EEOC regulation. Thomforde, however, claimed that this language meant that he could sue IBM if the case was limited to ADEA claims. The Eighth Circuit agreed, holding that this was 'one plausible reading of the document.'

IBM argued accurately, but in vain, that the release and the covenant not to sue were 'entirely different' provisions. It protested that the latter did not 'undo' the former but merely, as EEOC and court rulings suggest, exempted the employee from automatic liability for attorneys' fees associated with defending an ADEA suit.

However, the court suggested that IBM should have carefully explained the differences between a release and a covenant not to sue because, despite their distinct purposes, those differences 'are fairly amorphous and may not be readily apparent to a lay reader.' Further drafting improvements suggested by the court were: 1) not referring to the general release and covenant not to sue throughout as simply the 'Release' since the two concepts are not interchangeable; and 2) adding side headings showing the release and the covenant not to sue are different and distinct topics.

Finally, although IBM's release, in conformity with another OWBPA requirement, urged Thomforde to consult with his own attorney before signing, that did not help the employer; the court found that the agreement was still not written in a manner calculated to be understood by an employee, as the OWBPA requires. Notably, the court stated:
'It seems axiomatic that if an agreement needs clarification, it is not written in a manner calculated to be understood.'

The court held, in conclusion, that IBM's release was 'ineffective as a matter of law to waive' rights under the ADEA.'

The conclusion of this article will discuss Syverson v. International Business Machines , 461 F.3d 1147 (9 th Cir. 2006) and considerations for employers in preparing releases.

Philip M. Berkowitz, a member of this newsletter's Board of Editors, is a partner, and Randy S. Gidseg is an associate, in Nixon Peabody LLP's employment law group in New York City.