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Employment Alert

August 2001

New Regulations Limit Employers Under ADEA Waivers

By Martha L. Lester, Esq. and Vincent A. Antoniello, Esq.

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he Equal Employment Opportunity Commission (“EEOC”) has promulgated regulations that alter an employer's latitude when obtaining waivers of claims under the federal Age Discrimination in Employment Act (“ADEA”). These regulations, codified at 29 C.F.R. § 1625.23, will likely change significantly the way separation and release agreements involving individuals age 40

• r older are negotiated and interpreted.

Essentially, separation and release agreements are contracts that memorialize and set the terms of the termination of an employment relationship. From an employer’s standpoint, the most vital portion of any separation agreement is usually the release under which the employee agrees to release any and all claims that he or she may have against the employer in exchange for a severance payment

• r other consideration. With the marked increase

in employment litigation and the expenses it incurs, employers have generally been more willing to enter into severance arrangements with departing employees in order to avoid lawsuits.

Should An Employer Request A Severance Agreement?

There are several factors that an employer should consider when deciding whether to offer an employee the option of entering into a separation

• agreement. First and foremost is the threat of
• litigation. Under what conditions was the

employee severed from employment and what possible claims might the employee bring against the employer? In that regard, the employer will want to consider the following circumstances:

• Analyze whether the employee is in

a class protected under applicable

• law. For example, is the individual

male or female, over or under the age

• f

40, heterosexual

• r

homosexual, caucasian

• r

a minority, disabled and so forth.

• Did the employee recently apply, or

become eligible for, or receive benefits under workers’ compen- sation, a disability insurance policy,

• r the provisions of the Family

Leave Act or Family Medical Leave Act?

• Has the employee filed a report of

sexual or other harassment, a discrimination complaint, or raised allegations that the employer has engaged in unlawful conduct?

• Was the employee fired without

first receiving progressive discipline (if required by company policy) or

• ther warnings typically afforded to
• ther company employees?

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• Did the employer have either an

express or implied contract with the employee that restricts the employer’s termination rights?

• Was the employee eligible to

receive any benefit, such as a bonus

• r stock option vesting immediately

prior to the termination date?

• Was the employee entitled to a

reasonable accommodation con- templated under applicable law? If it is determined that a separation agreement is appropriate in an individual circumstance or it is the company’s policy to do so, the employer should assess the risk of liability exposure, together with the company’s financial position, in order to calculate an appropriate amount of money (or

• ther benefits) to offer in exchange for a release.

In order to be legally enforceable, such a release or waiver must be entered into “knowingly and voluntarily,” and must be supported by “adequate consideration.” If the employer pays the employee only those sums the employer otherwise owes the employee by virtue of the employment relationship, the agreement will not be supported by adequate consideration and may not be binding.

The New Regulations

The new EEOC regulations impact profoundly an employer’s protection under waivers of federal age discrimination claims under ADEA. Essentially, the regulations allow an employee who has entered into an ADEA waiver to keep the monies (or other benefits) paid by the employer in exchange for such waiver, while at the same time maintaining suit against the employer for the very ADEA claims which were waived. Any provisions in the waiver requiring the employee to “tender- back” monies or other benefits received upon the filing of an ADEA suit will be rendered unenforceable, and further, such provisions may even serve to invalidate the separation agreement in its entirety. The regulations represent a significant deviation from the traditional contract law principle of “tender-back” - which requires a party challenging the validity of a legal agreement to return or tender back payments received under that agreement as a precondition to bringing suit. The following summarizes the effects of the new EEOC regulations:

• The contract principles of tender

back do not apply to ADEA

• waivers. Accordingly, an older

worker may retain severance or

• ther benefits, even if he or she

challenges the validity of a release under ADEA.

• Employers may not avoid the no

tender back rule by using other means to limit an older worker’s right to challenge a release agreement, or by penalizing an

• lder worker for challenging a

release agreement. For example, this means that an employer may not require older workers to agree to pay damages to the employer or

“The new EEOC regulations impact profoundly an employer’s protection under waivers

• f

federal age discrimination claims under ADEA.”

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pay the employer’s attorney’s fees simply for filing suit.

• An employer may recover money or

a credit for amounts it paid for a release if the

• lder

worker successfully challenges the release, proves age discrimination, and

• btains

a monetary award. However, the employer’s recovery may not exceed the amount it paid for the release in the first place.

• An employer may not, on its own,

avoid the obligations to which it agreed in the agreement, even if the release were challenged. For example, an employer will still be

• bligated to make the payments or

continue the benefits it agreed to provide to the older worker even in the face of suit. In sum, the recent EEOC regulations have significantly limited employers’ protection under ADEA waivers. With regard to such waivers, employers may no longer require employees to tender-back monies or other consideration paid or made in exchange for the waiver as a precondition to bringing suit. Accordingly, employers should consider revising the terms of their separation agreements to comply with the new EEOC regulations, thus providing the maximum protection afforded by the law. Employers also should be aware that as a matter

• f public policy and EEOC regulation, an effective

release agreement cannot preclude an employee from later participating in an EEOC administrative proceeding, although a well drafted release should preclude that employee from receiving any benefits

• r monetary awards as a result of such
• participation. For this reason, consultation with

counsel may be critical. Should you have any further questions with regard to ADEA releases or any other employment-related matters, please contact Martha L. Lester, Chair of the Employment Law Practice Group, or Vincent A. Antoniello, member of the Employment Law Practice Group at (973) 597-2500. You may also wish to obtain a copy of our newly published book, “A Practical Guide to New Jersey Employment Law: The Employer’s Resource.” This Guidebook, published in connection with the New Jersey Business and Industry Association, is the resource for New Jersey employers seeking to comply with New Jersey laws, regulations and procedures in the employment-related area. It provides management with information concerning existing laws, emerging trends, most frequently asked questions, and practical tips on managing the workforce and workplace.

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