ADEA Update: Severance Pay, Waivers and Tender-Backs Laying off older employees usually isn’t pleasant and can place an employer at risk for age-discrimination claims. Employees who are 40 or older belong to a protected class under the Age Discrimination in Employment Act (ADEA). So in return for severance benefits, a savvy employer will require departing employees to sign separation agreements that waive any legal claims. For employees 40 or older, the waiver can specifically bar age-discrimination lawsuits under the ADEA. That means if laid-off employees waive their right to sue and take the severance money, courts should summarily dismiss any later suits they file against their employers, right? When Waivers Don’t Work Not necessarily. Courts typically don’t dismiss these suits alleging age discrimination if ex-employees allege, for example, that: o They signed the waivers involuntarily or under duress, o Their employers failed to adequately explain the waiver, or o Their employers failed to allow employees ample time — 21 days under the ADEA — to let their lawyers review the agreement and seven days to rescind it. Is this unfair to employers? Eating Cake While Having It, Too Many employers think so. They reason that ex-employees who sue after promising not to should be required to return severance pay — at least until the lawsuit is concluded. Why should they eat their cake and have it, too? Some employers tried to get around that perceived unfairness by inserting “tender-back” clauses in addition to waivers in their separation agreements. These clauses require ex-employees who file lawsuits after collecting severance pay to return it before proceeding with their suits. But in December 2000, the Equal Employment Opportunity Commission (EEOC), which administers the ADEA, enacted new rules that invalidate tender-back clauses. That is, the rules allow ex-employees to keep their severance pay (have their cake) if they sue their former employers for age discrimination (eat it, too), even after signing waivers. Note that the EEOC rules don’t apply to claims other than age-discrimination under the ADEA. In racial- or sexual-discrimination cases, the tender-back clause may still be valid. Invalidating the Waiver Itself These EEOC rules go further than simply invalidating tender-back clauses in separation agreements. When it issued the rule, the EEOC commented that the inclusion of a tender-back clause might invalidate the entire waiver if the ex-employee files an age-discrimination claim. The EEOC’s reasoning is that the addition of the tender-back clause complicates the agreement so that the average employee may not understand it. To play it safe, eliminate tender-back clauses from any waiver you present to employees 40 and older. Alternatively, you can split your separation agreement into two parts: one containing a waiver of ADEA claims, the other containing a waiver of all other claims. The latter may also include a tender-back clause, because the EEOC comments apply only to ADEA claims. If you present employees with two separate agreements, be sure you offer two severance benefits, one for signing each agreement. Compliance Review The ADEA isn’t the only federal statute that you must comply with when you fire or lay off employees. Others include Title VII of the Civil Rights Act and the WARN Act. To make sure you comply, ask your attorney to review your layoff procedures and your separation agreement — especially if they contain a waiver or tender-back clause or both. In addition, state laws may give rights to employees. Sidebar: The ABCs of the ADEA The 1967 Age Discrimination in Employment Act (ADEA) protects employees and applicants who are 40 and older from discrimination based on age. The act applies to all government and private employers with 20 or more employees. The ADEA covers all terms, conditions and privileges of employment — including hiring, firing, promotion, layoff, compensation, benefits, job assignments and training. The act also bars employers from retaliating against an employee or applicant for filing an age-discrimination claim, testifying in such a claim, or participating in any way in an age-discrimination investigation or litigation. Employers on the losing end of these lawsuits may be liable for lost wages and benefits, damages for pain and suffering, and reimbursements of legal expenses. But the ADEA doesn’t protect some kinds of law-enforcement and fire-fighting personnel, air-traffic controllers, tenured university professors, executives in “high policy-making positions” who are 65 or older, and workers whose jobs legally require them to be younger than a specific age. But employers should be careful when invoking any of these exceptions. When a claim for age discrimination is filed with the Equal Employment Opportunity Commission (EEOC), what happens? The EEOC investigates claims and seeks to resolve them by negotiating with the employer, by suing the employer in federal court, by authorizing the employee to file a lawsuit or by dismissing the claim. Some state laws further regulate employees’ right to sue when the EEOC dismisses their claims. Contact | Legal Disclaimer