“40” is the magic number

Don’t forget it when offering a severance package

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Employers who have used severance agreements involving a release of claims are probably familiar with the extra requirements for such agreements when the employee is 40 years or older. Specifically, under the Older Workers Benefits Protection Act (“OWBPA”) a release of age discrimination claims under the Age Discrimination in Employment Act (“ADEA”) must meet certain “knowing and voluntary” elements to be enforceable. The elements are:

  1. Wording that can be clearly understood
  2. Written advice/recommendation to the employee to consult an attorney before accepting the agreement
  3. Specific reference to rights or claims arising under the ADEA (i.e., reference to the ADEA by name)
  4. Providing the employee with at least 21 days to consider the offer (although the employee may waive the full 21-day period and agree to it sooner)
  5. Providing the employee seven days in which to revoke the agreement.
  6. Consideration to support the release in addition to that to which the employee already is entitled, and
  7. Releasing only claims that arise prior to the date on which the release is executed.

Additional requirements for qualified separation “programs”

However, many employers are not aware of the additional requirements for ADEA waivers in release agreements that are being offered as part of “group termination” or voluntary “exit incentive” programs-- specifically, where the employer offers extra consideration to two or more employees in exchange for release agreements, in connection with the termination of employment. To be part of a qualified “program” the offer must be part of a coordinated plan for the layoff or separation of two or more employees, however, these extra requirements may not exist if the release agreement offers are unrelated, in different work units, or spanning over an extended period of time.

So what are these additional requirements for covered programs? If a qualified program exists, the releases offered to employees age 40 or older must comply with the following additional requirements to be enforceable for waiver of ADEA claims:

  1. The employees must be given at least 45 days (rather than 21 days) to consider whether to sign the agreement.
  2. The employer must provide the following information to each employee offered the waiver agreement:
    • the decisional unit covered by the program (the class, unit or group from which the employer chose the persons to be offered consideration for signing a waiver)
    • any time limits applicable to the program
    • any eligibility factors for the program
    • the job titles and ages of all individuals eligible or selected for the program, and
    • the ages of all individuals in the same “job classification” or “organizational unit” who are not eligible or selected for the program.

The purpose of these disclosures is to provide affected employees with enough information to allow them to make an informed decision pertaining to potential age discrimination issues and whether to sign the waiver of age discrimination claims.

Have your agreements reviewed!

Employers who are offering any employee (or former employee) age 40 or above a release agreement that includes waiver of age discrimination claims under the ADEA must keep in mind the above requirements. Because these requirements are technical and require special drafting of the release agreement provisions, it is highly recommended that legal counsel review and/or draft these agreements.