FOR CLARITY'S SAKE: REDEFINING THE KNOWING AND VOLUNTARY STANDARD IN SEVERANCE AGREEMENTS.

Author:Padilla, Samantha
 
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Introduction: Layoffs and Older Worker Protection 840 I. Background 843 A. The Origins of the OWBPA: Supervision Requirements 844 B. Compliance with the OWBPA Waiver Provisions 847 1. A Decrease in ADEA-Related Charges Filed in Federal District Court 850 a. Oubre and Its Effect on Waiver Compliance 851 b. The EEOC's Strategic Enforcement Plan 852 c. The FAA's Effect on EEOC Enforcement Actions 852 2. An Increase in ADEA-Related Charges Filed with the EEOC 853 II. Employers Put in a Challenging Position when Conducting RIFs 854 A. Less-than-Clear Requirements Under the OWBPA 855 1. Job Classification or Organizational Units 855 a. Defining "Job Classification or Organizational Unit" 855 b. Conflicting Court Approaches 856 2. Disclosure Requirements 859 3. "Court of Competent Jurisdiction" 860 B. Furthering the Confusion: The Knowing and Voluntary Standard for Other Anti-Discrimination Statutes 862 III. Proposing a New Knowing and Voluntary Standard 864 A. Making the OWBPA Even More Effective: Clarifying Salient Waiver Provisions 864 1. Increasing Mandated Disclosure in RIF Exhibits 865 2. Clarifying "Eligibility Factors" 868 3. Keeping Age Claims in a Court of Law 868 B. The Future of the Knowing and Voluntary Standard 871 Conclusion 874 INTRODUCTION: LAYOFFS AND OLDER WORKER PROTECTION

According to the Bureau of Labor Statistics, between December 2016 and December 2017, around 1.6 million workers in the United States were laid off or discharged each month. (1) When employers are faced with the decision to reduce workforce size, which occurs even during stronger economic times, numerous legal issues arise if the reduction is not executed properly. (2) Federal and state law govern the workforce reduction process, but certain classes of workers receive more protection than others. (3)

Older workers have received considerable protection over the past fifty years through the Age Discrimination in Employment Act of 1967 ("ADEA"), which makes it illegal to discriminate against employees over the age of forty due to their age. (4) Even under the ADEA, an employee may waive an age discrimination claim if such a waiver is "knowing and voluntary." (5) Waivers of claims occur when companies offer departing employees severance payments in exchange for those employees relinquishing their rights to sue the company over certain types of claims. (6) In essence, when an employee signs a severance agreement, he agrees not to assert any legal claims against the employer, marking the end of their employment relationship. (7) Severance agreements are powerful tools that "buy[ ] peace" for the employer and can mean additional compensation for the employee. (8) Some employers have historically taken advantage of these tools, going as far as manipulating or coercing employees into waiving their ADEA rights for the security of obtaining a signed agreement, knowing the employee can never sue again. (9)

To combat this, Congress amended the ADEA by enacting the Older Workers Benefit Protection Act of 1990 ("OWBPA"), which, in part, clarified what it meant for an employee to "knowingly and voluntarily" waive an age discrimination claim. (10) The OWBPA reiterated that ADEA waivers must be "knowing and voluntary," a contract term that sets the standard for what it means to consent to something by ensuring that the signee understands that it is his or her choice whether or not to enter into an agreement and requiring that such a decision is voluntary and is made knowingly. (11) Importantly, the OWBPA includes a unique series of specific notice and information requirements as necessary elements for a waiver to qualify as knowing and voluntary. (12)

The need for employee protections became clear during the economic recessions of the 1970s and 1980s. (13) In an attempt to remain compliant with the 1978 ADEA amendment that prohibited arbitrary terminations of older workers, employers began offering special early retirement deals known as "golden handshakes," which were cash inducements for older workers to retire. (14) These take-it-or-leave-it inducements put pressure on employees, because they were given little time to decide if they should sign up, and made older workers, even those who could not afford to do so, feel like they had to retire. (15) Older workers affected by these programs had little reason to suspect that the severance packages they were offered could have been an act of unlawful age discrimination under the ADEA. (16) During this same time period, older workers were also generally unable to tell whether they were selected for an involuntary Reduction in Force ("RIF") program based solely on their age, which is per-se age discrimination. (17) The OWBPA offers older employees enhanced protection against these types of discrimination. (18)

This Note will evaluate the first twenty-five years of practice under this novel federal statutory approach to waiving rights, suggest areas for improvement, and demonstrate how the OWBPA could act as a model for discrimination claim waivers in other statutory settings. Though this Note argues that the OWBPA has provided a higher level of protection to older workers, the OWBPA has not completely remedied the issue of age discrimination in the United States. (19) There is still room for improvement, particularly through clarification of select OWBPA waiver provisions.

Part I describes the background of the OWBPA. Part II examines the statutory ambiguity that has arisen since the passage of the OWBPA, and how courts have attempted to clarify this ambiguity. Part III proposes that the Equal Employment Opportunity Commission ("EEOC") can reinterpret select elements of the OWBPA and suggests a legislative amendment to other anti-discrimination laws that would codify the knowing and voluntary standard in a similar way to how it is codified under the OWBPA. The purpose of this Note is to act as a starting point to spark conversation about raising the bar of the knowing and voluntary standard for waiver agreements signed by employees facing layoffs and to show how increased disclosures can be beneficial to both employers and employees in the workforce reduction process.

  1. BACKGROUND

    Under the ADEA, passed in 1967, it is unlawful to discriminate against a person because of his or her age with respect to any term, condition, or privilege of employment, including hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training. (20) The ADEA permits employers to favor older workers based on age even when doing so adversely affects a younger worker who is forty years of age or older. (21) The ADEA is enforced by the EEOC, a federal agency responsible for implementing and overseeing federal laws prohibiting employment discrimination on the basis of race, color, religion, sex, national origin, age, disability, or genetic information. (22)

    In 1990, Congress passed the OWBPA, which amended the ADEA in order to bolster the ADEA and realize its original goals, in response to some employers manipulating or coercing employees into waiving their ADEA rights. (23) In the late 1980s, Congress grew concerned about employers taking advantage of older workers due to the workers' lack of information or expertise regarding age discrimination law, combined with the fact that older workers increasingly became the targets of corporate down-sizing. (24) To this end, the OWBPA amended Section 7 of the ADEA to include a statutory definition of a knowing and voluntary waiver of an ADEA claim. (25)

    1. The Origins of the OWBPA: Supervision Requirements

      Prior to the enactment of the OWBPA, an important unanswered question before the EEOC and federal courts was whether an ADEA waiver had to be supervised by the EEOC or the federal courts in order to be valid. (26) Did the government need to get involved in the contracting between employers and employees over age discrimination concerns?

      The Fair Labor Standards Act ("FLSA"), which established the minimum wage, among other things, has such a supervisory requirement. (27) One cannot consent to work for less than what is prescribed by the FLSA without the consent of the Department of Labor or a court, and courts have imposed strict limitations on when and how claims under the FLSA can be settled. (28) Advocates for an ADEA supervision requirement noted the ADEA's incorporation of the FLSA's enforcement procedures, implying incorporation of its accompanying supervision requirement. (29) However, in 1986, the Sixth Circuit rejected this argument and a supervision requirement for the ADEA in Runyan v. National Cash Register Corp. (30) The court held that under particular circumstances, employers and employees may negotiate a valid release of ADEA claims privately and without government supervision. (31) Further, the court noted that the EEOC, at the time, specifically proposed guidance allowing for unsupervised waivers with the intent of encouraging voluntary resolution of ADEA disputes and the court agreed with the agency's views. (32)

      In 1987, the EEOC issued a final rule permitting older workers to waive their rights without supervision. (33) Justice Clarence Thomas, the then-Chairman of the EEOC, explained in a letter to the United States Senate Committee on Labor and Human Resources that mandating a supervision requirement impractically increases the workload of the government while limiting an employee's existing choice to waive his or her rights privately, without first filing an age discrimination complaint with the EEOC. (34) The EEOC advised that its regulation permitting older workers to waive their rights without supervision was "adequate to protect employees against pressure to waive their rights while preserving their choice to waive without filing a claim with the EEOC or in court." (35)

      However, despite the EEOC's assurances, Congress feared that the EEOC's position would not adequately protect older workers and proposed House Bill...

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