Severance Agreements For Employees Over 40 – Complying with the Older Workers Benefit Protection Act (OWBPA)

Whenever a client asks me to prepare a severance agreement for a departing employee, the first thing I ask is if the employee is 40 or older.  This is important because severance agreements for employees who are 40 or older must comply with the Older Workers Benefit Protection Act (OWBPA), which specifies the minimum requirements for a release of claims under the Age Discrimination in Employment Act (ADEA).

A release of claims under the OWBPA must be “knowing and voluntary” to be enforceable. The OWBPA lists seven factors that must be satisfied for a waiver of age discrimination claims to be considered “knowing and voluntary” for employees over 40.  A valid release of claims must:

1. Be written in a manner that can be clearly understood.

Waivers must be drafted in plain language geared to the level of comprehension and education of the employee. Courts have held that using legal terms like “release” and “covenant not to sue” interchangeably throughout the document run afoul of this requirement.

2. Specifically refer to rights or claims arising under the ADEA.

This means you must specifically refer to the ADEA by name.

3. Advise the employee in writing to consult an attorney before accepting the agreement.

This doesn’t mean you merely inform the employee of their right to consult an attorney. You must actually caution, warn or recommend that they do so.

4. Provide the employee with at least 21 days to consider the offer.

The 21-day consideration period runs from the date of the employer’s final offer.  If material changes to the final offer are made, the 21-day period starts over unless the parties have agreed that such changes, whether material or immaterial, do not restart the relevant period.  The employee may choose to sign the agreement before the end of the 21-day period; however, employers cannot offer employees better terms for doing so.

5. Give an employee seven days to revoke his or her signature.

The agreement must provide that, for a period of seven days following execution of the agreement, the individual may revoke the waiver.

6. Be supported by consideration in addition to that to which the employee already is entitled.

This means you must give them something over and above what is already owed them, such as unpaid vacation wages or reimbursement of expenses.

7. Must not include rights and claims that may arise after the date on which the waiver is executed.

The waiver must be limited to claims existing at the time of signing. The employee cannot waive rights or claims that may arise after the date the waiver is executed.

If a waiver of age claims fails to meet any of these seven requirements, it is invalid and unenforceable.

Additional requirements for “exit-incentive” and “group termination” programs

Additional rules apply where the waiver of ADEA rights is requested as part of a voluntary “exit-incentive” or “other employment termination program.” Typically, an “exit incentive program” is a voluntary program where an employer offers two or more employees, such as older employees in specific organizational units or job functions, additional consideration to persuade them to voluntarily resign and sign a waiver.  An “other employment termination program” generally refers to a program where two or more employees are involuntarily terminated and are offered additional consideration in return for their decision to sign a waiver.

Whether a “program” exists depends on the facts and circumstances of each case. However, the general rule is that a “program” exists if an employer offers additional consideration – or, an incentive to leave – in exchange for signing a waiver to more than one employee. By contrast, if an employer terminated five employees in different units for cause (such as for poor performance), rather than as part of a layoff, over the course of several days or months, it is unlikely that a “program” exists.

The following additional requirements must be met for releases of claims to employees age 40 or older in exit-incentive and group termination programs to be valid:

1. The workers must be given at least 45 days, rather than 21 days, to consider the agreement.

The 21-day requirement for individual terminations does not apply to exit incentive or group termination programs.

2. The employer must notify each individual presented with a waiver as to:

• the decisional unit covered by the program (the class, unit or group from which the employer chose the persons to be offered consideration for signing a waiver);
• any eligibility factors for the program;
• any time limits applicable to the program;
• the job titles and ages of all individuals eligible or selected for the program; and
• the ages of all individuals in the same “job classification” or “organizational unit” who are not eligible or selected for the program.

The rationale is to provide an employee with enough information to allow the employee to make an informed choice whether to sign a waiver agreement.

Employer Action Items:

If you get any of the above requirements wrong, you may end up paying a terminated employee a sizable amount of money to obtain an invalid release of claims which won’t be upheld in a court of law.  Make sure you have two versions of your standard severance agreement – one for employees under 40, and one for employees 40 and older. Have your model severance agreement for employees 40 or older reviewed by experienced employment law counsel to ensure all requirements are met.  You should always work closely with employment law counsel when offering severance agreements as part of an exit incentive or group termination program, as the additional notice requirements for such employees is highly fact-specific and depends on a number of considerations.

And as I have written about elsewhere, if your employees have limited proficiency in English, make sure to provide them a translated agreement in the language they speak, because a court will likely invalidate your English language agreement!