Originally published in Inside Counsel, March 19, 2012
Given the general demographic of today's workforce, any effort to reduce labor costs through layoffs or other means will likely impact at least one or two individuals age 40 or older. The Older Worker Benefit Protection Act (OWBPA), an amendment to the Age Discrimination in Employment Act (ADEA), sets up a detailed scheme that governs whether a release or waiver of an age discrimination claim is valid.
The OWBPA ensures that releases or waivers of ADEA claims, such as those commonly found in severance packages, are "knowing and voluntary." To ensure waivers are knowing and voluntary, the OWBPA requires a number of provisions in a release/waiver agreement. Three of the main provisions are outlined below.
- If a company terminates an employee who is 40 or older, it must provide him with either a 21- or 45-day consideration period. Generally, when an employer terminates a single employee for reasons other than a reduction in force, it must provide the employee with at least 21 days to consider signing the agreement. If the termination is pursuant to a voluntary or involuntary termination program (including a reduction in force), then the company must allow the employee 45 days to consider signing the agreement. Usually, if the company terminates more than one employee as a result of a single event or decision, such as a voluntary early retirement program or a reduction in force, then 45 days is required.
- Employees age 40 or older who the company terminates and who receive a severance package must get at least a seven-day period following the execution of such agreements to revoke their acceptance (often referred to as the revocation period). This is a required part of the agreement regardless of whether it is a single termination or reduction in force.
- If a company terminates an employee age 40 or older pursuant to a voluntary or involuntary termination program, then it must provide the employee with information regarding the department, class or group of employees considered for participation in the program (the decisional unit), the criteria for selection in the program and any time limits applicable to the program. In addition, employers must provide the job titles and ages of all individuals in the decisional unit. This information is usually attached to the release agreement in chart form.
Although companies must provide all employees with the seven-day revocation period, whether they receive 21- or 45-day consideration periods depends on whether they are part of a termination program. In addition, whether they receive the extra information in an attachment to the severance agreement depends on whether they are part of a termination program.
A termination program requires that there be a group or class of employees, meaning that there must be two or more employees to constitute a program. The regulations also provide that a typical involuntary termination program is a standardized formula or package of benefits that is available to two or more employees. Therefore, it is reasonable to assume that most standardized, formulaic severance packages (such as one week of severance for every year of employment) offered to two or more employees likely constitute a program for the purposes of the OWBPA.
Severance agreements are common when managing labor costs in a down economy. Nothing is more frustrating for employers than seeking and obtaining a release or waiver of an age claim, and then learning that an employee is suing the company anyway. Because courts have strictly interpreted the requirements of the OWBPA in favor of the employee, even one minor mistake can lead to the entire agreement being invalid. For example, if the employer discloses 300 job titles and ages on the OWBPA-required chart, and just one age is found to be inaccurate, it may jeopardize the entire agreement. Until Congress changes the law to allow for honest mistakes, employers must tread carefully when seeking to comply with the OWBPA.
This series covered the major aspects of managing a down economy. Advance planning and attention to detail can help employers smoothly manage labor costs in a down economy, and it also can help employers avoid unexpected and unplanned litigation costs associated with the endeavor.
For reference, here are links to the rest of the articles in this series:
- Labor: Managing a down economy--considerations for a reduction of labor costs
- Labor: Managing a down economy--Furloughs in the private sector
- Labor: Managing a down economy--Individual terminations
- Labor: Managing a down economy--The ins and outs of group terminations
- Labor: Managing a down economy—WARN Act and its progeny
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.