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Recent Developments Under the OWBPA

Employers engaged in reductions-in-force, plant closings or even routine separations from employment frequently obtain releases from terminated employees—sometimes at significant expense to the employer—in order to avoid lawsuits by former employees. In connection with such releases, employers must be cognizant of the Older Worker Benefits Protection Act (“OWBPA”), which sets forth the requirements for a lawful waiver of rights under the Age DisĀ­ crimination in Employment Act (“ADEA”).

In this article, we analyze two recent decisions—Thomforde v. Int’l Business Machines Corp., 406 F.3d 500 (8th Cir. 2005) and Kruchowski v. The Weyerhaeuser Co., 2005 U.S. App. LEXIS 19722, *11 (10th Cir. Sept. 13, 2005)—which serve as a stark reminder to employers that courts can be expected to enforce the OWBPA strictly, and often in surprising ways. Both cases demonstrate the severe consequences that may befall employers for what appear at first blush to be compliant releases, or at worst hyper-technical violations of the OWBPA. Regardless of whether Thomforde and Kruchowski are correctly decided, these cases offer guidance to employers on prophylactic measures employers may choose to follow to increase the likelihood that courts will honor their releases.

OWBPA Background

The OWBPA imposes numerous technical requirements for obtaining a release of claims under ADEA. Courts have stated that these statutory requirements “are strict and unqualified; if an employer fails to meet any of the statutory requirements, the waiver is ineffective as a matter of law.” See Thomforde, 406 F.3d at 503 (citing Qubre v. Entergy Operations, Inc., 522 U.S. 422 (1998)). The OWBPA provides that an individual may not waive any rights under ADEA unless the waiver is “knowing and voluntary.” 29 U.S.C. A4 626(f)(1). The statute further provides that in order for a release to be considered “knowing and voluntary,” it must, at a minimum, meet the following eight requirements:

  1. The release must be part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual or by the average individual eligible to participate;
  2. the release must specifically refer to the ADEA;
  3. the release cannot waive rights or claims that may arise after the date the waiver is executed;
  4. the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled;
  5. the individual is advised in writing to consult with an attorney prior to executing the agreement;
  6. the individual must be given a period of at least 21 days within which to consider the agreement. Alternatively, if the waiver is requested in connection with an exit incentive or other employer termination program, the employee must be given 45 days to consider the agreement;
  7. the agreement must provide for a seven-day revocation period; and
  8. if the waiver is entered into in connection with an exit incentive or termination program, the company must comply with certain informational requirements, which are described in detail below.
Thomforde v. IBM

The Eighth Circuit’s decision in Thomforde focuses on the OWBPA requirement that an agreement containing a release be written in a clear and understandable manner. The case illustrates that employers inadvertently can run afoul of this requirement even when the words of the release may appear perfectly clear—at least to an employment lawyer and others. Thomforde involved a reduction-in-force (“RIF”) at IBM in which the plaintiff—a nearly 30-year employee at IBM—was selected for inclusion in the RIF, and subsequently provided by IBM with a document entitled “General Release and Covenant Not to Sue” (the “Release”). Pursuant to the Release, the plaintiff agreed to release IBM from “all claims,” including claims arising under the ADEA. The Release also contained a covenant-not-to-sue providing in relevant part:

You agree that you will never institute a claim of any kind against IBMC9. If you violate this covenant not to sue by suing IBMC9, you agree that you will pay all costs and expenses of defending against the suit incurred by IBMC9. 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 C9 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.

Before signing the Release, Thomforde asked his supervisor whether the exception for ADEA claims in the covenant-not-to-sue meant that he could sue IBM if his lawsuit was limited to ADEA claims only. Thomforde’s supervisor consulted with an attorney for IBM, and then responded to Thomforde by advising him as follows: “The site attorney was not comfortable providing an interpretation for you and suggested you consult with your own attorney.” After meeting with his own attorney, Thomforde concluded that he could sign the Release and still pursue a claim against IBM as long as his lawsuit was limited to ADEA claims. Thomforde ultimately did just that.

IBM moved for summary judgment arguing that Thomforde had released all claims against IBM pursuant to a valid waiver of ADEA claims, which complied with the OWBPA. In response, Thomforde argued that he did not knowingly and voluntarily waive his ADEA rights because the Release expressly permitted him to file an action solely under the ADEA, and that the waiver was invalid because it was not written in a manner calculated to be understood by him. The district court granted summary judgment for IBM after finding that the waiver signed by Thomforde fully conformed with the OWBPA.

On appeal, the Eighth Circuit reexamined whether the Release complied with the OWBPA requirement that it be written in a manner calculated to be understood by an average individual eligible to participate in the termination program. The Thomforde court recognized that IBM intended for the Release to operate as a release of Thomforde’s substantive ADEA claims, while preserving his right to challenge the validity of the release, as required by applicable regulations.[1] Despite IBM’s clear intent, the court concluded that “one plausible reading” of the Release was that Thomforde agreed to release IBM from all ADEA claims, and further agreed not to sue IBM, except for a suit based solely under the ADEA. As the court stated, “we can easily see how a participant under this Agreement could construe the statement that ‘[t]his covenant not to sue does not apply to actions based solely under the [ADEA]’ as an exception to the general release, not just an exception to the covenant not to sue.” Based on the court’s view as to the purported lack of clarity in the Release, and also based on IBM’s refusal to explain the language to Thomforde upon request, the court found that the Release was not written in a manner calculated to be understood by the intended recipients as required by the OWBPA. Accordingly, because the court believed that the Release did not comply with this single requirement of the OWBPA, it held that the Release failed, as a matter of law, to result in the waiver of Thomforde’s rights under the ADEA.

Kruchowski v. The Weyerhaeuser Co.

The OWBPA also requires that an employer must supply certain information when it seeks a waiver of ADEA claims “in connection with an exit incentive or other employment termination program offered to a group or class of employees.” 29 U.S.C. A4 626(f)(1)(H). Specifically, the OWBPA provides that in order to obtain a valid release of ADEA claims, employers must inform the individual in writing, as to1) any class, unit, or group of individuals covered by the program (i.e., the “decisional unit”), any eligibility factors for the program, and any applicable time limits; and 2) the job titles and ages of all individuals eligible or selected for the program, and the ages of those in the same job classification or organizational unit who are not eligible or selected. In Kruchowski, the Tenth Circuit interpreted this provision in a manner that requires greater disclosure information related to the group termination program than many employers frequently provide.

The plaintiffs in Kruchowski were 31 former employees who were selected for inclusion in a RIF at a containerboard mill. The employer provided each plaintiff with a group termination notice, including an attached list of the job titles and ages of those employees selected for termination and eligible for severance pay, as well as those not selected for termination. At the time the list was distributed, the group termination notice established the decisional unit as “all salaried employees employed at the mill.” Subsequent to the distribution of the list to the plaintiffs, the employer revealed that the decisional unit actually consisted of a different group of employees—some of whom were not included in the list of job titles and ages that had been provided to the plaintiffs. The plaintiffs ultimately sued their former employer alleging age discrimination even though all of them had executed ADEA releases following termination of their employment. The primary issue for the Kruchowski court at the summary judgment stage was whether the ADEA release could be enforced by the employer. Although the district court found that the release complied with the OWBPA, the Tenth Circuit concluded that the release did not meet the informational requirements specified in 29 U.S.C. A4 626(f)(1)(H) in two respects.

First, the court recognized that the OWBPA requires that individuals be informed of the decisional unit at the time they are considering whether to waive ADEA claims. The purpose of this requirement is “to provide an employee with enough information regarding the program to allow the employee to make an informed choice whether or not to sign a waiver agreement.” 29 C.F.R. A4 1625.22(f)(1)(iv). As noted above, the group termination notice delivered to the plaintiffs failed to provide correct information when it informed the plaintiffs that the decisional unit included all salaried employees of the mill.[2] Because the information provided “did not meet the strict and unqualified requirement of the OWBPA,” the court held that the release was ineffective as a matter of law.

The Kruchowski court also invalidated the release on a separate and independent ground. As noted above, the OWBPA requires employers to provide employees with information about the “class, unit, or group of individuals covered by [the] program, any eligibility factors for such program, and any time limits applicable to such program.” 29 U.S.C. A4 626(f)(1)(H)(i). During discovery, the employer divulged in interrogatories that the eligibility factors it used in analyzing each salaried employee reporting to the mill manager were the leadership abilities, technical skills, and behavior of each employee and whether each employee’s skills matched the employer’s business needs. Because this eligibility information was not provided to the employees, the plaintiffs contended the release was defective. The employer, on the other hand, argued that it provided the requisite eligibility factors by informing the employees that the eligible pool of employees for the program was the salaried employees at the mill. The plaintiffs countered that eligibility factors were different from the decisional unit. In arguing for a difference between eligibility factors and decisional unit, plaintiffs relied upon Massachusetts v. Bull HN Info. Sys., Inc., 143 F. Supp. 2d 134, 147 n.29 (D. Mass. 2001) which provided as follows: "The intent of the statute’s information requirement is to alert affected employees to potential age-discrimination claimsC9. [T]he term 'eligibility factors' must refer to the factors used to determine who is subject to a termination program, not the factors used to determine who is eligible for severance pay after termination."

The Kruchowski court determined that the “undisclosed eligibility factors were the program-wide parameters for selecting employees for the RIF.” Because the employer failed to disclose this information, the court held that the release was ineffective as a matter of law.

Lessons Learned

In light of Thomforde, employers may wish to review the language in their releases or waiver agreements and consider whether these agreements are written in a manner calculated to be understood by their employees. In conducting such a review, employers should endeavor to eliminate any language which may be considered to be “technical jargon.” Employers also may wish to rethink whether to include a covenant-not-to-sue in their release agreements. Although such covenants can provide employers with a basis for a countersuit in the event an employee sues the employer based upon claims which have been released, employers need to weigh the benefits of including a covenant-not-to-sue against the risk that a court finds that language in the covenant creates an ambiguity, which ultimately invalidates the ADEA waiver. In the absence of a covenant-not-to sue, the employer still may rely upon a valid release as a complete defense to inappropriately asserted claims.

Additionally, employers should give careful consideration to the process of handling inquiries from employees concerning the effect or meaning of a waiver agreement. While many employers may be inclined to respond to inquiries by simply advising employees to consult with an attorney, Thomforde suggests that in at least one Circuit, an employer may jeopardize the validity of an ADEA waiver if it declines to provide employees with a basic explanation concerning the intended effect of its waiver agreement. While ethical rules regulate communications from the employer’s counsel to an employee, the ethical rules do not prohibit answering an employee’s direct questions regarding the terms and conditions of the employer’s offer of severance benefits in exchange for a release.[3] Of course, to the extent an employer provides explanations of its waiver agreements, such explanations must be accurate and consistent. Employers should consider answering questions in writing to avoid ambiguity, although written communication is neither mandatory nor necessary in most circumstances.

In group terminations, Kruchowski highlights that employers need to make absolutely certain that the list of job titles and ages provided to employees pursuant to the OWBPA accurately reflects the actual decisional unit considered at the time the release agreement was delivered to the individual. Although Kruchowski is binding in the Tenth Circuit only, the decision should serve as a reminder to employers that the OWPBA requires employers to inform employees affected by a group termination about “any eligibility factors” used for a program. The Tenth Circuit interprets this requirement to mean that employers are obligated to provide employees with a list of all eligibility factors the employer admittedly used to determine who is subject to termination. The failure of an employer to provide this information may cause a court to invalidate ADEA waivers obtained from an entire group of former employees.

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  1. 29 C.F.R. A4 1625.23(b) provides in relevant part, “No ADEA waiver agreement, covenant not to sue, or other equivalent arrangement may impose any condition precedent, any penalty, or any other limitation adversely affecting any individual’s right to challenge the agreement. This prohibition includes, but is not limited to, provisions requiring employees to tender back consideration received, and provisions allowing employers to recover attorneys’ fees and/or damages because of the filing of an ADEA suit. This rule is not intended to preclude employers from recovering attorneys’ fees or costs specifically authorized under federal law.”
  2. See 29 C.F.R. A4CA1625.22(f)(3)(ii)(D) (“[I]f an employer seeks to terminate employees by exclusively considering a particular portion or subgroup of its operations at a specific facility,then that subgroup or portion of the workforce at that facility will be considered the decisional unit.”).
  3. Ethical issues arise when a lawyer for an organization is dealing with employees of the organization and it appears that the organization’s interests may differ from those of the employee. For example, in such situations, the New York Lawyer’s Code of Professional Responsibility requires a lawyer to explain that the lawyer is the lawyer for the organization. See D.R. 5-109. The ABA Model Rules of Professional Conduct similarly require a lawyer to explain the identity of the client when the lawyer knows or reasonably should know that the organization’s interests are adverse to those of the employees. See Rule 1.3. Of course, employers should be mindful of these ethical and all other considerations when responding to inquiries from employees concerning the meaning of language contained in a release agreement.