Number 28: The Older Workers Benefit Protection Act and Settlement Agreements in General
In 1990, Congress amended the Age Discrimination in Employment Act (ADEA, prohibiting age discrimination for workers 40 and older) to add rules regarding the waiver of the right to sue under the ADEA. Unlike Title VII, where the rules for waivers of claims are derived from case law, the rules for waivers under the ADEA are defined by statute – the Older Workers Benefit Protection Act (OWBPA).
A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily consents to the waiver. In addition to being knowingly and voluntarily signed, a valid settlement agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws. Under OWBPA, a minimum set of conditions have to be met in order for an agreement to be considered “knowingly and voluntarily” signed by an employee. A waiver of an ADEA claim is not valid unless it satisfies OWBPA’s specific requirements and is not induced by an employer’s improper conduct. OWBPA lists seven factors that must be satisfied for a waiver of age discrimination claims to be considered knowingly and voluntarily waived. 29 C.F.R. § 1625. According to the EEOC, the waiver contained in a settlement agreement must do the following:
- Be written in a manner that can be clearly understood;
- Specifically refer to rights or claims arising under the ADEA;
- Advise the employee in writing to consult an attorney before accepting the agreement;
- Give an employee seven days to revoke his/her signature (this means a waiver is not effective until the eighth day after the employee signs it);
- Provide the employee with at least 21 days to consider the offer. The 21-day period runs from the date of the employer’s final offer, 29 C.F.R.
- Not waive rights or claims arising after the date the waiver is executed; and
- Be supported by consideration in addition to that to which the employee already is entitled.
If a waiver of age claims fails to meet any of these seven requirements, it is invalid and unenforceable.
State laws may also govern the question regarding the proper construction of a severance agreement and the validity of waivers. For example, under California law, a waiver cannot release unknown claims unless the waiver agreement contains certain language, specifically providing for such a waiver. Other states may impose similar requirements to obtain an effective waiver of certain state law claims. Employers should check for such state requirements before finalizing any severance agreement.