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Incentive Packages Must Comply with OWBPA

by Susan Hartmus Hiser

Q: Our company is downsizing its operations, and we would like to offer an incentive package to certain employees as an inducement to leave voluntarily. If we do, can we obtain a release of all claims from the employees who accept the incentive package?

HR Guide to Employment Law: A practical compliance reference manual covering 14 topics, including discrimination and issues related to reductions in force

A: Yes, you can; however, the Older Workers Benefit Protection Act (OWBPA), found at Title II of the federal Age Discrimination in Employment Act (ADEA), provides strict rules governing the release of age discrimination claims. Age discrimination claims are the most common claims that arise from downsizing — or “rightsizing” — so a failure to comply with the OWBPA can prove costly to employers. Courts won’t consider a release to be “knowing and voluntary” — and therefore won’t enforce a release of ADEA claims — unless it meets the following minimum criteria:

  • The release must be in writing and written in a way that’s calculated to be understood by the individual to whom it’s given.
  • It must specifically refer to rights or claims arising under the ADEA.
  • It can’t require the waiver of any rights for claims that may arise after the date the release is executed.
  • It must provide valuable consideration to the employee that’s in excess of what he’s otherwise entitled to under the employer’s policies.
  • The employee must be advised to consult with an attorney.
  • For a “program” (defined under the OWBPA as two or more employees), the release should state that the employee can take up to 45 days to consider the release and an additional seven days after signing the release to revoke it. In addition, the employer must supply the affected employees with certain demographic information about the employees covered by the program. The disclosure requirements in the last bullet point are aimed at enabling the terminated employees to decide whether to sign the waiver or reject the proffered separation benefits and pursue an age discrimination claim.

HR Hero Free White Papers: Downsizing: Getting It Right from Termination to Engaging the Survivors and 5 Alternatives to a RIF

Susan Hartmus Hiser is a shareholder with Vercruysse Murray & Calzone, P.C., in Detroit. She may be reached at (248) 540-4987.

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