EEOC Issues New Guidance to Employees Regarding Waivers of Discrimination Claims in Severance Agreements

On July 15, 2009, the United States Equal Employment Opportunity Commission (EEOC) issued guidance to employees who are offered severance agreements that include releases of employment law claims after they have been laid off or otherwise fired. More specifically, the EEOC’s guidance answers questions employees might have regarding severance agreements that require them to waive their rights under employment laws such as Title VII of the Civil Rights Act (Title VII), which prohibits gender discrimination, race discrimination, national origin discrimination, and religious discrimination; the Americans with Disabilities Act (ADA), which prohibits disability discrimination; and the Age Discrimination in Employment Act (ADEA),which prohibits age discrimination. While it is focused on federal claims, the guidance is also relevant to claims under state laws, such as the New Jersey Law Against Discrimination (LAD), the New Jersey Conscientious Employee Protection Act (CEPA), the New Jersey Civil Rights Act (NJCRA), and the New York Human Rights Law (NYHRL).

A significant portion of the EEOC’s guidance discusses what is required for a waiver in a severance agreement to be valid. Specifically, waivers (1) must be knowing and voluntary, (2) must offer the employee some consideration, meaning a benefit the employee would not otherwise receive, and (3) must comply with applicable state and federal laws.

The EEOC notes that, to determine whether an employee knowingly and voluntarily waived the right to sue for employment law claims like discrimination, retaliation, or harassment, courts generally consider factors such as:

  1. Whether the severance agreement is clear and specific enough that the employee understands it, considering his or her level of education and experience;
  2. Whether the severance agreement was the result of fraud, duress, undue influence, or other improper conduct by the employer;
  3. Whether the employee had sufficient time to read and consider the severance offer;
  4. Whether the employee consulted with an attorney, or the employer encouraged the employee to consult with an attorney, before accepting the severance offer; and
  5. Whether the employee had input into negotiating the terms of the severance agreement.

The EEOC guidance also discusses the special minimum requirements for a release to waive age discrimination claims under the ADEA. Those requirements come from a 1990 amendment to the ADEA, called the Older Workers Benefit Protection Act (OWBPA). The OWBPA contains seven requirements for a valid waiver of federal age discrimination claims:

  1. The waiver must be written clearly, so the employee can understand it;
  2. The waiver must specifically refer to claims under the ADEA
  3. The waiver must advise the employee to consult a lawyer before accepting it;
  4. The waiver must give the employee at least 21 days to consider the severance offer;
  5. The waiver must provide the employee at least seven days to revoke the agreement after he or she signs it.

The employee must not be required to waive the right to pursue any violations of his or her future rights under the ADEA, meaning that the employee cannot waive any violations of the ADEA that occur after the effective date of the waiver; and
The employee must receive additional consideration, typically severance pay or benefits, that he or she would not be entitled to receive otherwise.A waiver under the ADEA is also unenforceable if the employee signs it as the result of the employer’s fraud, undue influence, or other improper conduct, or if the employee signed the release because it contains a material mistake, omission, or misstatement.

The EEOC guidance discusses additional requirements of the OWBPA that apply to mass layoffs, reductions in force, early retirement incentive plans, and other employer exit incentive programs and termination programs. For example, employers must give employees at least 45 days, rather than 21 days, to consider a waiver of the right to sue for age discrimination under the ADEA if they are terminated as part of a mass layoff or reduction in force. Employers also must provide employees who are impacted by a mass layoff or reduction in force with a list of the job titles and the ages of all individuals in their “decisional unit” who were eligible for, selected for, and not selected for, inclusion in the mass layoff or reduction in force. Depending on the circumstances, the relevant decisional unit can be the entire company, a division, a department, the employees reporting to a particular manager, or the employees in a particular job classification.

The EEOC guidelines contain a checklist of things employees should do if they are offered a severance agreement, including that they should:

  1. Make sure they understand the severance agreement;
  2. Check for deadlines in the agreement, and act promptly;
  3. Consider having an attorney review the severance offer; and
  4. Make sure they understand what they are giving up in exchange for the severance benefits.

Although not specifically discussed by the EEOC, it is often possible for an employee who has been laid off to negotiate additional severance benefits, or to otherwise improve the terms of their severance offer. You should consider meeting with an experienced employment lawyer in your area if you have been laid off or otherwise fired and are hoping to enhance your severance package, or if you need help understanding the severance agreement and the important rights you may be giving up if you sign it.