Labor & Employment Law Articles

Getting Releases from Terminated Employees - A Tool for Avoiding Exposure

Frequently, employers wish to terminate an employee for legitimate reasons but fear litigation because that employee is a member of a protected class due to age, sex, race, religion, disability, etc. For example, a New York court recently held that a restaurant created an inference of discrimination when it terminated its oldest employee. Obviously, the employer should have known it was asking for litigation when it engaged in this conduct. One way that this employer could have avoided litigation exposure was to try to get a release from the terminated employee in exchange for some consideration to which the employee was not otherwise entitled. The use of releases to get employees to waive their rights to litigate claims of employment discrimination has been the subject of criticism from employee organizations who contend that it is a coercive tactic. Congress responded to this criticism by enacting into law the Older Worker's Benefit Protection Act (OWBPA).

Under OWBPA, a worker can waive claims of age discrimination if the waiver is knowing and voluntary. Waivers must be "written in a manner calculated to be understood by such individual, or by the average individual". The waiver should indicate that the employee has been advised by the employer to consult with an attorney and it should specifically refer to claims under the Age Discrimination in Employment Act (ADEA). The employee must be given at least 21 days to consider the agreement. This period is expanded to 45 days if the offer is part of a program offered to a group of employees. The employee is also given an additional seven days to change his or her mind after execution of agreement.

In 1998, the Supreme Court of the United States held in Oubre v. Entergy Operations, Inc., that employees are not required to return severance payments or other consideration paid in exchange for a release of age discrimination claims prior to challenging the validity of the release in court. The EEOC recently issued guidelines, which addresses the Supreme Court's decision in Oubre. These guidelines, which are legally binding, prohibit employers from requiring employees to return severance pay, benefits, or other consideration given in exchange for a release in order to challenge a release as invalid as inconsistent with the ADEA. In addition, the rules prohibit the imposition of other financial penalties against an employee for challenging a release in court.

Under traditional principles of law, in order to challenge a waiver in court, the individual who believes the agreement to be invalid must first return or "tender back" the payment received in exchange for the agreement. Otherwise, the individual is deemed to have "ratified" the agreement by accepting the payment. In Oubre, the Supreme Court held that waivers under the ADEA are governed by OWBPA rather than traditional principles of contract law. Moreover, the Court recognized that by requiring older workers to tender back consideration, it would prevent these workers from challenging invalid agreements in court.

The EEOC guidelines permit an employer to recover money it paid for a release if the employee successfully challenges the release and obtains a monetary award in court. The monetary award can then be reduced by the amount paid for the release. In addition, the employer is still obligated to make outstanding payments of the release agreement even if the agreement is challenged in court. However, if an employer can successfully meet its burden of establishing the validity of the release, the employee's lawsuit will be dismissed.

The courts still need to conclusively resolve what are the criteria for evaluating the legitimacy of a release or waiver to refrain from litigating discrimination claims other than those based on age. Some commentators advise adhering to the OWBPA requirements even for non-age claims to insure that such releases are held to be valid.

Some employers are reluctant to utilize releases because of the fear that they may educate employees about rights and litigation possibilities of which they might otherwise be unaware. However, this might be a case of employers sticking their heads in the sand. In light of the vast publicity and media attention given to employment discrimination trials and verdicts, it is foolish to rely on the hope that employees are unaware of their rights. The use of releases and waivers can be an employer's best chance of avoiding exposure to litigation and possible exposure to liability.