"PENALTY" PROVISIONS BARRED IN RELEASES OF ADEA CLAIMS

A new EEOC rule imposes additional restrictions on releases of claims under the federal Age Discrimination in Employment Act (ADEA), effective January 10, 2001. Under the new rule, an ADEA release may not include any of the following penalty provisions: (1) a requirement to "tender back" any benefits, such as cash payments, before the claimant may challenge the release; (2) an obligation to pay the employer's attorney fees if the challenge to the release is unsuccessful; (3) a payment of damages to the employer for an unsuccessful challenge; or (4) a clause permitting the employer to abrogate its obligations under the agreement (that is, the commitment to make severance payments) if the employee challenges the release.

These new restrictions on releases of age claims are in addition to those specific requirements imposed by the Older Worker Benefit Protection Act (OWBPA) and routinely followed over the past few years.  Such previously existing requirements include the admonition to an employee to consult with an attorney, the 21 day period to consider a release, and the seven day revocation period.

The EEOC adopted the new rule in response to the U.S. Supreme Court decision in Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998). In Oubre, the Court held that an employee need not "tender back" a cash payment received for signing an ADEA release before bringing a lawsuit challenging the release. Applying the Oubre rationale, the EEOC concluded that other penalty provisions frequently found in waivers and releases, such as the attorney fee, damages, or abrogation of obligations provisions, had the same effect as the tender back requirement of discouraging older workers from exercising their ADEA rights.

Our recommendation:

Technicalities aside, valid releases are a potent answer to age claims by former employees.  We recommend that employers who include any of the prohibited penalty provisions in a general waiver and release form add a disclaimer that such provisions do not apply to the release of ADEA claims. The EEOC has suggested that if any prohibited penalty provisions are included in a release, not only are such provisions void, but their mere inclusion may invalidate the release of the ADEA claim.

More information:

More information about the new rules can be obtained at the following websites:  http://www.eeoc.gov/regs/tenderback.html and http://www.eeoc.gov/regs/tenderback-qanda.html.

If you have any questions regarding this issue, call or email us. Feel free to share this advisory with others. If you would like to be on our e-mail distribution list, please visit our Email Advisory web page and click on the "Subscribe" button.

Disclaimer: The materials available on this web site are for informational purposes only. Nothing on this site should be construed as legal advice or opinion. It is important that you consult an experienced attorney concerning your particular factual situation. Do not rely solely on the information provided on this web site.

© 2001 Newcomb, Sabin, Schwartz & Landsverk, LLP.