The Older Workers Benefits Protection Act

Part one of this article discussed releases and covenants not to sue, the issues raised by the OWBPA (Older Workers Benefits Protection Act) and EEOC Regulations, and Thomforde v. International Business Machines, 406 F.3d 500 (8^th Cir. 2005). The conclusion herein discusses the Syverson case and considerations for employers in preparing releases. Syverson v. International Business Machines, 461 F.3d 1147 (9^th Cir. 2006).

Syverson v. International Business Machines

In Syverson, IBM employees who were to be discharged in another reduction in force were presented with, and signed, a virtually identical release agreement to the one at issue in Thomforde. Notwithstanding their having signed the release and received severance pay, the employees filed charges of age discrimination against IBM. Both the EEOC and the district court (Syverson v. IBM, No. C-03-04529, 2004 U.S. Dist. Lexis 27844 (D. Cal. May 4, 2004)) found that IBM's agreement met the OWBPA's requirements for a knowing and voluntary release. On appeal, however, the Ninth Circuit reversed.

The IBM agreement contained a release of all claims, including claims arising from the ADEA. The plaintiffs also signed a covenant not to sue. This provision specifically excepted 'actions based solely under the ADEA.' The Ninth Circuit agreed with the plaintiffs' view that these potentially inconsistent provisions misled the employees so they could reasonably believe that, above and beyond their unaffected right to file an ADEA charge with the EEOC, they still retained the right to sue IBM in court on an ADEA claim.

The court found that the phrasing of the release and the covenant not to sue engendered confusion over whether the release covered ADEA claims or excepted them, and, additionally, did not explain how the separate release and covenant not to sue provisions 'dovetail, either in general or as they relate to the ADEA claims.' Accordingly, the court found that the waiver of ADEA claims, and separate covenant not to sue, were not 'knowing and voluntary' and were, therefore, unenforceable.

The court further concluded that an average employee reviewing the agreement would not understand the legal distinction between the release and covenant not to sue provisions. The court rejected IBM's arguments that the covenant not to sue language was itself permissible under the law, was required for the company to obtain attorneys' fees in the event that an employee sued, and that it and the earlier release language served two distinct legal purposes. Instead, the court concluded that case law recognizes a distinction between releases ' which abandon or give up a known right or claim ' and a covenant not to sue ' where a party having a present or future right to action agrees to forbear from asserting that right in litigation.

However, the Ninth Circuit found that both legal concepts could not exist within the same document without creating confusion to an average employee if, as it ultimately found, the document presented to the employee the terms 'release' and 'covenant not to sue' as if they were completely interchangeable.

Lastly, the court rejected the argument that language directing an employee to consult an attorney mitigates the confusing language. To the contrary, the court suggested that where an attorney is required to understand the language, the agreement does not meet the 'manner calculated' requirement.

Considerations for Employers in Preparing Releases

The main lesson from Syverson and Thomforde is that any release agreement must be carefully drafted to ensure that it complies with the OWBPA's requirement that it be understandable. (Of course, all release agreements must comply with the other OWBPA mandates, including that employees be informed to consult with counsel before signing, and that employees have 21 days (45 days in a group termination) to consider the agreement and another seven days after signing to revoke it.) In order to ensure that releases are understandable, and to address potential confusion over the interplay between a release and a covenant not to sue, employers should review their current release language with the following options in mind:

Consider Eliminating the Covenant Not to Sue

A general release should provide an employer with an affirmative defense to any future claim, and serve as a deterrent to a lawsuit. Although a covenant not to sue can have a certain in terrorem effect, most employees (and even plaintiffs' attorneys) will be reluctant to sue in the face of a properly drafted release. Moreover, most employers are not really concerned with, and rarely obtain, the extra benefits offered by a covenant, i.e., recovering attorneys' fees or damages against the terminated employee if sued.

Separate the release from the covenant not to sue, and carefully explain the difference between them. These decisions show that the courts have little tolerance for confusion of any sort when considering an OWBPA release.

If you include a disclaimer, make sure it is precisely drafted. The disclaimer must make clear that, even though the employee has released all claims against the employer and cannot sue the employer concerning any claims that have been released, nothing precludes the employee from: 1) filing a charge or participating in any investigation or proceeding with the EEOC; or 2) filing a lawsuit challenging the validity of the release.

Most importantly, release agreements should be written in simple, plain language. Legalese and unnecessary verbiage should be avoided. Precision and clarity are critical. Employers must consider the level of education and sophistication of the affected employees and draft the language so that the average employee will have no problem understanding all of it without consulting an attorney, Human Resources or a manager. In sum, employers who draft their own releases, and employers who have not reviewed their releases in some time, should ensure that their releases are not susceptible to challenge and meet the requirements of the OWBPA and recent case law.

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.

Part one of this article discussed releases and covenants not to sue, the issues raised by the OWBPA (Older Workers Benefits Protection Act) and EEOC Regulations , and Thomforde v. International Business Machines , 406 F.3d 500 (8 th Cir. 2005) . The conclusion herein discusses the Syverson case and considerations for employers in preparing releases. Syverson v. International Business Machines , 461 F.3d 1147 (9 th Cir. 2006).

Syverson v. International Business Machines

In Syverson, IBM employees who were to be discharged in another reduction in force were presented with, and signed, a virtually identical release agreement to the one at issue in Thomforde. Notwithstanding their having signed the release and received severance pay, the employees filed charges of age discrimination against IBM. Both the EEOC and the district court (Syverson v. IBM, No. C-03-04529, 2004 U.S. Dist. Lexis 27844 (D. Cal. May 4, 2004)) found that IBM's agreement met the OWBPA's requirements for a knowing and voluntary release. On appeal, however, the Ninth Circuit reversed.

The IBM agreement contained a release of all claims, including claims arising from the ADEA. The plaintiffs also signed a covenant not to sue. This provision specifically excepted 'actions based solely under the ADEA.' The Ninth Circuit agreed with the plaintiffs' view that these potentially inconsistent provisions misled the employees so they could reasonably believe that, above and beyond their unaffected right to file an ADEA charge with the EEOC, they still retained the right to sue IBM in court on an ADEA claim.

The court found that the phrasing of the release and the covenant not to sue engendered confusion over whether the release covered ADEA claims or excepted them, and, additionally, did not explain how the separate release and covenant not to sue provisions 'dovetail, either in general or as they relate to the ADEA claims.' Accordingly, the court found that the waiver of ADEA claims, and separate covenant not to sue, were not 'knowing and voluntary' and were, therefore, unenforceable.

The court further concluded that an average employee reviewing the agreement would not understand the legal distinction between the release and covenant not to sue provisions. The court rejected IBM's arguments that the covenant not to sue language was itself permissible under the law, was required for the company to obtain attorneys' fees in the event that an employee sued, and that it and the earlier release language served two distinct legal purposes. Instead, the court concluded that case law recognizes a distinction between releases ' which abandon or give up a known right or claim ' and a covenant not to sue ' where a party having a present or future right to action agrees to forbear from asserting that right in litigation.

However, the Ninth Circuit found that both legal concepts could not exist within the same document without creating confusion to an average employee if, as it ultimately found, the document presented to the employee the terms 'release' and 'covenant not to sue' as if they were completely interchangeable.

Lastly, the court rejected the argument that language directing an employee to consult an attorney mitigates the confusing language. To the contrary, the court suggested that where an attorney is required to understand the language, the agreement does not meet the 'manner calculated' requirement.

Considerations for Employers in Preparing Releases

The main lesson from Syverson and Thomforde is that any release agreement must be carefully drafted to ensure that it complies with the OWBPA's requirement that it be understandable. (Of course, all release agreements must comply with the other OWBPA mandates, including that employees be informed to consult with counsel before signing, and that employees have 21 days (45 days in a group termination) to consider the agreement and another seven days after signing to revoke it.) In order to ensure that releases are understandable, and to address potential confusion over the interplay between a release and a covenant not to sue, employers should review their current release language with the following options in mind:

Consider Eliminating the Covenant Not to Sue

A general release should provide an employer with an affirmative defense to any future claim, and serve as a deterrent to a lawsuit. Although a covenant not to sue can have a certain in terrorem effect, most employees (and even plaintiffs' attorneys) will be reluctant to sue in the face of a properly drafted release. Moreover, most employers are not really concerned with, and rarely obtain, the extra benefits offered by a covenant, i.e., recovering attorneys' fees or damages against the terminated employee if sued.

Separate the release from the covenant not to sue, and carefully explain the difference between them. These decisions show that the courts have little tolerance for confusion of any sort when considering an OWBPA release.

If you include a disclaimer, make sure it is precisely drafted. The disclaimer must make clear that, even though the employee has released all claims against the employer and cannot sue the employer concerning any claims that have been released, nothing precludes the employee from: 1) filing a charge or participating in any investigation or proceeding with the EEOC; or 2) filing a lawsuit challenging the validity of the release.

Most importantly, release agreements should be written in simple, plain language. Legalese and unnecessary verbiage should be avoided. Precision and clarity are critical. Employers must consider the level of education and sophistication of the affected employees and draft the language so that the average employee will have no problem understanding all of it without consulting an attorney, Human Resources or a manager. In sum, employers who draft their own releases, and employers who have not reviewed their releases in some time, should ensure that their releases are not susceptible to challenge and meet the requirements of the OWBPA and recent case law.

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.