Take the money and sue - implications of the Supreme Court's ruling in the case Oubre v. Entergy Operations, Inc

Paul J. Kennedy

When it comes to age discrimination waivers, you may not

always get what you pay for, due to a recent ruling from the U.S. Supreme

Court.

Sometime in the past you probably had to let employees go in a downsizing

move. And, if costcutting was a big consideration, the odds are good that

you terminated some older workers, who earn higher salaries and greater

benefits than their younger colleagues.

As any good HR professional, you recognized that individuals more than 40

years old are protected by the Age Discrimination in Employment Act (ADEA),

so you asked these older workers to sign releases waiving their right to

sue. In exchange, and as required by law, you offered these older employees

a more generous severance package than you would have otherwise.

What did that extra money buy you? Goodwill, probably. Corporate peace of

mind, certainly. But perhaps less than you bargained for if you failed to

comply with even the smallest requirement of the Older Workers Benefit

Protection Act (OWBPA), a companion piece of legislation to the ADEA that

sets specific requirements for age discrimination waivers. If your waivers

don't fully comply with the OWBPA, your employees can keep the extra waiver

money you give them for a release of age discrimination claims - and file

age discrimination suits anyway, the U.S. Supreme Court recently ruled.

Prior to the high court's decision, the lower courts had split on this

issue: Some ruled that employees had to return waiver funds before suing;

others came to the opposite conclusion.

In light of the Supreme Court's new decision, however, employees throughout

the nation can file ADEA suits without first returning waiver money. If

employees lose their suits, they still keep the money. If they win and are

awarded damages, the amount of their severance will be deducted from the

award as money already paid to them.

If an employer is fair in providing severance, the employee may decide not

to take on the hassle of launching an age discrimination claim.

THE RULING

The Supreme Court's ruling came down in the case of Oubre v. Entergy

Operations, Inc. (1998 WL 23157, U.S., January 26, 1998). In that case, an

employee who was performing poorly was told that she could either attempt to

improve her performance or accept a severance package. After considering her

options for two weeks and consulting with attorneys, she accepted the

severance package and signed a release of claims against her employer. She

received more than $6,000 in severance.

Despite the fact that she signed the release and accepted the severance

benefits, she brought an age discrimination claim. As to the release, she

argued that it did not comply with the OWBPA.

Specifically, the employee in this case argued that the employer did not

* Give her enough time to consider her options.

* Give her seven days to change her mind after signing the release.

* Specifically state the waiver applied to ADEA claims.

Relying on state contract law, the employer argued that the employee had to

tender back the severance benefits before attempting to void the release.

Her failure to do so, the employer asserted, constituted a ratification of

the defective release.

Both the district court and the court of appeals ruled in favor of the

employer, but the Supreme Court reversed those decisions. The employee's

failure to give back the severance payments did not bar her ADEA claim, the

Court ruled.

The Court pointed to the language of the OWBPA, explaining that employees

may not legally waive ADEA claims unless their employers comply with the

statute. The stringent requirements of the OWBPA do not permit the

ratification of noncomplying releases and provide no exceptions or

qualifications, the Court reasoned.

Moreover, the Court warned of the practical problem that employees will

likely face: They may have already spent the severance money they received

and may lack the means to return it. These realities, according to the

Court, might tempt employers to avoid complying with the OWBPA's waiver

provisions and rely on the employee's acceptance as ratification of payment.

Thus, the Oubre decision mandates that employers must comply with the

requirements of the OWBPA in obtaining a release of an ADEA claim from an

employee and cannot rely on an employee's failure to tender back benefits.

WHAT IT MEANS

The Oubre ruling makes it especially important that employers abide by the

ADEA and its accompanying legislation, the OWBPA. The Supreme Court has shut

the door on technicalities that may have thwarted ADEA suits, so all HR

professionals should review the requirements of the OWBPA to make sure their

organizations are in compliance.

THE OWBPA

The ADEA makes it unlawful for employers to discriminate against or

discharge employees on the basis of age. To avoid litigation, many employers

ask workers to sign releases waiving their right to pursue age

discrimination claims under the ADEA.

However, with employers' increasing emphasis on obtaining such waivers,

Congress became concerned about the disparity between employers' and

employees' relative bargaining positions. Thus, Congress sought to protect

older workers by adding provisions to the ADEA in the form of the OWBPA,

which imposes strict guidelines on securing releases.

Most fundamentally, the OWBPA requires that a valid waiver must be knowing

and voluntary and must be written in an understandable manner when

considering the parties involved. Also, the waiver agreement must expressly

refer to the ADEA rights that the employee is forgoing, and the employee

must receive benefits greater than those to which he or she was already

entitled in exchange for the waiver. Moreover, the employer must notify the

employee in writing to consult an attorney before signing the waiver.

Further, the employer must provide the employee with at least 21 days to

consider the waiver agreement. And the employer must give the employee at

least seven days after signing the agreement to revoke it.

When an employer offers the waiver to a group of employees, it must inform

the individual members - in writing - of the eligibility requirements for

that group and provide notice of the job titles and ages of all those who

qualify or are selected for the group. Employees who are part of a group

termination have 45 days to consider a release of their claims.

There are instances where an employee may invalidate a release and

successfully bring an ADEA claim, even after an employer has provided

severance benefits. Employees often argue that the release is invalid

because they did not knowingly and voluntarily sign it but rather agreed to

it under undue influence, economic duress, or while incapacitated or

intoxicated.

Undue influence requires either physical compulsion or unfair persuasion by

a person who, because of a relationship with the employee, the employee

trusted would act in his or her best interest.

Economic duress entails an offer with accompanying financial pressures that

leave the employee, under the circumstances, with no alternative other than

to accept.

For an employee to claim incapacity or intoxication, the employee must

demonstrate both that he or she was in such a mental condition that he or

she was unable to contract, and that the employer had reason to know of the

employee's mental state.

In analyzing these defenses, courts generally look to the "totality of

circumstances." This approach not only examines whether the criteria for a

valid waiver are met but also considers the employee's education and

business experience and whether the employee contributed to creating the

terms of the release. The totality of circumstances analysis is a middle

ground employed by most courts and falls between the extremes of per se

invalidating all releases and enforcing all unambiguous releases absent

fraud or duress.

For the most part, if an employee can show, given the totality of

circumstances, that there was duress, that he was incapacitated, or that he

unknowingly or involuntarily signed the waiver, it will be rendered invalid,

and the employee can bring suit against the employer for ADEA claims.

CONCLUSION

The threat of ADEA suits will not decrease in the near future. As

technological advances continue to change the way we do business, the

workplace will increase in efficiency and complexity. The inevitable result

of this wave of change in many industries will be the replacement of

workers. Jobs once performed by people will be performed by computers. As a

consequence, many employers will face the difficult process of downsizing

their workforces to accommodate this technological innovation.

The odds remain good that older workers will be the first downsized.

Statistics make clear that aging baby boomers make up the bulk of the

workforce and typically command higher salaries and greater benefits than

their younger counterparts. Thus, employers may often look to begin

downsizing by eliminating older employees.

Asking for waivers from older downsized workers will continue to be a wise

and effective way of protecting organizational interests. But, as the recent

Oubre decision makes clear, employers need to follow the very letter of the

law when asking for waivers of ADEA claims if they hope to enjoy the full

protection of the waivers they receive.

Know the OWBPA

When creating releases of claims under the Age Discrimination in Employment

Act, employers must abide by the following requirements of the Older Workers

Benefit Protection Act:

* Language in the release should be understandable.

* Claims or rights under the ADEA must be specifically mentioned.

* Employees signing the waiver must be given greater benefits than those

to which they would already be entitled.

* Employees should be advised to consult an attorney before signing.

* For individual layoffs, employees must be given 21 days to consider

signing the release. In the case of group termination employees must be

given 45 days.

* Employees must be given seven days to revoke the agreement after

signing.

Paul J. Kennedy is a shareholder in the employment and labor law firm of

Littler Mendelson, P.C., in Washington, D.C.

COPYRIGHT 1998 Society for Human Resource Management
COPYRIGHT 2004 Gale Group