Recently, the U.S. Equal Employment Opportunity Commission (EEOC) issued guidelines on employee severance agreements: “Understanding Waivers of Discrimination Claims in Employee Severance Agreements” (http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html). In the guidelines, the EEOC provides employees with general information about the enforceability of releases in severance agreements, a checklist of factors an employee should consider when evaluating a severance agreement, and sample severance agreements.
Limits on Release Scope
The guidelines inform employees of their right to file a charge with the EEOC, even if an employee signs a severance agreement containing a release of all claims. The guidelines also clarify the EEOC’s position that no agreement between an employer and employee can limit an employee’s right to testify, assist or participate in an investigation, hearing or proceeding conducted by the EEOC under the Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA) or the Equal Protection Act (EPA) – although employers can have an employee waive his or her ability to recover damages from such participation. In addition, the guidelines specify that an employee cannot be required to return severance pay – or other consideration – before filing a charge.
Exit Incentive & Termination Programs
The guidelines also address disclosure requirements of the Older Worker Benefits Protection Act (OWBPA), an amendment to the ADEA. As most employers are aware, the OWBPA imposes additional disclosure requirements (e.g., 45-day versus 21-day consideration period) when employers request waivers of age discrimination claims from employees age 40 and over who are separated as part of “exit incentive programs” or “other termination programs.”
The guidelines advise that whether a “program” exists depends on the facts and circumstances of each case. However, according to the EEOC, 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. The guidelines also state that if a large employer terminates 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.
OWBPA Disclosures
Finally, the guidelines provide that an employer is required to disclose the following information to employees age 40 and over who are being laid off as part of an exit incentive or other termination program:
- The decisional unit, which is the class, unit, or group of employees from which the employer chose the employees who were and were not selected for the program. Depending on the circumstances of the termination, this unit could include 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.
- Time limits applicable to the program.
- Job titles and ages of all individuals who are eligible or who were selected for the program and the ages of all individuals in the same job classifications or organizational unit who are not eligible or who were not selected.
Employer Take-Away
The guidelines are a reminder to employers that severance agreements should be drafted with clear terms in a manner that all employees receiving the agreements can understand, regardless of education and business experience. Also, in the past, there has not been much litigation analyzing the OWBPA’s disclosure requirements. Given the amount of layoffs in the past year, this trend is likely to change. Therefore, employers offering severance packages as part of a termination or exit incentive program would be well-advised to review their standard form agreements to ensure that the materials provide enough information about release limits, required disclosures and the factors used in making selections to comply with the EEOC’s expectations.
For assistance preparing for a reduction in force or drafting and updating related severance agreements, please contact the author or any other member of McGuireWoods’ Labor & Employment or Employee Benefits teams.