and when the monies will be paid out, and what each party

Transcription

SETTLEMENT AND SEPARATION AGREEMENTS
PLAINTIFF AND DEFENSE PERSPECTIVES
Christina M. Royer
Christina M. Royer, Ltd.
Cleveland, Ohio
(440) 526-9797
www.croyerlaw.com
[email protected]
William A. Nolan
Barnes & Thornburg, LLP
Columbus, Ohio
(614) 628-1401
www.btlaw.com
[email protected]
The purpose of this session is to provide attendees with practical advice regarding
negotiating settlement and severance agreements. Our session will not walk
through these materials from start to finish; rather, it will focus on the interplay
between the plaintiff and defense viewpoints on various key issues in negotiating
these agreements. These materials will serve as resources for attendees on several
of those key issues, providing legal background beyond what we will have time to
cover in the program itself.
I.
TAX ISSUES IN SETTLEMENT AND SEVERANCE AGREEMENTS
One of the biggest issues in any settlement or severance negotiation is how
and when the monies will be paid out, and what each party‘s obligations are
with respect to taxing authorities. Tax laws and regulations often trip up
settlement negotiations because employment lawyers are not typically tax
lawyers (and don‘t play one on TV!).
A working understanding of how employment settlements are taxed and
reported to IRS can help to remove one of the stumbling blocks in
negotiations.
1
A.
Are employment settlements generally taxable?
The short answer is yes. More specifically, it depends on how the settlement
is allocated among the various types of damages. The following table shows
the different types of damages and whether they are taxable as income to the
Employee:
Type of Damage
Lost wages/back pay
and front pay
Taxable to the
Employee as
Income?
Yes
Who Says?1
26 U.S.C. § 104(a)(2);
Commissioner v. Schleier,
515 U.S. 323 (1995).
1
2
Compensatory damages
for emotional distress,
pain and suffering
(NOT associated with
personal physical injury
and NOT including
medical expenses from
emotional distress)
Yes
26 U.S.C. § 104(a)(2)
Compensatory damages
for emotional distress,
pain, and suffering
(associated with personal
physical injury)
No
26 U.S.C. § 104(a)(2)
Medical expenses
associated with emotional
distress
No
26 U.S.C. § 104(a)(2)
Punitive damages
EVEN IF ASSOCIATED
WITH PHYSICAL
INJURY
Yes
26 U.S.C. § 104(a)(2)
IRS Publication 525 also provides useful information on what is, and is not, taxable income.
Type of Damage
Taxable to the
Employee as
Income?
No
Who Says?1
Liquidated damages
(such as FLSA, FMLA,
ADEA)
Yes
Commissioner v. Schleier,
Attorneys‘ fees and costs
of suit associated with
employment
discrimination claims
No
Damages arising from a
personal physical injury
or sickness
B.
26 U.S.C. § 104(a)(2)
515 U.S. 323 (1995) (where
liquidated damages are
punitive in nature, they are
taxable under 26 U.S.C. §
104(a)(2)).
26 U.S.C. § 62(a)(20); (e)
If all of the settlement is taxable anyway, why should we fight over
allocating the amounts in the settlement agreement?
Even though all of the components of a settlement may be taxable, the way
they are reported to IRS determines how taxes must be paid, and in what
amount.
Allocating the payments in the settlement agreement may also help both
parties if, for some reason, the IRS conducts an audit and tries to challenge
the way the payments are reported and taxed.
If there is no allocation in the agreement, then the IRS is more likely to try to
treat all of the settlement as taxable, which is detrimental to both sides. For
example, if all of the settlement is determined to be wages, then both the
Employee and the Employer may be assessed penalties and interest
associated with FICA taxes and the Employer‘s matching obligation.
When a settlement agreement expressly allocates the settlement proceeds
among various types of damages, the allocation is generally binding for tax
purposes, as long as the agreement is entered into by the parties in an
adversarial context; at arm‘s length; and in good faith.2
E.g., Bagley v. Commissioner, 105 T.C. 396, 406 (1995), aff‘d 121 F.3d 393 (8th Cir. 1997);
Robinson v. Commissioner, 102 T.C. 116, 127 (1994), aff‘d in part, rev‘d in part and remanded on
other grounds 70 F.3d 34 (5th Cir. 1995); Threlkeld v. Commissioner, 87 T.C. 1294, 1306-1307
(1986), aff‘d 848 F.2d 81 (6th Cir. 1988).
2
3
An express allocation will be disregarded only where the facts and
circumstances surrounding the payment indicate that the payment was
intended to be for a different purpose.
If the settlement agreement contains an express allocation of the settlement
proceeds, and the allocation is colorable in light of the claims in the
Complaint, then it is more likely to be respected and followed.
C.
What are the various ways to report these amounts, and what
implications does each have?
There are two reporting mechanisms for the typical components of an
employment settlement: Form W-2 and Form 1099-MISC. Within Form
1099-MISC, there are two further choices: Box 3 or Box 7. Box 3 is for ―other
income,‖ including taxable damage awards. Box 7 is for ―non-employee
compensation‖ over $600.
Example: $100,000 settlement of a gender-discrimination claim where the
plaintiff was terminated. Plaintiff‘s attorney‘s fee is $40,000. Of the
remaining $60,000, $20,000 is allocated to wage loss and $40,000 is allocated
to emotional distress.
Here‘s how each amount could be reported:
1.
For the wage loss portion: W-2 or 1099/Box 7
This decision should be made in consultation with the Employee‘s tax
advisor because it can depend greatly on his or her financial
circumstances.
a.
If reported on W-2: the Employer will treat the payment as if it
were a payroll check, and will deduct applicable taxes and
withholding for Social Security and Medicare (FICA taxes). The
Employer will also have to remit the matching taxes.
The Employee will receive a check for an amount that is less
than the $20,000, and the Employer will send him or her a W-2
at the end of the year.
b.
4
If reported on Form 1099-MISC, Box 7: the Employer will cut a
check to the Employee in the full amount of $20,000. The
Employer will not deduct any state, federal, or FICA taxes from
this payment, and it will not remit any matching FICA taxes.
At the end of the year, the Employer will send the Employee a
1099 with $20,000 reported in Box 7.
2.
For the emotional-distress damages portion: The only choice here is
for the Employer to report this portion in box 3 of Form 1099-MISC.
This box is for ―other income‖ and is specifically designed for taxable
damage awards, such as emotional distress resulting from nonphysical injury.
The Employee will receive a check for the full amount of $40,000, and
the Employer will send him or her a Form 1099 with $40,000 reported
in box 3.
D.
Is the Employee subject to higher federal withholding on the wage
portion of the settlement, if it is paid in one lump-sum?
If the amount of the wage-loss portion of the settlement is more than the
Employee‘s normal earnings, and the Employer is paying this amount as one
lump-sum payment (i.e., not over time), the Employee could be subject to
higher federal withholding than he or she usually had when receiving regular
paychecks.
This is often because Employers use payroll services that do one of two
things: (1) treat the payment as a ―supplemental payment‖ and tax it at a
flat rate (25% this year); (2) or treat the payment as if the Employee earns
this larger amount in every pay period, which would push him or her into a
higher tax bracket, and therefore result in more withholding.
The rate of withholding for wage-loss payments is a very common sticking
point because Employees are dismayed when more federal withholding is
deducted and, given the usually acrimonious relationship between the parties
at this point, suspects the Employer of trying to do further harm.
Employers, for their part, often resist agreeing to tax the wage-loss portion of
a settlement at the federal rate applicable on the Employee‘s last day worked,
consistent with the Employee‘s W-4, fearing some negative consequence from
the IRS.
5
A little bit of law may go a long way to short circuit this dispute:
The IRS regulations state that an employee‘s remuneration may consist of
regular and supplemental wages.3 Supplemental wages are those that are
usually paid without regard to a payroll period, and include payments for
back pay. Overtime pay can be either supplemental or regular wages.4
Because most wage-loss portions of settlements will be supplemental wages,
the amount of the payment and other factors determine how withholding is
calculated. If a payment falls under the definition of ―supplemental
payment‖ and is $1 million or more, it must be taxed at a flat rate.5
If a supplemental payment is less than $1 million, the Employer may
generally choose to withhold at a flat rate of 25 percent, or calculate
withholding based on what is called the ―aggregate method.‖6
If the following conditions are not met, the Employer must withhold based on
the aggregate method, and cannot calculate withholding based on a flat 25
percent: (1) income tax has been withheld from the Employee‘s regular wages
during the calendar year of the payment, or the preceding calendar year; and
(2) the payment is not made concurrently with regular wages, or is separately
stated on the Employer‘s payroll records.7
Otherwise, if the above conditions are met, then the Employer may choose
between withholding at a flat rate and calculating withholding based on the
aggregate method.
To calculate withholding using the aggregate method:
a.
if the payment is paid concurrently with wages for a payroll
period: the supplemental payment is added to the regular wages
to be paid. Withholding is calculated based on this single
payment, taking into consideration the Employee‘s W-4.
3
26 C.F.R. § 31-3402(g)-1(a)(1)—(i).
4
Id.(iv).
5
Id. (a)(2).
6
Id. (a)(6).
7
Id. (a)(7).
6
b.
E.
if the payment is not paid concurrently with wages for a payroll
period: the supplemental wages are added to wages paid within
the same calendar year for the last payroll period, if any.
Withholding is determined based on this amount, taking into
consideration the Employee‘s W-4. The amount withheld from
the regular wages that were paid earlier is subtracted to arrive
at the amount of withholding from the supplemental payment.
Why is it important for the attorneys‘ fees in an employment
discrimination case to be paid separately?
In 2004, Congress amended the tax code to provide tax relief for contingent
attorney-fee payments in ―employment discrimination‖ cases. This relief
came in the form of an ―above-the-line‖ adjustment for the amount of the
attorneys‘ fees, meaning that the amount is not factored into the Employee‘s
adjusted gross income on his or her Form 1040, so it is not subject to tax.
Note that the term ―employment discrimination‖ is very broad, and covers a
wide swath of cases, including overtime under FLSA, discrimination under
Title VII and related federal statutes, and claims under analogous state
statutes, including public-policy claims.8
II.
UNEMPLOYMENT
AGREEMENTS
ISSUES
IN
SEVERANCE
AND
SETTLEMENT
With the economy in a terrible state and so many people being laid off or
otherwise severed from their employment, the issue of unemployment
compensation looms large in settlement and severance contexts.
There are many issues relating to unemployment that can complicate
settlement and severance negotiations, and dealing with these issues
appropriately in the written agreement is of paramount importance to both
Employees and Employers.
A.
Parties to a settlement or severance agreement may not agree that an
Employee will waive his or her right to unemployment compensation.
Although it may be tempting to try to negotiate a waiver of the right to
unemployment benefits to avoid some of the complications that
unemployment can pose in settlement and severance contexts, the
8
26 U.S.C. § 62(e).
7
Unemployment Compensation Act provides that ―no agreement by an
employee to waive his right to benefits is valid.‖9
Thus, any negotiations must address only the issue of whether the employer
will contest a claim, and other issues that could affect the employee‘s
unemployment compensation, such as those addressed in the sections that
follow.
B.
Certain payments to employees are offset from unemployment
compensation, which can affect the timing and characterization of
settlement or severance payments.
Weekly unemployment compensation benefits are reduced by certain types of
payments, including ―remuneration in lieu of notice‖; retirement or pension
payments; and ―separation or termination pay.‖10 Notably, however, Social
Security payments are no longer offset from unemployment compensation.11
―Remuneration in lieu of notice‖ is a ―continuation of wages for a designated
period after termination of employment.‖12 This type of payment is generally
made when the employer does not give the employee required or customary
notice before dismissal, including payments required under the WARN Act.
It is considered wages for the designated period, is subject to employer
contributions, and is considered ―remuneration‖ for purposes of the
employee‘s weekly claim.13
―Separation pay‖ includes payments made to employees ―in return for their
agreeing to a separation from employment.‖14 However, according to ODJFS
guidance on fact-finding for this issue, severance pay is not deductible in
certain circumstances:
Severance pay is not deductible when payment(s) is made beyond a
reasonable period of time (regardless of whether the employee
requested the payments be deferred) after the separation date,
allowing for final accounting and payroll processing. A ―reasonable
9
OHIO REV. CODE ANN. § 4141.32(A).
10
Id. § 4141.31(A)(1), (3), (4).
11
Id. § 4141.312(B).
12
OHIO ADM. CODE § 4141-9-08.
13
Id.
14
Id. § 4141-30-01.
8
period of time‖ is based on the employer‘s pay schedule. If claimant is
paid bi-weekly, consider two weeks a reasonable period of time. If
claimant is paid monthly, consider 30 days a reasonable time and so
forth.15
It is not clear whether ―back pay‖ is considered to be ―earnings‖ for offset
purposes, or for overpayment purposes. Overpayment is discussed in Section
D. In one section of its UC Law Abstract, the Unemployment Compensation
Review Commission states that back pay is ―earnings‖ and is deductible:
An award of back pay is considered earnings. An overpayment order
should be issued if unemployment compensation benefits were paid
during the period covered by the award . . . .16
However, in another section of the Abstract, the Commission says that
settlement payments in exchange for an agreement not to sue are ―nondeductible‖ in certain situations:
Agreements not to sue. The Review Commission generally views a
standard agreement not to sue an employer as an agreement to a
separation, and any payment conditioned on signing that agreement is
still deductible separation pay. Where the individual already has
pending legal action against the employer, the Review Commission is
more likely to view the conditioned payment as non-deductible
settlement pay.17
The issue of deductions and offsets arises most often in the severance context,
where payments are made over time.
If an employee applies for
Unemployment and is already receiving benefits at the time the parties agree
to a severance, the payments under the agreement will create complications
for his or her weekly claims. ODJFS will stop payments and, in some cases,
force the employee to ―re-open‖ the benefits claim.
Unemployment Compensation Policy Guide, Non-Monetary Issues, Non-Separation, Deductible
Income. A copy of this is attached to these materials.
15
OHIO UNEMPLOYMENT COMPENSATION REVIEW COMMISSION, UC LAW ABSTRACT, available at
www.web.ucrc.state.oh.us.
16
17
9
Id. (emphasis added).
C.
On a related note, the Ohio Department of Job & Family Services will
allocate severance or separation payments, unless the parties address
this issue in the agreement.
If the parties‘ severance agreement allocates the payments to weeks in which
the Employee claims benefits, the benefits will be reduced by the amount of
the severance payments.18 If the parties do not allocate the payments to
particular weeks, then ODJFS will allocate the payments based on the
employee‘s weekly wage, until the total amount of the severance is
exhausted.19
The allocation rules can cause particular problems where a severance is paid
as a lump sum, and the parties do not address the allocation of the payment
in the agreement. In this situation, the parties should include an allocation
in the agreement.
D.
On another related note, if ODJFS finds that an Employee received
benefits, but should not have for some (non-fraud-related) reason, it
will assess an overpayment, and require the Employee to pay back
benefits received.
Because unemployment compensation is subject to ―overpayment‖ and repayment, it is imperative that issues that could impact an Employee‘s
benefits be addressed precisely in any settlement or severance agreement.
Under the Ohio Revised Code, ODJFS has a certain amount of time to assess
an overpayment and order re-payment:
within six months after the
Employee‘s benefits determination becomes final, or within three years after
the Employee‘s benefit year ends, whichever is later.20 However, this
limitations period does not apply to cases involving ―retroactive payment of
remuneration.‖21 Although there appears to be no limitations period for
these types of cases, ODJFS may not assess an overpayment or demand
repayment unless the agency is notified of the retroactive payment with six
months of the date the Employee received it.22
OHIO REV. CODE ANN. § 4141.31(A)(5). See also OHIO UNEMPLOYMENT COMPENSATION REVIEW
COMMISSION, UC LAW ABSTRACT, available at www.web.ucrc.state.oh.us.
18
19
Id.
20
OHIO REV. CODE ANN. § 4141.35(B)(1)(a).
21
Id. (b).
22
Id.
10
A ―retroactive pay award‖ is defined in the regulations as ―any adjustment in
the amount of remuneration paid to an individual as the result of the
resolution of a dispute as to the remuneration for services‖ provided by the
Employee during the base period, as long as this amount was not used to
determine the Employee‘s application for unemployment benefits or the
amount due for a weekly claim.23
Like severance/separation payments, these payments may be allocated by
agreement, or by ODJFS if there is no agreement.24
To avoid a settlement or severance payment being considered ―retroactive
payment of remuneration,‖ the parties must include language characterizing
the payment accordingly.
III.
VALIDITY (OR NOT) OF NO-REHIRE CLAUSES
Employers often want an agreement to specify that the employee cannot be
rehired by the employer – ―yes, we will pay you to sign this release, IF you
agree we never have to take you back.‖ There is case law support for the
validity and enforceability of such clauses or, more specifically, finding that
such provisions constitute a legitimate nondiscriminatory reason for a refusal
to subsequently hire the employee. Jencks v. Modern Woodmen of America,
479 F.3d 1261 (10th Cir. 2007) (holding that employer's reliance on a former
employee's waiver of any right to reemployment or reinstatement in settling
a Title VII claim constituted a legitimate and nondiscriminatory reason for
the employer's decision not to consider the former employee for a subsequent
position); Franklin v. Burlington Northern & Santa Fe Ry. Co., 2005 WL
517913 (N.D. Tex. 2005) (employee refused to include no-rehire clause in
agreement, but human resources director based subsequent decision not to
rehire on honest misunderstanding of eligibility for rehire, which court found
to be a legitimate nondiscriminatory reason).
The EEOC, however, has aggressively attacked broad no-rehire policies,
claiming they constitute disparate impact under the ADEA. One such
pending case is EEOC v. AT&T, Case No. 09-7323 (S.D.N.Y.), in which the
court recently denied AT&T‘s motion to dismiss the case. The EEOC‘s
complaint in the AT&T case is attached to these materials. While the U.S.
Supreme Court has held that a ―no-rehire policy is a quintessential
23
OHIO ADM. CODE § 4141-9-14(A).
24
Id. (C).
11
legitimate, nondiscriminatory reason for refusing to rehire an employee who
was terminated for violating workplace conduct rules‖ in the disparate
treatment context, Raytheon Co. v. Hernandez, 540 U.S. 44 (2003), the
EEOC‘s continuing strenuous objections to such policies when implemented
on a widespread basis does suggest that employers should be cautious when
attempting to legislate a no-rehire rule.
IV.
OLDER
WORKERS
BENEFIT
PROTECTION
ACT
(OWBPA)
REQUIREMENTS FOR A VALID RELEASE OF FEDERAL AGE CLAIMS
The Older Workers‘ Benefit Protection Act (―OWBPA‖), codified at 29 U.S.C.
§ 626(f) as an amendment to the Age Discrimination in Employment Act (―the
ADEA‖), sets forth requirements for a valid release that are unique among
discrimination laws. If the waiver of a person‘s ADEA rights is requested in
connection with a layoff affecting only one employee, the OWBPA imposes the
following requirements that the waiver:
1. be in writing and understandable by the employee affected or by the
average employee entitled to participate;
2. specifically refer to ADEA rights or claims;
3. not waive rights or claims that may arise after the waiver is executed;
4. be in exchange for valuable consideration;
5. advise the individual in writing to consult an attorney before signing the
waiver; and
6. provide the employee at least 21 days to consider the agreement and at
least seven days to revoke the agreement after signing it.
Most lawyers practicing in the area and many employers and employees are
aware of this ―21/7‖ requirement and it does not frequently present
significant practice issues. If, however, the waiver is requested in connection
with an ―exit incentive‖ or ―other termination program‖ offered to a group or
class of employees, the OWBPA imposes the following requirements that the
waiver:
1. provide the employees at least 45 days to consider the agreement and at
least seven days to revoke the agreement after signing it; and
2. include written notice, drafted in a manner to be understandable by the
average employee entitled to participate, of
12

any class, unit, or group of individuals covered by such program,
any eligibility factors for such program, and any time limits
applicable to such program; and

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.
There are only a handful of cases concerning the waiver requirements
applicable to exit incentive or other termination programs. This likely will
change given the current economic climate. Importantly, ―exit incentive or
other employment termination program‖ is defined very broadly:
―A
‗program‘ exists when an employer offers additional consideration for the
signing of a waiver pursuant to an exit incentive or other employment
termination (e.g., a reduction in force) to two or more employees.‖ 29 C.F.R. §
1625.22(f)(1)(iii)(B) (emphasis added).
Once an employer concludes it has an exit incentive or other employment
termination program, the issue becomes which employees should receive the
written notice; otherwise stated, which employees constitute the decisional
unit entitled to information about the program? The decisional unit is ―that
portion of the employer‘s organizational structure from which the employer
chose the persons who would be offered consideration for the signing of a
waiver and those who would not be offered consideration for the signing of a
waiver.‖
29 C.F.R. §1625.22(f) provides a variety of examples. For example, if the
employer seeks to eliminate ten percent of the employees in a particular
facility, the decisional unit would be any of the employees in that entire
facility. If, however, the employer sought to eliminate half of the employees
in its keyboard department, the decisional unit would only be the keyboard
department. 29 C.F.R. § 1625.22(f)(3)(iii).
The few cases on this issue have helped to somewhat clarify the issue of the
decisional unit and what information should be included on the notice.
Clearly there is no safe harbor of being overinclusive. See, e.g., Burlison v.
McDonald‘s Corp., 455 F.3d 1242 (11th Cir. 2006) (―In order to evaluate their
claims, employees need appropriate data to conduct meaningful statistical
analyses. In the discrimination context, the data must permit employees and
their attorneys to make meaningful comparisons to determine whether an
employer engaged in age discrimination. The data must allow the Appellees
to consider whether anything suggests that older employees in their unit
were unjustifiably terminated in favor of younger ones. Extending the
13
information requirement beyond a decisional unit will in reality only
obfuscate the data and make patterns harder to detect. ‖); Kruchowski v.
Weyerhaeuser Co., 446 F.3d 1090 (10th Cir. 2006) (―Defendant failed to
provide the correct, mandated information when it informed plaintiffs that
the "decisional unit" included all salaried employees of the Mill. Because the
information defendant provided did not meet the strict and unqualified
requirement of the OWBPA, the Release is ineffective as a matter of law.‖);
Pagliolo v. Guidant Corp., 483 F. Supp. 2d 847 (D. Minn. 2007) (―The Court
finds that Guidant violated the OWBPA by failing to disclose the decisional
unit. The Court finds that listing nearly all United States-based employees in
Exhibit B does not disclose the decisional unit in a manner calculated to be
understood by the average individual eligible to participate in the Severance
Plan.‖);
There just is not a lengthy body of cases to guide attorneys in advising clients
in this area. As demonstrated by the cases, courts do not hesitate to
invalidate releases.See also Peterson v. Seagate US LLC, 2008 U.S. Dist.
LEXIS 42179 (D. Minn. May 28, 2008) (invalidating releases because the
information presented in the OWBPA notice was inaccurate and presentation
of the applicable job titles and codes was confusing); Faraji v. FirstEnergy
Corp., 2007 U.S. Dist. LEXIS 16092 (N.D. Ohio Mar. 7, 2007) (finding a
release invalid because the company failed to disclose the termination
program‘s eligibility factors on the OWBPA notice).
It seems likely that the flood of RIFs in the last two years will yield
additional case law guidance in this regard. Even with such guidance, this
issue will remain perhaps as tricky as any in the employment law arena.
V.
MUTUALITY:
DISAGREEMENT
DRAFTING
AROUND
COMMON
AREAS
OF
It is a common pattern – the employer‘s counsel drafts an agreement,
requiring the employee to release claims and promise confidentiality and
non-disparagement. The employee‘s counsel responds requesting mutuality
of one or more of those provisions. The employer is generally not unwilling to
entertain the concept of mutuality, but asserts that it is not quite apples and
apples.
With respect to the release, the employer‘s view is that there is a greater
likelihood of ―latent liability‖ arising from the employee‘s actions – the
termination itself is generally the worst thing that the employer can do to the
employee, but the employee may have committed acts against the employer‘s
14
interest that the employer has not yet discovered at the time of entering into
the agreement.
From the employee‘s point of view, the Ohio Supreme Court‘s 2007 decision
in Greer-Burger v. Temesi, 116 Ohio St. 3d 324, 2007-Ohio-6442, made an
employer‘s release of claims against the employee a necessity. In this case,
Greer-Burger sued her former employer, Temesi, for sexual harassment. The
case went to trial, and a jury entered a defense verdict. Thereafter, Temesi
sued Greer-Burger for abuse of process, malicious prosecution, and
intentional infliction of emotional distress.
Greer-Burger filed a charge of retaliation with the Ohio Civil Rights
Commission. The OCRC found probable cause, and an ALJ entered an order
requiring Temesi to ―cease and desist‖ from retaliatory conduct, in the form of
prosecuting his lawsuit.
The Ohio Supreme Court held that the filing of a lawsuit by an employer
against a former employee who has engaged in protected activity is not per se
retaliatory. 116 Ohio St. 3d at ¶ 1 of the syllabus. If the employer can
demonstrate that its suit is not ―objectively baseless,‖ the suit shall be
allowed to proceed. Id. at ¶2.
With respect to non-disparagement, the employee generally needs only to
control his or her own communications, whereas the employer does not want
to be bound to controlling every communication of every non-management
employee.
From the employee‘s perspective, an important issue tied to nondisparagement is references provided to prospective employers. If the parties
can agree on how the reference will be handled (who provides it, what is said,
and what is not said), that language should go in the agreement.
Similarly, with respect to confidentiality, employers sometimes resist
mutuality of obligations. Even though the employer typically has more
interest in confidentiality, the employee may also have interest in this type of
provision. Drafting the provision to meet those needs, but also balance the
employer‘s ability to control the various individuals involved, can help to
address both parties‘ concerns.
15
SAMPLE SEVERANCE AGREEMENT
This Separation Agreement (“Agreement”) is made by and between Edgar
Employee (“Mr. Employee”) and Company, its subsidiaries, parents, affiliates,
officers, directors, and employees.
WHEREAS, Company and Mr. Employee have agreed to terms that will
result in the separation of Mr. Employee from the position of Vice President - Sales
of Company and any other employment or other relationships with Company and its
subsidiaries, parents, and affiliates.
NOW, THEREFORE, in consideration of the mutual obligations and
undertakings set forth in this Agreement, the parties agree as follows:
1.
Definitions. Throughout this Agreement, the term “Company” used
alone shall encompass the following:
(a)
Company as well as any subsidiary, parent company, affiliated
entity, related entity, or division of any of the foregoing; and
(b)
Any current or former officer, director, trustee, board member,
agent, employee, shareholder, member, representative, insurer, or employee benefit
or welfare program or plan (including the administrators, trustees, and fiduciaries
of such program or plan) of an entity referenced in or encompassed by subparagraph
1(a).
2.
Employment and Other Roles with Company. Mr. Employee’s at-will
employment shall cease effective October 15, 2010 and he shall not have any
authority to enter binding agreements or engage in any other activities affecting the
business of Company absent express written consent by the Chief Executive Officer
of Company.
Mr. Employee also hereby resigns any board memberships or other roles he
holds with Company and agrees to cooperate with Company as needed to facilitate
such resignations in accordance with any applicable legal requirements.
3.
Post-Employment Truthful Testimony. Mr. Employee agrees that he
will make himself available for and provide truthful and accurate sworn testimony
in the form of deposition, affidavit, and/or court testimony if such testimony
becomes necessary in responding to, defending against, and/or addressing any
charge, complaint, or claim filed, by any person employed or formerly employed by
the Company, or any third-party agency or entity. Company will not compensate
Mr. Employee for any such testimony or the time involved in preparing for or
providing such testimony; however, Company will reimburse him for reasonable
out-of-pocket expenses (e.g., transportation), including reasonable attorneys’ fees,
incurred as a result of the assistance, unless such remuneration would be
inappropriate or otherwise prohibited under existing law.
4.
Consideration. Company, in consideration for the promises contained
herein, agrees as follows:
Mr. Employee will receive monetary consideration, which will consist of
______. This total sum will be divided and paid in ______ installments, with each
installment being provided to Mr. Employee on Company’s first ordinary pay day in
each of the ___ months following his termination of employment. These payments
will be subject to all applicable taxes and withholdings and Company will include
these payments in the W-2 form(s) issued to Mr. Employee in relation to his
employment with Company
During the _____-month period, Mr. Employee and his dependents also will
receive all benefits that he received while employed with Company including but
not limited to health, dental, vision, and life insurance. Thereafter, Company will
provide Mr. Employee and his dependents information about their right to
continuation coverage, in accordance with the requirements of COBRA.
Mr. Employee agrees that, as part of the consideration for these payments, he
will upon reasonable notice be available to consult not more than five (5) hours per
month with the Company regarding such Company business matters as the
Chairman may reasonably request.
The payments and obligations set forth in this Paragraph 4 reflect
consideration provided to Mr. Employee over and above anything of value to which
he already is entitled. In paying the amounts and/or providing the benefits
specified in Paragraph 4, Company makes no representation as to the tax
consequences or liability arising from said payment. Moreover, Company and Mr.
Employee understand and agree that any tax consequences and/or liability arising
from the payments to Mr. Employee shall be the sole responsibility of Mr.
Employee, except with respect to the employer-paid portions of Social Security and
Medicare taxes (“FICA taxes”). To this extent, Mr. Employee acknowledges and
agrees that Mr. Employee will pay any and all income tax which may be determined
to be due in connection with the payment described in this Paragraph 4, except any
share of FICA taxes that are to be paid by Company. Mr. Employee also agrees to
indemnify Company for any and all tax liability (including, but not limited to, fines,
penalties, and interest, but excluding attorneys’ fees) arising from or relating to Mr.
Employee’s tax treatment of the payments described in this Paragraph 4 and/or
imposed by the Internal Revenue Service or any state or other taxing agency or
tribunal, except that Mr. Employee shall not be liable to Company for any tax
liability associated with Company’s responsibility for the employer portion of FICA,
or any other employer-portion tax contributions associated with the payments
described in this Paragraph 4.
This Agreement is intended to comply with the requirements of Section 409A
of the Internal Revenue Code. To the maximum extent permitted by law, the
Agreement shall be interpreted in a manner that avoids having any amount payable
being subject to penalties imposed by Sections 409A(a)(1) or (b) of the Internal
Revenue Code.
5.
General Releases and Waivers. Mr. Employee, for himself, his agents,
assigns, heirs, executors, and administrators, releases and discharges Company
from any claim, demand, action, or cause of action, known or unknown, which arose
at any time from the beginning of time to the date he executes this Agreement, and
waives all rights relating to, arising out of, or in any way connected with his
employment with Company, the cessation of that employment, or the compensation
or benefits payable in connection with that employment or the cessation of that
employment, including (without limitation) any claim, demand, action, cause of
action or right, including claims for attorneys’ fees, based on but not limited to:
(a)
The Age Discrimination in Employment Act of 1967, as amended
(“ADEA”), 29 U.S.C. § 621, et seq;
(b)
The Americans With Disabilities Act of 1990, as amended
(“ADA”), 42 U.S.C. § 12101, et seq;
(c)
The Family and Medical Leave Act of 1993 (“FMLA”), 29 U.S.C.
§ 2601, et seq., as amended;
(d)
The Employee Retirement Income Security Act (“ERISA”), 29
U.S.C. § 1001, et seq.;
(e)
2000(e), et seq.;
(f)
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §
The National Labor Relations Act, 29 U.S.C. § 151, et seq.;
(g)
Any state and/or local law or ordinance that relates to
employers, employees, or the workplace;
(h)
Any existing or potential entitlement under any Company
program or plan, including wages or other paid leave;
(i)
Any state constitution and/or the United States Constitution;
(j)
Any existing or potential agreement, contract, representation,
policy, procedure, or statement (whether any of the foregoing are express or implied,
oral or written); and
(k)
Claims arising under any other federal, state and local fair
employment practices law, disability benefits law, whistleblowing law/statute, and
any other employee or labor relations statute, executive order, law or ordinance,
and any duty or other employment-related obligation, claims arising from any other
type of statute, executive order, law or ordinance; claims arising from contract or
public policy, as well as tort, tortious cause of conduct, breach of implied covenant of
good faith and fair dealing, breach of contract, intentional and/or negligent infliction
of emotional distress, invasion of privacy, defamation, wrongful discharge,
negligence, discrimination, harassment, and retaliation, together with all claims for
monetary and equitable relief, punitive and compensatory relief and attorneys’ fees
and costs.
Mr. Employee understands and agrees that he is releasing Company from
any and all claims by which he is giving up the opportunity to recover any
compensation, damages, or any other form of relief in any proceeding brought by
Mr. Employee or on his behalf. Notwithstanding the foregoing, this Agreement is
not intended to operate as a waiver of any retirement or pension benefits that are
vested, the eligibility and entitlement to which shall be governed by the terms of the
applicable plan, as well as the applicable provisions of ERISA, or any claim,
demand, action or cause of action or right, including claims for attorneys’ fees to
enforce this Agreement, or which cannot be waived as a matter of law.
Company, on behalf of itself and any subsidiary, parent company, affiliated
entity, related entity, or division of any of the foregoing, releases and discharges Mr.
Employee, his agents, assigns, heirs, executors, and administrators, from any claim,
demand, action, or cause of action, known or unknown, which arose at any time
from the beginning of time to the date Company executes this Agreement, and
waives all rights relating to, arising out of, or in any way connected with Mr.
Employee’s employment with Company, the cessation of that employment,
including (without limitation) any claim, demand, action, cause of action or right,
including claims for attorneys’ fees, provided that this release of Mr. Employee is
not intended to and will not release him from any claims arising in whole or in part
from intentional violations of law on his part outside the course and scope of
employment.
6.
Covenants Not to Sue.
(a)
Except as to claims from which Company is not released under
Paragraph 5, Mr. Employee agrees that he will never sue or file a lawsuit against
Company including, without limitation, any lawsuit concerning or in any way
related to his employment with Company, the termination of that employment, the
compensation or benefits payable in connection with his employment, or any other
interaction or relationship with Company, and that no such suit is currently
pending. Further, Mr. Employee represents and warrants that he has made
Company aware of any complaint or other contact he has made with any
government entity or other third party with regard to Company and/or its business
operations and/or allegations of any improprieties or legal violations with respect to
same, and/or any charge, claim or suit of any kind, on his behalf or that of any other
person or entity, with regard to Company or its business operations. Mr. Employee
recognizes and agrees that Company is entering into this Agreement relying on this
representation and warranty and, in its absence, would not have entered into this
Agreement. Should Mr. Employee violate any aspect of this Paragraph, Mr.
Employee agrees that any suit shall be null and void, and must be summarily
dismissed or withdrawn. Mr. Employee also agrees that if a claim or charge of any
kind should be raised, brought, or filed in his name or on his behalf, Mr. Employee
waives any right to, and agrees not to take, any resulting award.
(b)
Except as to claims from which Mr. Employee is not released
under Paragraph 5, Company agrees that it will never sue or file a lawsuit against
Mr. Employee including, without limitation, any lawsuit concerning or in any way
related to Mr. Employee’s employment with Company, the termination of that
employment, or any other interaction or relationship with Mr. Employee, and that
no such suit is currently pending. Further, Company represents and warrants that
it is not aware of any pending or threatened complaint or other claim to any
government entity by Company or any other third party alleging any improprieties
or legal violations concerning Mr. Employee or his work with Company. Company
recognizes and agrees that Mr. Employee is entering into this Agreement relying on
this representation and warranty and, in its absence, would not have entered into
this Agreement. Should Company violate any aspect of this paragraph, Company
agrees that any suit shall be null and void, and must be summarily dismissed or
withdrawn. Company also agrees that if a claim or charge of any kind should be
raised, brought, or filed in its name or on its behalf, Company waives any right to,
and agrees not to take, any resulting award.
(c)
This Paragraph and this Agreement shall not operate to waive
or bar any claim which may not under any circumstances be waived or barred.
7.
Disclaimer of Liability. This Agreement is not to be construed as an
admission of liability or wrongdoing by either party, but is entered into in an effort
to provide Mr. Employee with a settlement package and to end the employment
relationship on an amicable basis.
8.
Company and Personal Property. Mr. Employee affirms that, by the
time he executes this Agreement, he has returned all equipment, documents,
memoranda, records, files, notes, diskettes, credit cards, keys, computers, and any
other matter or materials (from whatever source, including information
electronically stored) that is the property of, or that was purchased or provided by,
Company, including any copies of the foregoing. He has additionally provided any
and all passwords and account numbers used by Company to the Company in order
to allow said Officer to access any and all accounts used in the course of operating
Company.
9.
Confidentiality.
(a)
Mr. Employee agrees to keep the terms of this Agreement
confidential and will not disclose any information concerning it to anyone except his
spouse, financial advisor, legal representative, or anyone required by law to know
the contents of the Agreement, provided that Mr. Employee informs any of these
specified persons that he is bound by a confidentiality covenant and that the person
is not to disclose any information concerning this Agreement. Should Mr. Employee
violate this provision, Company shall be entitled to injunctive relief in addition to
any other available remedy or form of legal and equitable relief. Mr. Employee
further acknowledges that this confidentiality provision is a material element of
this Agreement and that consideration has been given for this provision. Company
and Mr. Employee agree that the terms of this subparagraph 9(a) are a material
inducement to Company for the execution of this Agreement.
(b)
Company agrees to keep the terms of this Agreement
confidential and will not disclose any information concerning it to anyone other
than those who have a need to know for Company’s reasonable business purposes,
provided that Company informs any such persons that it is bound by a
confidentiality covenant and that the person is not to disclose any information
concerning this Agreement. Should Company violate this provision, Mr. Employee
shall be entitled to injunctive relief in addition to any other available remedy or
form of legal and equitable relief. Company further acknowledges that this
confidentiality provision is a material element of this Agreement and that
consideration has been given for this provision. Company and Mr. Employee agree
that the terms of this subparagraph 9(b) are a material inducement to Mr.
Employee for the execution of this Agreement.
10.
Additional Remedies for Breach. Should any party ever breach this
Agreement, the breaching party shall pay all damages (including, but not limited to,
litigation and/or defense costs, expenses, and reasonable attorneys’ fees) incurred by
the prevailing party as a result of the breach. Nothing in this Paragraph is
intended to limit or restrict any other rights or remedies any party may have by
virtue of this Agreement or otherwise.
11.
Applicable Law. This Agreement shall be interpreted, enforced, and
governed under the laws of Ohio.
12.
Choice of Forum. Any action regarding this Agreement or otherwise
brought against Company by or on behalf of Mr. Employee, his agents, assigns,
heirs, administrators, or executors shall be maintained in Franklin County, Ohio.
13. Application. This Agreement shall apply to Mr. Employee, as well as
to Mr. Employee’s heirs, executors, administrators, assigns, and successors. This
Agreement also shall apply to, and inure to the benefit of, Company, the
predecessors, successors, and assigns of Company, and each past, present, or future
employee, agent, representative, officer, or director of Company.
14.
Rights under the Older Workers’ Benefits Protection Act.
Mr.
Employee represents and warrants: (a) that he has been and is hereby advised by
Company that he should have, at his own expense, an attorney of his choice review
this Agreement, and that he has done so; (b) that he has been and is hereby advised
by Company that he may take up to twenty-one (21) days from the receipt of this
Agreement to determine whether to execute it; and (c) that he has been and is
hereby advised by Company that this Agreement may be revoked within seven (7)
days following execution, whereupon it shall be null and void. Such notice of
revocation should be sent in writing to the Chief Executive Officer of Company. This
Agreement shall not become effective, therefore, and none of the benefits set forth in
this Agreement will become due or payable, until after the Effective Date of this
Agreement (the “Effective Date” defined as the first day after Mr. Employee has
executed the Agreement and the 7-day revocation period has expired without
revocation being exercised).
15.
Complete Agreement.
This Agreement sets forth the complete
agreement between the parties relating to the subjects herein and supersedes and
novates any prior agreements or understandings. Mr. Employee acknowledges and
agrees that, in executing this Agreement, he does not rely and has not relied upon
any representations or statements not set forth herein made by Company with
regard to the subject matter, basis, or effect of this Agreement or otherwise.
Notwithstanding the foregoing, nothing in this Agreement is intended to or shall
limit, supersede, nullify, or affect (a) any vested rights or benefits to which Mr.
Employee is entitled under any 401 K program or pension plan; or (b) any duty or
responsibility Mr. Employee may have or owe to Company by virtue of any separate
agreement.
AGREED TO BY:
Edgar Employee
_________________________
Dated: ____________________
On Behalf of Company
By:_____________________________
Its: _____________________________
Dated: __________________________
SAMPLE SETTLEMENT AGREEMENT
This Settlement Agreement and General Mutual Release (this “Agreement”)
is being made and entered into on the date written below by and between Elaine
Employee (“Employee”) and Company, Inc. (“Company”).
1. Payment. In consideration of the covenants and promises herein,
Company will provide payment in the total gross amount of $150,000, in the
manner set forth below, to counsel for Employee within 14 calendar days of the
receipt by counsel for Company of an executed version of this Agreement.
The payment shall be distributed as follows:
A.
A check in the gross amount of $10,000.00 payable to Employee, less
federal, state, local and other applicable taxes and withholdings, and to
be calculated at Employee’s rate of withholding applicable as of her
last date of employment with Company, which shall be characterized
as and shall represent payment for lost wages.
The parties
acknowledge and agree that this payment does not represent
separation or severance pay, and is not paid to Employee in exchange
for her separation from employment with Employer. This payment
shall be reported to the IRS on Form W-2.
B.
A check in the gross amount of $80,000.00, payable to Employee, which
shall be characterized and shall represent consideration for claimed
emotional distress and other non-wage damages, but excluding
punitive or liquidated damages, claims for which Employee waives in
exchange for the consideration provided in this Agreement. The
parties acknowledge and agree that this payment is not for wages, and
that Employee is not considered to be an independent contractor for
any purpose. This payment shall be reported to IRS in box 3 of Form
1099-MISC.
C.
A check in the gross amount of $60,000.00, payable to Employee’s
Counsel, tax identification number __________, which shall represent
attorney’s fees. This payment shall be reported to the IRS on Form
1099-MISC.
Employee agrees to pay all taxes, if any, which may be deemed owing on any
payments under this section, except for Company’s portion of FICA and other
federal employer-portion tax contributions associated with the payment set forth in
paragraph 1(A). Employee further agrees that she will indemnify and hold
Company and its related and affiliated entities harmless from and against any
taxes, penalties and/or interest that might arise from any challenge by the Internal
1
Revenue Service or any similar state, regional, or local agency to Employee’s tax
treatment of any amounts paid to her, except for any challenge associated with
Company’s responsibility for the employer portion of FICA and other employerportion tax contributions associated with the payment set forth in paragraph 1(A).
2. General Mutual Release and Discharge. In consideration of the payment
described above, the sufficiency of which is hereby acknowledged, Employee, on
behalf of herself, her heirs, administrators, executors, representatives and assigns,
hereby releases and discharges Company, and all of its affiliates, parents,
subsidiaries, and related entities including, without limitation, their officers,
directors, shareholders, agents, representatives, attorneys, insurers, employee
benefit plans and employees, in their representative and individual capacities, and
their successors and assigns from any and all suits, debts, claims, judgments,
actions and causes of action of any nature or kind whatsoever, which Employee now
has or has ever had, up to the date of this Agreement, against Company relating in
any way to Employee’s employment at Company or the termination thereof.
This Release and Discharge includes, but is not limited to, any claims that
Employee may have or have had under federal, state or local laws, regulations,
executive orders, common law, contracts or other source concerning civil rights,
discrimination, retaliation, employee benefits, wrongful discharge, payment of
wages, benefits or overtime, breach of express or implied contract, harassment,
retaliation, defamation, loss of consortium or services, attorneys’ fees and any
claims which may have arisen in connection with employment of Employee at
Company or the termination thereof.
Without in any way limiting the foregoing, Employee agrees that she releases
any claims that she may have against Company up to the date of this Agreement
pursuant to the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq.
The foregoing shall not preclude Employee from participating in any
proceedings brought by or before the Equal Employment Opportunity Commission
or similar state or federal agency. Employee acknowledges and agrees, however,
that by virtue of this Agreement, she shall not be entitled to monetary damages
from Company in any such proceeding brought by or before the EEOC or similar
agency.
In consideration of the promises made by Employee herein, and subject to the
limitations herein, Company hereby releases and discharges Employee from any
and all suits, debts, claims, judgments, actions and causes of action of any nature or
kind whatsoever, which Company now has or has ever had, up to the date of this
Agreement, against Employee relating in any way to Employee’s employment at
Company or the termination thereof.
2
3. Dismissal of the Complaint/Covenant Not to Sue. Within five (5) business
days of receiving the payments referenced in paragraph 1 of this Agreement,
Employee agrees to obtain the complete and permanent dismissal of the Complaint
that is pending before the Cuyahoga County, Ohio Court of Common Pleas as Case
No. _____________, by filing a notice of dismissal with prejudice, Defendant to bear
the costs of suit, and with the Court retaining jurisdiction to enforce the terms of
the settlement and this Agreement.
4. Mutual Confidentiality. The parties to this Agreement represent and
agree that they have not disclosed, and will keep the terms, value, and nature of
consideration provided in this Agreement and the fact of the Agreement completely
confidential. The parties to this Agreement will not hereafter disclose the terms of
this Agreement to anyone. It will not be a breach of this paragraph if Employee
discloses the terms of this Agreement to her immediate family, counsel, and
accountant or other financial advisor, or as may otherwise be required by law. It
will not be considered a breach of this Agreement for Company to disclose the terms
of this Agreement to any person or entity with a legitimate business reason to
know. Upon any inquiry, it will not be considered a breach of this paragraph for
any party to state that the matter has been resolved to the parties’ mutual
satisfaction. Any individuals to whom the terms of the Agreement are disclosed will
be informed of and will be required by the disclosing party to be bound by this
confidentiality provision.
5. Non-Admission. It is understood and agreed that the payments described
herein and the settlement and releases are the compromise of doubtful and disputed
claims and are not to be construed as an admission of any liability, fault,
wrongdoing or responsibility on the part of Employee or Company, each of whom
expressly deny liability and fault. Employee and Company agree that this
Agreement shall not be admissible as evidence, or utilized for any purpose, in any
judicial or other proceeding involving Company, other than an action to enforce the
terms hereof.
6.
Waiver of Reinstatement; Reemployment.
In exchange for the
consideration being provided to her under this Agreement, Employee agrees that
she will not at any time seek or apply for any position with Company or any of their
respective affiliates existing as of the Effective Date of this Agreement, and
expressly waives any right to do so. However, should Employee be employed by a
facility, company, or organization that acquires Company, or is acquired by the
Company after Employee is already employed, Employee will not be required to
leave her employment upon acquisition or affiliation, and any such acquiring,
acquired, or affiliated facility, entity, or company shall not have the right to
terminate Employee on the sole basis of this Paragraph.
3
7. Mutual Non-Disparagement; Neutral Reference. The parties to this
Agreement agree that they will not make any disparaging comments or remarks to
any third persons, whether orally or in writing, regarding each other, provided that
Company will not be considered to have breached this nondisparagement provision
if such communications are made by non-management employees of Company and
Company has taken reasonable measures to prevent such communications. Failure
to comply with this requirement by either party shall constitute a breach of this
Agreement. All requests for references for Employee shall be directed to the
Director of Human Resources of Company, who will provide the letter attached to
this Agreement in response to any such request. Company will disclose to any such
request for a reference Employee’s dates of employment and the last position held.
If asked about eligibility for re-hire, Company will state that it will not respond to
that inquiry, either affirmatively or negatively.
8. Rights under the Older Workers’ Benefits Protection Act. Employee
represents and warrants: (a) that she is of legal age and is legally competent to
execute this Agreement and that she does so with full knowledge and
understanding of its contents; (b) that she has been and is hereby advised by
Company that she should have, at her own expense, an attorney of her choice
review this Agreement; (c) that she has been and is hereby advised by Company
that she may take up to twenty-one (21) days from the receipt of this Agreement to
determine whether to execute it; and (d) that she has been and is hereby advised by
Company that this Agreement may be revoked by her within seven (7) days
following execution by her, whereupon it shall be null and void. Such notice of
revocation should be sent in writing to counsel for Company, 123 Main Street, Suite
200, Cleveland, Ohio 44113. By signing this Agreement, Employee further
warrants that no promise or inducement has been offered to her to enter into this
Agreement except as expressly set forth herein.
9. Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof. No provisions hereof
may be amended, nor any right hereunder waived, except by a written instrument
executed by Employee and by an authorized representative of Company.
[SIGNATURES ON FOLLOWING PAGE]
4
Understanding Waivers Of Discrimination Claims In Employee Severance Agreements
Page 1 of 16
The U.S. Equal Employment Opportunity Commission
UNDERSTANDING WAIVERS OF
DISCRIMINATION CLAIMS IN EMPLOYEE
SEVERANCE AGREEMENTS
Table of Contents
I. INTRODUCTION
II. SEVERANCE AGREEMENTS AND RELEASE OF CLAIMS
III. VALIDITY OF WAIVERS – IN GENERAL
IV. WAIVERS OF ADEA CLAIMS
V. CONCLUSION
APPENDIX A
APPENDIX B - [Please note: Appendix B was revised in April 2010]
I. INTRODUCTION
Employee reductions and terminations have been an unfortunate result of the current economic
downturn. Even in good economic times, however, businesses of every size carefully assess their
operational structures and may sometimes decide to reduce their workforce. Often, employers terminate
older employees who are eligible for retirement, or nearly so, because they generally have been with the
company the longest and are paid the highest salaries. Other employers evaluate individual employees on
criteria such as performance or experience, or decide to lay off all employees in a particular position,
division, or department.[1] An employer’s decision to terminate or lay off certain employees, while
retaining others, may lead discharged workers to believe that they were discriminated against based on
their age, race, sex, national origin, religion, or disability.
To minimize the risk of potential litigation, many employers offer departing employees money or benefits
in exchange for a release (or “waiver”) of liability for all claims connected with the employment
relationship, including discrimination claims under the civil rights laws enforced by the Equal
Employment Opportunity Commission (EEOC) -- the Age Discrimination in Employment Act (ADEA),
Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA).[2] While it is
common for senior-level executives to negotiate severance provisions when initially hired, other
employees typically are offered severance agreements and asked to sign a waiver at the time of
termination. When presented with a severance agreement, many employees wonder: Is this legal? Should
I sign it?
http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html
9/19/2010
Page 2 of 16
This document answers questions that you may have if you are offered a severance agreement in
exchange for a waiver of your actual or potential discrimination claims. Part II provides basic
information about severance agreements; Part III explains when a waiver is valid; and Part IV specifically
addresses waivers of age discrimination claims that must comply with provisions of the Older Workers
Benefit Protection Act (OWBPA). Finally, this document includes a checklist with tips on what you
should do before signing a waiver in a severance agreement and a sample of an agreement offered to a
group of employees giving them the opportunity to resign in exchange for severance benefits.
II. SEVERANCE AGREEMENTS AND RELEASE OF CLAIMS
A severance agreement is a contract, or legal agreement, between an employer and an employee that
specifies the terms of an employment termination, such as a layoff. Sometimes this agreement is called a
“separation” or “termination” agreement or “separation agreement general release and covenant not to
sue.”[3] Like any contract, a severance agreement must be supported by “consideration.” Consideration
is something of value to which a person is not already entitled that is given in exchange for an agreement
to do, or refrain from doing, something.
The consideration offered for the waiver of the right to sue cannot simply be a pension benefit or payment
for earned vacation or sick leave to which the employee is already entitled but, rather, must be something
of value in addition to any of the employee’s existing entitlements. An example of consideration would
be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the
employee’s salary for a specified period of time after termination. The employee’s signature and
retention of the consideration generally indicates acceptance of the terms of the agreement.
1. What does a severance agreement look like?
A severance agreement often is written like a contract or letter and generally includes a list of
numbered paragraphs setting forth specific terms regarding the date of termination, severance
payments, benefits, references, return of company property, and release of claims against the
employer. If your employer decides to terminate you, it may give you a severance agreement
similar to the one that follows:
Example 1: This letter sets forth our agreement with respect to all matters that pertain
to your employment and separation from employment by [your organization] (“the
Company”).
1. Termination of Employment. You will cease to be employed by the Company on
X date.
2. Severance Payments. The Company agrees to pay you X weeks of severance
pay. The severance pay will be in addition to the payment of unused accrued
vacation pay to which you are entitled. You may elect to receive this severance
pay in the form of a lump sum payment, or spread it over a number of weeks,
less applicable deductions for taxes.
***
7. General Release. You agree that the consideration set forth above, which is in
addition to anything of value to which you are or might otherwise be entitled,
shall constitute a complete and final settlement of any and all causes of actions
or claims you have had, now have or may have up to the date of this agreement
including, without limitation, those arising out of or in connection with your
employment and/or termination by the Company pursuant to any federal, state,
9/19/2010
Page 3 of 16
or local employment laws, statutes, public policies, orders or regulations,
including without limitation, the Age Discrimination in Employment Act, Title
VII of the Civil Rights Act, the Americans with Disabilities Act, and [certain
state] laws.
Agreements that specifically cover the release of age claims will also include additional
information intended to comply with OWBPA requirements. See Part IV.A, Question and Answer
6.
Example 2: This agreement is intended to comply with the Older Workers Benefit
Protection Act. You acknowledge and agree that you specifically are waiving rights
and claims under the Age Discrimination in Employment Act.
III. VALIDITY OF WAIVERS – IN GENERAL
Most employees who sign waivers in severance agreements never attempt to challenge them. Some
discharged employees, however, may feel that they have no choice but to sign the waiver, even though
they suspect discrimination, or they may learn something after signing the waiver that leads them to
believe they were discriminated against during employment or wrongfully terminated.
If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer will argue
that the court should dismiss the case because the employee waived the right to sue, and the employee
will respond that the waiver should not bind her because it is legally invalid. Before looking at the
employee’s discrimination claim, a court first will decide whether the waiver is valid. If a court
concludes that the waiver is invalid, it will decide the employee’s discrimination claim, but it will dismiss
the claim if it finds that the waiver is valid.
A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily
consents to the waiver. The rules regarding whether a waiver is knowing and voluntary depend on the
statute under which suit has been, or may be, brought. The rules for waivers under the Age
Discrimination in Employment Act are defined by statute – the Older Workers Benefit Protection Act
(OWBPA).[4] Under other laws, such as Title VII, the rules are derived from case law. In addition to
being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of
consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue;
(2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.
[5]
2. What determines whether a waiver of rights under Title VII, the ADA, or the EPA
was “knowing and voluntary”?
To determine whether an employee knowingly and voluntarily waived his discrimination claims,
some courts rely on traditional contract principles and focus primarily on whether the language in
the waiver is clear.[6] Most courts, however, look beyond the contract language and consider all
relevant factors – or the totality of the circumstances -- to determine whether the employee
knowingly and voluntarily waived the right to sue. [7] These courts consider the following
circumstances and conditions under which the waiver was signed:


whether it was written in a manner that was clear and specific enough for the employee to
understand based on his education and business experience;
whether it was induced by fraud, duress, undue influence, or other improper conduct by the
employer;
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



Page 4 of 16
whether the employee had enough time to read and think about the advantages and
disadvantages of the agreement before signing it;
whether the employee consulted with an attorney or was encouraged or discouraged by the
employer from doing so;[8]
whether the employee had any input in negotiating the terms of the agreement; and
whether the employer offered the employee consideration (e.g., severance pay, additional
benefits) that exceeded what the employee already was entitled to by law or contract and the
employee accepted the offered consideration.
Example 3: An employee who was laid off from her position at an automobile
assembly plant agreed to release her employer from all claims in exchange for a
$100,000 severance payment. After signing the waiver and cashing the check,
she filed a lawsuit alleging that she was harassed and discriminated against by
her coworkers during her employment. A court found that the employee’s
waiver was knowing and voluntary by looking at the totality of circumstances
surrounding its execution: the employee graduated from college and completed
paralegal classes that included a course in contracts; she had no difficulty
reading; the agreement was clear and unambiguous; she had ample time to
consider whether to sign it; she was represented by counsel; the cash payment
provided by the employer was fair consideration; and she did not offer to return
the payment she received for signing the waiver.[9]
Example 4: An employee was informed that his company was downsizing and
that he had 30 days to elect voluntary or involuntary separation. The employee
chose voluntary separation in exchange for severance pay and additional
retirement benefits and signed a waiver, which stated: “I . . . hereby release and
discharge [my employer] from any and all claims which I have or might have,
arising out of or related to my employment or resignation or termination.” The
employee later filed suit alleging that he was terminated based on his race and
national origin.
In finding that the employee’s waiver was not knowing and voluntary, a court
noted that although the language of the agreement was “clear and unambiguous,”
it failed to specifically mention the release of employment discrimination
claims. Because the employee was only high school educated and unfamiliar
with the law, his argument that he believed he only was releasing claims arising
from his voluntary termination and the benefits package he accepted was “not an
unreasonable conclusion.”[10]
3. May I still file a charge with the EEOC if I believe that I have been discriminated
against based on my age, race, sex, or disability, even if I signed a waiver releasing
my employer from all claims?
Yes. Although your severance agreement may use broad language to describe the claims that you
are releasing (see Example 1), you can still file a charge with the EEOC if you believe you were
discriminated against during employment or wrongfully terminated.[11] In addition, no agreement
between you and your employer can limit your right to testify, assist, or participate in an
investigation, hearing, or proceeding conducted by the EEOC under the ADEA, Title VII, the
ADA, or the EPA. Any provision in a waiver that attempts to waive these rights is invalid and
unenforceable.[12]
4. If I file a charge with the EEOC after signing a waiver, will I have to return my
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severance pay?
No. Because provisions in severance agreements that attempt to prevent employees from filing a
charge with the EEOC or participating in an EEOC investigation, hearing, or proceeding are
unenforceable (see Question and Answer 3 above), you cannot be required to return your
severance pay --or other consideration --before filing a charge.[13]
5. Will I have to return my severance pay if I file a discrimination suit in court after
signing a waiver?
Under the ADEA, an employee is not required to return severance pay -- or other consideration
received for signing the waiver -- before bringing an age discrimination claim.[14] Under Title VII,
the ADA, or the EPA, however, the law is less clear. Some courts conclude that the validity of the
waiver cannot be challenged unless the employee returns the consideration, while other courts
apply the ADEA’s “no tender back” rule to claims brought under Title VII and other discrimination
statutes and allow employees to proceed with their claims without first returning the consideration.
[15]
Even if a court does not require you to return the consideration before proceeding with your
lawsuit, it may reduce the amount of any money you are awarded if your suit is successful by the
amount of consideration you received for signing the waiver. See Part IV.A. Question and Answer
9.
IV. WAIVERS OF ADEA CLAIMS
A. General Requirements for Employees Age 40 and Over
In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act
(OWBPA) to clarify the prohibitions against discrimination on the basis of age. OWBPA
establishes specific requirements for a “knowing and voluntary” release of ADEA claims to
guarantee that an employee has every opportunity to make an informed choice whether or not to
sign the waiver. There are additional disclosure requirements under the statute when waivers are
requested from a group or class of employees. See “Additional Requirements for Group Layoffs of
Employees Age 40 and Over” at IV. B.
6. What makes a waiver of age claims knowing and voluntary?
OWBPA lists seven factors that must be satisfied for a waiver of age discrimination claims to be
considered “knowing and voluntary.”[16] Ata minimum:

A waiver must be written in a manner that can be clearly understood. EEOC
regulations emphasize that waivers must be drafted in plain language geared to the level of
comprehension and education of the average individual(s) eligible to participate. Usually this
requires the elimination of technical jargon and long, complex sentences. In addition, the
waiver must not have the effect of misleading, misinforming, or failing to inform participants
and must present any advantages or disadvantages without either exaggerating the benefits or
minimizing the limitations.
Example 5: An employee, who had worked for his company for 28 years, was
selected for an involuntary RIF and asked to sign a "General Release and
Covenant Not to Sue” (severance agreement) in exchange for money. The
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Page 6 of 16
severance agreement provided, among other things, that the employee “released”
his employer “from all claims . . . of whatever kind,” including claims under the
ADEA and any other federal, state, or local law dealing with discrimination in
employment. The severance agreement also referenced“covenants not to sue”
and stated that “[t]his covenant not to sue does not apply to actions based solely
under the [ADEA].” After reading the severance agreement, the employee asked
his supervisor if the exception for ADEA claims contained in the covenant not to
sue meant he could sue the employer if his suit was limited to claims under the
ADEA. His supervisor contacted the employer’s legal department and then sent
the employee an e-mail stating, "Regarding your question on the General
Release and Covenant Not to Sue, the wording is as intended. . . . . The site
attorney was not comfortable providing an interpretation for you and suggested
you consult with your own attorney."
The employee signed the agreement, collected severance benefits, and then sued
his employer for age discrimination under the ADEA. A court held that the
severance agreement was not enforceable because it was not written in a manner
calculated to be understood. [17]


A waiver must specifically refer to rights or claims arising under the ADEA. EEOC
regulations specifically state that an OWBPA waiver must expressly spell out the Age
Discrimination in Employment Act (ADEA) by name.
A waiver must advise the employee in writing to consult an attorney before accepting
the agreement.
Example 6: A release stating:“I have had reasonable and sufficient time and
opportunity to consult with an independent legal representative of my own
choosing before signing this Complete Release of All Claims,” did not comply
with OWBPA’s requirement that an individual be advised to consult with an
attorney. Although the voluntary early retirement agreement advised employees
to consult financial and tax advisors, to seek advice from local personnel
representatives, and to attend retirement seminars, it said nothing about seeking
independent legal advice prior to making the election to retire and accepting the
agreement.[18]



A waiver must provide the employee with at least 21 days to consider the offer. The
regulations clarify that 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.[19]
A waiver must give an employee seven days to revoke his or her signature. The sevenday revocation period cannot be changed or waived by either party for any reason.
A waiver must not include rights and claims that may arise after the date on which the
waiver is executed. This provision bars waiving rights regarding new acts of discrimination
that occur after the date of signing, such as a claim that an employer retaliated against a
former employee who filed a charge with the EEOC by giving an unfavorable reference to a
prospective employer.
Example 7: An employee who received enhanced severance benefits in
exchange for waiving her right to challenge her layoff later filed suit. In finding
the waiver valid, the court noted that because the waiver clearly stated that she
was releasing any claims that she “may now have or have had,” it did not require
her to waive future claims hat may arise after the waiver was signed.[20]
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
Page 7 of 16
A waiver must be supported by consideration in addition to that to which the employee
already is entitled.
If a waiver of age claims fails to meet any of these seven requirements, it is invalid and
unenforceable.[21] In addition, an employer cannot attempt to“cure” a defective waiver by issuing
a subsequent letter containing OWBPA-required information that was omitted from the original
agreement.[22]
7. Are there other factors that may make a waiver of age claims invalid?
Yes. Even when a waiver complies with OWBPA’s requirements (see Question and Answer 6
above), a waiver of age claims, like waivers of Title VII and other discrimination claims, will be
invalid and unenforceable if an employer used fraud, undue influence, or other improper conduct to
coerce the employee to sign it, or if it contains a material mistake, omission, or misstatement.
Example 8: An employee who was told that his termination resulted from
“reorganization” signed a waiver in exchange for severance pay. After a younger
person was hired to do his former job, he filed a lawsuit alleging age discrimination.
The company then changed its position and claimed that the real reason for the
employee’s discharge was his poor performance. The employee argued that his waiver
was invalid due to fraud and that if he had known that he was being terminated because
of alleged poor performance, he would have suspected age discrimination and would
not have signed the waiver. The court held that fraud was a sufficient reason for
finding the waiver invalid.[23]
Example 9: An employee was terminated and given ten weeks of severance pay in
exchange for signing an agreement waiving all of her potential discrimination claims.
She later filed a lawsuit alleging that she was continuously passed over for promotion
based on her age and sex throughout her employment. In response to the employer’s
attempt to dismiss her suit, she alleged that the waiver was an ultimatum which
effectively gave her no choice since she was her grandchildren’s guardian and her
family’s source of income. The court held that the employee’s financial problems and
prospective loss of her job did not constitute “duress” for the purpose of invalidating a
waiver.[24]
8. If I am 40 years old or older, am I entitled to more severance pay or benefits than a
younger employee?
No. Although severance packages often are structured differently for different employees
depending on position and tenure, an employer is not required to give you a greater amount of
consideration than is given to a person under the age of 40 solely because you are protected by the
ADEA.[25]
9. Are there any circumstances where I may have to pay my employer back the
money it gave me for the waiver of my age claims?
Yes. Your employer may offset money it paid you in exchange for waiving your rights if you
successfully challenge the waiver, prove age discrimination, and obtain a monetary award.
However, your employer’s recovery may not exceed the amount it paid for the waiver or the
amount of your award if it is less.[26]
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Example 10: Your employer paid you $15,000 in exchange for a waiver of your age
discrimination claim. You sue and convince a court that your waiver was not
“knowing and voluntary” under OWBPA and that you are entitled to $10,000 in back
pay and liquidated damages based on age discrimination. A court could reduce your
award to zero because $10,000 is less than the $15,000 the employer already paid you
for the waiver.
Example 11: Same as Example 10, except that you are awarded $30,000 based on age
discrimination. A court could not reduce your award by more than $15,000, the
amount you received in exchange for the waiver. This means that you would still get
$30,000 – the $15,000 your employer paid you for your waiver and an additional
$15,000 awarded by the court.
10. If I challenge an age discrimination waiver in court, may my employer renege on
promises it made in the agreement?
No. EEOC regulations state that an employer cannot“abrogate,” or avoid, its duties under an
ADEA waiver even if you challenge it. Because you have a right under OWBPA to have a court
determine a waiver’s validity, it is unlawful for your employer to stop making promised severance
payments or to withhold any other benefits it agreed to provide.[27]
Example 12: A company eliminated almost all of its direct sales positions and offered
terminated employees six months of severance benefits in exchange for signing a
waiver. In response to the employees’ suit alleging age discrimination, the company
indicated that it was suspending any further severance payments and was discontinuing
other benefits provided under the waiver agreement. A court held that the company
could not cut off severance payments or demand repayment of benefits because the
employees filed suit challenging the validity of the waiver.[28]
B. Additional Requirements for Group Layoffs of Employees Age 40 and Over
When employers decide to reduce their workforce by laying off or terminating a group of
employees, they usually do so pursuant to two types of programs: “exit incentive programs” and
“other employment termination programs.” When a waiver is offered to employees in connection
with one of these types of programs, an employer must provide enough information about the
factors it used in making selections to allow employees who were laid off to determine whether
older employees were terminated while younger ones were retained.
11. What is an “exit incentive” or “other termination” program?
Typically, an “exit incentive program” is a voluntary program where an employer offers two or
more employees, such as older employees or those 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.[29]
Example 13: A bank must eliminate 20% of its 200 teller positions in a particular
geographic location and decides to retain only those employees who most recently
received the highest performance ratings. The bank sends a letter to 50 tellers who
were rated “needs improvement” offering them six months pay if they voluntarily
agree to resign and sign a waiver. This is an“exit incentive program.”
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Example 14: Same facts as in Example 13, but only 30 tellers voluntarily resign. The
bank involuntarily lays off 10 tellers with severance pay in exchange for their waiver
of age claims. This is an“other termination program.”
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.[30] By contrast,
if a large employer terminated five employees in different units for cause (e.g., poor performance)
over the course of several days or months, it is unlikely that a “program” exists. In both exit
incentive and other termination programs, the employer determines the terms of the severance
agreement, which typically are non-negotiable. [31]
12. If I am in a group of employees who are being laid off and asked to sign a waiver,
what information does my employer have to give to me?
Your waiver must meet the minimum OWBPA "knowing and voluntary" requirements (see
Question and Answer 6 above). In addition, your employer must give you- and all other
employees who are being laid off with you - written notice of your layoff and at least 45 days to
consider the waiver before signing it. Specifically, the employer must inform you in writing of:

the "decisional unit" -- the class , unit, or group of employees from which the employer
chose the employees who were and who were not selected for the program
Example 15: If an employer decides it must eliminate 10 percent of its
workforce at a particular facility, then the entire facility is the decisional
unit, and the employer has to disclose the titles and ages of all employees
at the facility who were and who were not selected for the layoff. If,
however, the employer must eliminate 15 jobs and only considers
employees in its accounting department (and not bookkeeping or sales) ,
then the accounting department is the decisional unit, and the employer
has to disclose the title and ages of all employees in the accounting
department whose positions were and were not selected for elimination.
The particular circumstances of each termination program determine whether the decisional unit is
the entire company, a division, a department, employees reporting to a particular manager, or
workers in a specific job classification.



eligibility factors for the program;[32]
the time limits applicable to the program;
the job titles and ages of all individuals who are eligible or who were selected for the
program (the use of age bands broader than one year, such as "age 40-50" does not satisfy
this requirement) and the ages of all individuals in the same job classifications or
organizational unit who are not eligible or who were not selected.
See Appendix B for an example of an agreement issued to employees being laid off or terminated
pursuant to a group exit incentive program.
V. CONCLUSION
If your employer decides to terminate your job, you may be given a severance agreement that requires
you to waive your right to sue for wrongful termination based on age, race, sex, disability, and other types
of discrimination. Although most signed waivers are enforceable if they meet certain contract principles
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and statutory requirements, an employer cannot lawfully limit your right to testify, assist, or participate
in an investigation, hearing, or proceeding conducted by the EEOC or prevent you from filing a charge of
discrimination with the agency. An employer also cannot lawfully require you to return the money or
benefits it gave you in exchange for waving your rights if you do file a charge. While this document is
not intended to cover all of the issues that arise when your employer informs you that you are being
terminated or laid off, the following checklist may help you decide whether or not to sign a waiver.
APPENDIX A
Employee Checklist: What to Do When Your Employer Offers You a
Severance Agreement:





Make sure that you understand the agreement
 Read the agreement to see if it is clear and specific, or if it is confusing because it contains terms
you do not understand.
 If you are 40 or older, inform your employer that the law requires your agreement to be written in a
manner that makes it easy to understand. Usually this means that your agreement should not
contain technical jargon or long, complex sentences.
Check for deadlines and act promptly
 The moment you are given a severance agreement, check to see if your employer gave you a
deadline for accepting, or declining, the agreement. If you are 40 years old or older, federal law
requires the employer to give you at least 21 days to review the agreement and make up your mind.
 If your employer has not given you a reasonable amount of time, or rushes your decision, this is a
red flag. An employer who is fair will understand that you cannot review or make decisions about
an important document on a moment’s notice.
 If you are being rushed, ask for more time. Put your request in writing. If you are 40 or older and
your employer is asking you for a decision in fewer than 21 days, remind the employer that the law
requires you to be provided at least 21 days. (If you and at least one other person are being laid off
in a reduction in force (RIF) at the same time, you must be given 45 days to consider the
agreement.)
Consider having an attorney review the severance agreement
 Even if you are parting amicably with your employer, you may want to ask for advice about
whether you should sign it, whether the terms are reasonable, and whether you should ask your
employer to change any of the terms.
 If you decide that you want an attorney to review the agreement, promptly make an appointment.
Do not wait until the last day before the deadline to review the severance agreement.
 If you are at least 40 years old, the agreement must advise you to consult with an attorney.
Make sure you understand what you are giving up in exchange for severance pay or benefits
 The main benefit to signing an agreement is that you will receive a cash payment or benefits in
exchange for signing away your right to bring certain legal claims against your employer.
 Make sure that the agreement offers you something of value to which you are not already entitled.
 If you think you have been wrongfully terminated because of age, race, sex, religion, or some other
discriminatory reason, you may want to think twice about signing. The benefits of signing a
severance agreement should be carefully weighed against claims you might have against your
employer, the likelihood of winning a court case or settlement, and the probable costs.
Review the agreement to ensure that it does not ask you to release nonwaivable rights
 Confirm that your employer is not asking you to waive your right to file a charge, testify, assist, or
cooperate with the EEOC.
 Make certain that the agreement is not asking you to waive rights or claims that may arise after the
date you sign the waiver.
 Make sure that your employer is not asking you to release your claims for unemployment
compensation benefits, workers compensation benefits, claims under the Fair Labor Standards Act,
health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA), or
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Page 11 of 16
claims with regard to vested benefits under a retirement plan governed by the Employee Retirement
Income Security Act (ERISA).
APPENDIX B
[Please note: Appendix B was revised in April 2010]
Sample Waiver and General Release: Group Layoffs of Employees Age 40 and Over
The following example illustrates one way in which the required OWBPA information could be
presented to employees as part of a waiver agreement and is not intended to suggest that
employers must follow this format. Rather, each waiver agreement should be individualized
based on an employer’s particular organizational structure and the average comprehension and
education of the employees in the decisional unit subject to termination. For another example of
how the required information might be presented, see 29 C.F.R. § 1625.22(f)(vii).
Although this sample addresses only OWBPA issues, most severance agreements also ask
employees to waive all claims against the employer, including claims arising under any federal,
state, and local laws. See paragraph 6 below.
Dear [Employee]:
This letter will constitute the agreement between you and [your employer](“the Company”) on the terms of your
separation from the Company (hereinafter the “Agreement”). The Agreement will be effective on the date
specified in paragraph 7, below.
1. Your employment will terminate on _______X_____ date.
or
You have agreed to resign on _______X_______ date. Your last day of work will be _______X_______
date.
2. In consideration of your acceptance of this Agreement, the Company will pay you an extra ______
[week’s][month’s] salary at your current rate of $_______ per [week][month], less customary payroll
deductions, to be paid within five (5) business days after the effective date of this Agreement as defined
in paragraph 7 below. This severance pay will be in addition to your earned salary and accrued vacation
pay or leave to which you are entitled.
***
[Paragraphs 3, 4, and 5 may address benefits, unemployment compensation, references, return of
property, confidentiality, etc.]
6. Except as to claims that cannot be released under applicable law, you waive and release any and all
claims you have or might have against the Company. . . .These claims include, but are not limited to
claims for discrimination arising under federal, state, and local statutory or common law, including Title
VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment
Act, the Genetic Information and Discrimination Act, and [state law].
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Page 12 of 16
***
7. The following information is required by OWBPA:
You acknowledge that on __________________, you were given 45 days to consider and accept the
terms of this Agreement and that you were advised to consult with an attorney about the Agreement
before signing it. To accept the Agreement, please date and sign this letter and return it to me. Once you
do so, you will still have seven (7) additional days from the date you sign to revoke your acceptance
(“revocation period”). If you decide to revoke this Agreement after signing and returning it, you must
give me a written statement of revocation or send it to me by fax, electronic mail, or registered mail. If
you do not revoke during the seven-day revocation period, this Agreement will take effect on the eighth
(8th) day after the date you the sign the Agreement.
The class, unit, or group of individuals covered by the program includes all employees in the _____
[plant, location, area, etc.] whose employment is being terminated in the reduction in force during the
following period :_______________). All employees in ___[plant, location, area, etc.] whose
employment is being terminated are eligible for the program.
The following is a listing of the ages and job titles of employees who were and were not selected for
layoff [or termination] and offered consideration for signing the waiver. Except for those employees
selected for layoff [or termination], no other employee is eligible or offered consideration in exchange for
signing the waiver:
Job Title
(1) Bookkeepers
(2) Accountants
(3) Retail Sales Clerks
(4) Wholesale Clerks
Age
25
28
45
63
24
29
40
33
51
# Selected
2
1
6
1
3
1
2
0
2
# Not Selected
4
7
2
0
5
7
1
3
1
Sincerely,
__________________________________
On Behalf [the Company]
By signing this letter, I acknowledge that I have had the opportunity to consult with an attorney of my choice;
that I have carefully reviewed and considered this Agreement; that I understand the terms of the Agreement;
and that I voluntarily agree to them.
________________ ______________________________________________
Date:
[Employee]
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Page 13 of 16
ENDNOTES
[1] When employers conduct a reduction in force (RIF), they often do so pursuant to “exit incentive programs.”
For example, an employer may offer a one-time “buyout” to certain employees (e.g., “all hourly employees”) or
an “early retirement” program to all employees who are already eligible for immediate retirement benefits to
persuade them to voluntarily resign; or, it may carry out an involuntary RIF, where it lays off all employees in a
particular position or division. See discussion in Part IV.B.
[2] The ADEA prohibits employment discrimination against persons 40 years of age or older; Title VII
prohibits employment discrimination based on race, color, religion, sex (including pregnancy), and national
origin; Title I of the ADA prohibits employment discrimination against an individual on the basis of disability;
and the EPA prohibits sex-based wage discrimination between men and women in the same establishment who
are performing under similar working conditions. See http://www.eeoc.gov/abouteeo/overview_laws.html.
[3] This document uses the term “severance agreement” to describe any termination agreement between an
employer and an employee, whether voluntary or involuntary, that requires the employee to waive the right to
sue for discrimination.
[4] Waivers of age claims are governed by OWBPA which provides a minimum set of conditions that have to
be met in order for the agreement to be considered knowing and voluntary. A waiver of an ADEA claim,
therefore, is not valid unless it satisfies OWBPA's specific requirements and was not induced by the employer’s
improper conduct. See Part IV.A, Questions and Answers 6 and 7.
[5] State law typically governs questions regarding the proper construction of a severance agreement and the
validity of waivers. For example, under the Minnesota Age Discrimination Act, a release must give the
employee fifteen days after signing the agreement to change his mind and revoke his signature. Under
California law, a waiver cannot release unknown claims unless the waiver agreement contains certain language
specifically providing for such a waiver. Other states may impose additional requirements to obtain an effective
waiver of certain state law claims. To determine whether a severance agreement is enforceable in the state in
which you work, contact your state labor law department or consult with an attorney for legal advice.
In addition to waiver issues, workforce reductions or other substantial business changes often trigger additional
legal obligations arising, for example, under the Worker Adjustment and Retraining Notification Act (WARN),
the National Labor Relations Act (NLRA), the Employee Retirement Income Security Act (ERISA), relevant
benefit plans, and labor contracts.
[6] See e.g., Morrison v. Circuit City Stores, 317 F.3d 646 (6th Cir. 2003)(“[i]n reviewing whether a waiver of
prospective claims was valid, we apply ordinary contract principles”); Warnebold v. Union Pac. R.R., 963 F.2d
222 (8th Cir. 1992)(court applied “ordinary contract principles” in determining whether there was a knowing
and voluntary waiver of claims).
[7] See e.g., Wastak v. Lehigh Health Network, 342 F.3d 281 (3d Cir. 2003)(courts must inquire into the totality
of circumstances “to determine whether the execution of a waiver was ‘knowing and voluntary’”); Smith v.
Amedisys, Inc., 298 F.3d 434 (5th Cir. 2002)(“[i]n determining whether a release was knowingly and
voluntarily executed, this court has adopted a ‘totality of the circumstances’ approach”). Even courts that apply
ordinary contract principles generally consider the circumstances surrounding the execution of the release, the
clarity of the release, and whether the employee was represented by or discouraged from consulting an attorney.
See e.g., Whitmire v. WAY_FM Group, Inc., 2008 WL 5158186 (M.D. Tenn. Dec. 8, 2008)(in holding that a
waiver was knowing and voluntary, a court noted that the employee was given at least 21 days to consider the
agreement, asked questions that resulted in a revised agreement, sought advice from an attorney but disregarded
it and decided to sign the agreement, had seven days after she signed the agreement to revoke it and chose not to
9/19/2010
Page 14 of 16
do so, and admitted she understood what she was signing).
[8] See e.g., Pilon v. University of Minn., 710 F.2d 466 (8th Cir. 1983)(where the employee was represented by
counsel, the release language was clear, and there was no claim of fraud or duress, the release was upheld).
Waivers that are executed by employees who were not advised to seek legal advice are more closely scrutinized
than agreements entered into by employees after consultation with an attorney.
[9] See Hampton v. Ford Motor Company, 561 F.3d 709 (7th Cir. 2009).
[10] See Torrez v. Public Service Company of New Mexico, Inc., 908 F.2d 687 (10th Cir. 1990); but see Cirillo
v. Arco Chem. Co., 862 F.2d 448 (3d Cir. 1988)(employee’s waiver was knowing and voluntary where he was
advised of equal employment laws, encouraged to consult employee relations representative, and release
specifically mentioned Title VII).
[11] See EEOC’s website for information on “How to File a Charge of Discrimination” at
http://www.eeoc.gov/charge/overview_charge_filing.html.
[12] Agreements that prevent employees from cooperating with the EEOC interfere with enforcement activities
because they deprive the Commission of important testimony and evidence needed to determine whether
discrimination has occurred. EEOC guidance also states that obtaining a promise from an employee not to file a
charge or assist in Commission investigations constitutes unlawful retaliation in violation of federal
employment rights statutes. See EEOC Enforcement Guidance on Non-Waivable Employee Rights Under
EEOC Enforced Statutes (April 1997); see also 29 C.F.R. § 1625.22(i)(2).
[13] Although your right to file a charge with the EEOC is protected, you can waive the right to recover from
your employer either in your own lawsuit, or in any suit brought on your behalf by the Commission. See EEOC
Enforcement Guidance on Non-Waivable Employee Rights Under EEOC Enforced Statutes.
[14] See Questions and Answers: Final Regulation on “Tender Back” and Related Issues Concerning ADEA
Waivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html. Recognizing that older workers often
need their severance payments to live on and may, in fact, already have spent the payments on living expenses,
EEOC regulations clarify that the contract principles of “tender back” (returning the consideration received for
the waiver before challenging it in court) and “ratification” (approving or ratifying the waiver by retaining the
consideration) do not apply to ADEA waivers. See also Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998)
(holding that because the release failed to comply with OWBPA, it could not bar the employee’s ADEA claim
even if the employee retained the monies she received in exchange for the release).
Employers also may not avoid the “no tender back rule” by using other means to limit an employee’s right to
challenge a waiver agreement or by penalizing an employee for challenging a waiver agreement. For example,
an employer may not require an employee to agree to pay damages to the employer or pay the employer’s
attorney’s fees simply for filing an age suit. Employers, however, are not precluded from recovering attorneys’
fees or costs specifically authorized under federal law. 29 C.F.R. § 1625.23(b).
[15] See, e.g., Blackwell v. Cole Taylor Bank, 152 F. 3d 666 (7th Cir. 1998) (noting that employees bringing
non-age claims might still have to “tender back” their consideration) and Hampton v. Ford Motor Co.., 561 F.3d
709 ( 7th Cir. 2009)(noting that because no exception to the “tender back” rule exists in this Title VII case,
employee must return– or least offer to return—the consideration she received before challenging the validity
of the waiver); but see Rangel v. El Paso Natural Gas Co., (holding that because the primary purpose of the
ADEA and Title VII is to make it easier for an employee to challenge discrimination, employees bringing
claims under Title VII should not have to return their severance pay before filing suit).
[16] See EEOC regulations Waiver of Rights and Claims Under the Age Discrimination in Employment Act
(ADEA). 29 C.F.R. Part 1625.
9/19/2010
Page 15 of 16
[17] See Thormforde v. International Business Machines Corp., 406 F.3d 500 (8th Cir. 1999); see also Syverson
v. IBM, 472 F. 3d 1072 (9th Cir. 2007) (court adopted the reasoning in Thormforde when finding the same
waiver used under different circumstances invalid).
[18] See American Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111 (1st Cir. 1998) (to “advise” employees to
consult an attorney means affirmatively to “caution,” “warn,” or “recommend”).
[19] An agreement can be signed prior to the 21- (or 45- ) day time period as long as employee’s decision is
knowing and voluntary and is not induced by the employer through fraud, misrepresentation, a threat to
withdraw or alter the offer prior to the expiration of the 21- or 45-day time period, or by providing different
terms to employees who sign the release prior to the expiration of such time period. 29 C.F.R. 1625.22 (e) (6).
[20] See Budro v. BAE Sys. Info. And Elec. Sys. Integration, Inc., 2008 WL 1774961 (D.N.H. April 16, 2008).
[21] Although a waiver that fails to meet OWBPA’s requirements is unenforceable, a number of courts have
refused to permit a suit based solely on an employer’s alleged violation of OWBPA requirements, holding that a
failure to meet those requirements cannot create a separate cause of action under OWBPA and is not a violation
of the ADEA. See e.g., EEOC v. Sara Lee Corp., 883 F. Supp. 211 (N.D. Ill. 1995); Williams v. General Motors
Corp., 901 F. Supp. 252 (E.D. Mich. 1995); but see Commonwealth of Massachusetts v. Bull HN Information
Sys. Inc., 16 F. Supp. 2d 90 (D. Mass. 1998)(holding that an invalid waiver can be an independent cause of
action under the ADEA); in a subsequent proceeding, Commonwealth of Massachusetts v. Bull HN Information
Sys. Inc., 143 F. Supp. 2d 134 (D. Mass. 2001), the court clarified that although employees can bring a suit
challenging a violation of OWBPA requirements, they cannot recover damages absent proof of age
discrimination.
[22] See Butcher v. Gerber Products Co., 8 F. Supp. 2d 307 (S.D.N.Y. 1998)(as a matter of law and public
policy, an employer is allowed only one chance to conform to the requirements of OWBPA and cannot “cure” a
defective release by issuing a letter to employees containing OWBPA-required information that was omitted
from their separation agreements and request that they either “reaffirm” their acceptance or “revoke” the
release).
[23] See Lauderdale v. Johnston Indus., Inc., 31 Fed. Appx. 940 (11th Cir. 2002).
[24] See Cassiday v. Greenhorne & Omara, Inc., 220 F.Supp. 2d 488 (D. Maryland 2002) (noting that the
employee did not allege that her “employer threatened or otherwise misled or duped her into signing; at all
times, she remained free to reject the offer and pursue her legal remedies”).
[25] See 29 C.F.R § 1625.22 (d) (4). See also DiBiase v. SmithKline Beecham Corp., 48 F. 3d 719 (3d Cir.
1995)(an employer may offer enhanced benefits to all terminated employees who agree to waive all claims
against the company, without providing extra consideration to employees protected by the ADEA).
Waivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html; 29 C.F.R. § 1625.23(c).
Waivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html; 29 C.F. R. § 1625.23(d).
[28] See Butcher v. Gerber Products Co., 8 F. Supp. 2d 307 (S.D.N.Y. 1998).
[29] 29 C.F.R. § 1625.22(f) (1) (iii) (A) (2005).
[30] Id.
9/19/2010
Page 16 of 16
[31] Id. at § 1625.22(f) (1) (iii) (B).
[32] An example in the regulations describes eligibility as: “All persons in the Construction Division are
eligible for the program. All persons who are being terminated in our November RIF are selected for the
program.” 29 C.F.F. § 1625.22(f)(4)(vii)(B). Some courts, however, interpret the term “eligibility factors” to
mean the criteria, such as job performance, experience, or seniority, an employer relied on in deciding who to
terminate. See Pagilio v. Guidant Corp., 483F. Supp. 2d 847 (D. Minn. 2007)(the court held that a release
violated OWBPA by, among other things, failing to identify the general criteria by which employees were
selected for termination); but see Kruchowski v. Weyerhaeuser Co., 423 F.3d 1139, amended by, 446 F.3d 1090
(10th Cir. 2006)(the court invalidated a release of claims because it failed to identify selection criteria as
“eligibility factors;” however, in a later, revised, opinion, the court omitted eligibility factors as one of the
grounds for invalidating the release and held only that the employer violated OWBPA by failing to identify the
decisional unit).
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9/19/2010
Case 1:09-cv-07323-LAK Document 1
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