Can an employer insist a severance agreement be signed or termination pay will be withheld?

Waiving Legal Claims
Can an employer insist a severance agreement be signed or termination pay will be withheld? Must the employee be advised of the right to have an attorney review the agreement? Those questions, and others relating to potential liability for age bias when creating future workforce plans, are addressed this month. By Keisha-Ann G. Gray
As the end of this year approaches, many employers are facing difficult issues related to employee turnover. Whether an employee is retiring, changing employers or being terminated, there are many concerns employers must address to minimize liability risks associated with these departures, while also ensuring a seamless transition for the business. With this in mind, this month's column discusses two common turnover issues -- severance agreements and questioning employees about their future retirement plans.
Question: If an employee is given 24 hours to sign a severance agreement or s/he will not receive severance pay, and is not told that s/he has the right to have an attorney review it, is the agreement valid?
Answer: Definitely not for employees older than 40 who are waiving federal Age Discrimination in Employment Act claims -- and probably not in most other cases.
A severance agreement is, at its core, a contract between an employer and an employee that governs the terms and conditions of the employee's departure. At bottom, as with any contract, severance agreements are not enforceable unless there is a valid offer and acceptance, adequate consideration and a meeting of the minds.
Also, severance agreements are subject to traditional common-law contract defenses such as duress, procedural and substantive unconscionability, mistake or fraud. See generally, Cuchara v. Gai-Tronics Corp., 129 F. App'x. 728 (3d Cir. 2005); Nicklin v. Henderson, 352 F.3d 1077 (6th Cir. 2003); see also 7-28 Corbin on Contracts § 28.2.
The most important aspect of the severance agreement is the waiver-of-claims provision, wherein the departing employee agrees to forever waive and discharge his or her rights to bring suit and collect monetary damages from his/her employer.
Therefore, in order to be valid, in addition to complying with the requirements of traditional contract law, severance agreements must also be knowing and voluntary to ensure that employees are not signing away potential rights without first understanding their rights and the ramifications of their waivers. See Alexander v. Gardner-Denver Co., 415 U.S. 36, 52 n.15 (1974).
Giving employees short review times to consider the agreements and failing to advise employees of their right to consult an attorney prior to signing the agreements weigh against a finding that the severance agreement was knowing and voluntary.
If the severance agreement as described above contains a waiver of claims under the ADEA, it will not be valid.
The ADEA protects workers over the age of 40 from discrimination based on age. See 29 U.S.C. §§ 623(a), 631(a). To be valid, any waiver of claims under the ADEA must comply with the very specific and detailed procedures contained in the Older Workers Benefit Protection Act.
In OWBPA, Congress determined that, for a waiver of claims under the ADEA to be "knowing and voluntary," it must meet the following seven specific requirements:
* The waiver must be written in a manner calculated to be understood by that employee;
* The waiver must specifically refer to rights or claims arising under the ADEA;
* The waiver cannot apply to claims that arise after the waiver is signed;
* The waiver is in exchange for consideration that is in addition to anything to which the employee is already entitled;
* The employee is advised in writing to consult with an attorney prior to executing the agreement;
* The employee is given at least 21 days in which to consider the agreement; or if the waiver is requested in connection with an exit incentive or other reduction-in-force/group-termination plan offered to a group or class of employees, the employee must be given at least 45 days within which to consider the agreement; and
* The employer affords the employee at least seven days to revoke the agreement after signing it. Id. at §§ 626(f)(1)(A)-(G)
A severance agreement signed by an employee based on the circumstances in the question above would clearly violate OWBPA and therefore would not be valid and enforceable against that employee should s/he file a subsequent claim under the ADEA.
With regard to other federal and state employment-law statutes, there is no definitive list of requirements necessary for a waiver of claims to be knowing and voluntary.
In order to determine if a waiver of claims under other statutes is "knowing and voluntary," courts often rely on a "totality-of-the-circumstances" test. The totality-of-circumstances test is a multifactor balancing test that is applied in the majority courts.
Although the Fourth and the Eighth Circuits continue to apply a common-law contract-based approach to all non-ADEA waivers, the factors that they consider are very similar to the factors used in the totality-of-the-circumstances test.
While there is some variation between each circuit's version of the test, they all share several of the following common factors:
* The amount of time the employee had access to the agreement before signing it;
* Whether the employee consulted with legal counsel or if the employer encouraged the employee to seek legal advice;
* The employee's education and business experience;
* The employee's role in negotiating the terms of the agreement, and
* Whether the employee knew that he was waiving his rights.
An analysis of a waiver's validity under the "totality-of-the-circumstances" test is fact-specific and requires a case-by-case determination.
Although no one factor is dispositive, courts have looked very disfavorably on situations where employers try to push through severance agreements containing waiver provisions on employees of lower sophistication who did not have the benefit of legal counsel.
One court has explicitly held that a waiver cannot be "knowing and voluntary" when an employee has only 24 hours notice to decide whether or not to sign. See Puentes v. UPS, 86 F.3d 196, 198-99 (11th Cir. 1996) (holding that, absent some reason for urgency, 24-hours notice is too short a period).
Finally, there are claims under other laws that cannotbe waived in a severance agreement even if the waiver is "knowing and voluntary."
For example, an employee cannot waive claims under the Fair Labor Standards Act without approval from the U.S Department of Labor. See Runyan v. Nat'l Cash Register Corp., 787 F.2d 1039, 1041-42 (6th Cir. 1986).
Furthermore, one circuit continues to hold that a release of claims under the Family and Medical Leave Act cannot be waived by private agreement. See Taylor v. Progress Energy, 493 F.3d 454 (4th Cir. 2007), cert. denied, 128 US. Ct. 2931 (2008). However, in new regulations recently released by the U.S. Department of Labor, the DOL rejected the Fourth Circuit's interpretation and amended the regulations to make it clear that an employee may waive any past claims arising under the FMLA. See 29 C.F.R. § 825.220(d).
Recently, one California state court interpreted the Uniformed Services Employment and Reemployment Rights Act, an act that prohibits an employer from terminating an employee based on membership in the military, as prohibiting an employee from being able to waive his rights under USERRA as part of a severance agreement. See Perez v. Uline, Inc., 157 Cal. App. 4th 953; 68 Cal. Rptr. 3d 872 (2007).
So, while a severance agreement signed under the circumstances in the question may not be automatically invalid in every situation, it often will be.
Absent an extraordinary set of circumstances, in order for employers to have a good chance of ensuring that an employee's waiver of potential claims will be valid, employers should, at the very least, give employees more than 24 hours to consider the agreements and they should also advise employees orally and in writing that they should consult with an attorney before signing.
Question: Given that there will at some point be succession issues and possible holes in the organization, can we legally ask folks what their plans are concerning their target-retirement date? This is not to push, only to organize for a seamless and professional hand-over of the work.
Answer: It is not per se illegal to ask an employee about his/her retirement plans or target-retirement date; however, such questions are dangerous because, under certain circumstances, these types of questions can raise an inference of age-related bias under the ADEA.
Courts understand that it is essential for employers to be able to ask employees about their future plans to enable proper future planning for the business. See Colosi v. Electri-Flex Co., 965 F.2d 500, 502 (7th Cir. 1992) (noting that a company has a legitimate interest in learning its employees' plans for the future and that it would be absurd to deter such inquires by treating them as evidence of unlawful discrimination).
Therefore, courts have consistently held that the mere fact that an employer asked an employee about his/her retirement plans is insufficient in and of itself to raise an inference of discrimination under the ADEA. See, e.g., Lewis v. St. Cloud State Univ., 467 F.3d 1133, 1137 (8th Cir. 2006) (holding that reasonable inquires into an employee's retirement plans do not permit an inference of age discrimination); Wallace v. O.C. Recognition Co., 299 F.3d 96, 100-01 (1st Cir. 2002) (holding that company officials are permitted to gather information relevant to personnel planning without raising the specter of age discrimination); Cox v. Dubuque Bank & Trust Co., 163 F.3d 492, 497 (8th Cir. 1998) (holding that an employer may make reasonable inquires into the retirement plans of its employees);and Woythal v. Tex-Tenn Corp., 112 F.3d 243, 247 (6th Cir. 1997) (stating that questions about an employee's future are insufficient to prove that age was the reason for the employee's departure).
That said, employers still need to be extremely cautious when questioning employees about their retirement plans. This is because there is a critical distinction between asking about retirement plans for the purpose of legitimate business planning and asking about retirement in a manner intended to harass an older employee into retiring. See Barbara Lindemann & David D. Kadue, Age Discrimination in Employment Law 381-82 (2003).
In the latter situation, courts have found that continuous or coercive questioning about retirement may be sufficient to raise an inference of age-related bias. See, e.g., Kaniff v. Allstate Insurance Co., 121 F.3d 258, 263 (7th Cir. 1997) (holding that repeated references to retirement may reflect an employer's intention to rid itself of older workers by subtly pressuring them into retiring); Greenberg v. Union Camp Corp., 48 F.3d 22, 28 (1st Cir. 1995) (holding that repeated or coercive inquiries about retirement plans can clearly give rise to a reasonable inference of an anti-age bias); and Guthrie v. J.C. Penney Co., 803 F.2d 202, 208 (5th Cir. 1986) (noting that sometimes retirement inquiries are so unnecessary and excessive that they could constitute evidence of discriminatory harassment).
So what is the take away from all this?
Before asking any employee (especially an employee over 40) about retirement plans, employers should be absolutely certain that the questions are truly being asked for legitimate nondiscriminatory business-related reasons.
Also, when asking about retirement plans, employers should explain to the employee that the questions are being asked solely because of the employer's need to plan for the future and for no other reason whatsoever.
It is also crucial that the questions be asked tactfully; therefore, the questions should be asked by someone in the HR department who is well-respected and has a good professional history with the employee being questioned.
Finally, because of the sensitive nature of this line of questioning, and the high stakes involved if the questioning is handled improperly, it is also advisable to have a more experienced HR representative ask these questions. This is definitely not a task that should be left to the more junior and inexperienced members of the HR department to handle.
December 1, 2008
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