Severance Agreements: Older Worker Who Signs Release Can Still Sue You; Supreme Court Rules

Once a terminated employeehas signed a release promising not to sue and has cashed theirseverance check, you probably think you are free from their legalclaims against you. In most cases, you’d be right. But you couldbe in for an expensive surprise if the employee is 40 years orolder and your paperwork isn’t perfect. That’s because federallaw contains strict, detailed regulations governing separationagreements with older workers. And the U.S. Supreme Court hasjust ruled that failing to follow those requirements to the lettercan void the entire severance arrangement-even if the employeehas already spent your money. We’ll look at the court’s rulingand provide a checklist to ensure you’ve covered all your bases.

Employee Accepts Severance Package

Dolores Oubre, who was over 40, worked as a scheduler at a power plant run by En- tergyOperations, Inc. After receiving a poor performance rating, shewas given the choice of showing improvement during the comingyear or accepting a voluntary severance arrangement. She was allowed14 days to consider her options. After consulting her attorney,she accepted the severance package.Oubre signed a release waiving all claims against Entergy. In return, she received $6,258.

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Paperwork Defective-But Worker Keeps Money

Despite signing the release and receiving the money, Oubre sued for age discrimination.She claimed that she could pursue the lawsuit because the releasedid not meet the lengthy requirements of the federal Older WorkersBenefit Protection Act, and was therefore invalid.

Entergy asked the court to throw out the case. It argued that even if the release Oubre hadsigned was defective, she was bound by its terms because shedidn’t return Entergy’s severance payments.

Court Invalidates Agreement

The U.S. Supreme Court ruled against the employer. The court said federal law clearlystates that age discrimination claims cannot be waived unlessspecific steps are followed. What’s more, there are no exceptionsto these rules. So even though the employee didn’t return theseverance payments, the court still permitted her to pursue herage bias lawsuit.1

6-Point Compliance Checklist

If you have 20 or more employees, you are subject to the federal age discrimination laws.The court’s ruling makes clear how important it is to follow the detailedrules governing any waiver of age-related claims when preparinga separation agreement for an employee who is 40 or over. Thelaw requires you to:

1. Use plain language.The agreement must be written in clear language the average workercan understand.

    

2. Refer to ADEA claims.The release must specifically state that the employee gives upall rights under the Age Dis- crimination in Employment Act. Theagreement must also provide that the employee does not waive age-biasclaims that may arise after the release is signed. (These couldoccur, for example, if the employee returns to work for the company.)

    

3. Advise employee toconsult counsel. The worker must be advised in writing to consultan attorney before signing the agreement.

    

4. Give something extra.In exchange for the release, the employee must be given moneyor benefits exceeding the amount the employee is already entitledto under your policies.

    

5. Allow time to consideragreement. An employee must be given at least 21 days todecide whether to accept the severanceoffer. When the offer is given to a group, as in a reduction offorce, the employees are entitled to 45 days as well as certainother additional information.

    

6. Include right torevoke. The employee must be given at least seven days to revokethe agreement after it is signed. Therefore, no payments shouldbe made until after this period has passed.