Not Just Any Release Will Do: Drafting Valid Releases for a Reduction-in-Force

May 12, 2010

By: James J. Rooney

As hopes for a quick economic recovery have sagged, many employers have been left with little choice but to reduce the size of their workforces. In some instances, laid-off employees are being offered severance in exchange for their release of all claims against their employer. Indeed, obtaining such a release is an indispensable component of a well designed severance package. And if a release is properly drafted, it generally does protect the employer from a subsequent lawsuit brought by the departing employee.

Too often though, the details of the release language are an afterthought. Unsuspecting employers, unaware of the applicable legal authorities, recycle old releases on the assumption that a generic release is as effective in a layoff as when a single employee is being discharged. Other employers have at least some awareness that the Older Workers Benefit Protection Act (“OWBPA”) requires additional language in a release in order to obtain a valid waiver of federal age discrimination claims. Yet not all such employers know that OWBPA may impose additional requirements when the release is requested in connection with a layoff.

In the ordinary situation, the requirements of OWBPA are relatively straightforward. As a general matter, the statute provides that, in order to release age discrimination claims under the federal Age Discrimination in Employment Act (“ADEA”), the written release must be drafted in such a way that the employee’s waiver of rights under the ADEA is “knowing and voluntary.” To that end, OWBPA sets forth several specific requirements:

1. The release must be written so that it may be understood by an average individual;

2. The release must specifically refer to the age discrimination claims being released;

3. The release cannot cover claims that may arise sometime in the future;

4. The employee must receive consideration (i.e., a payment or some other benefit) above and beyond that to which he or she is already entitled;

5. The employee must be advised, in writing, to consult with an attorney;

6. The employee must be offered at least 21 days to consider the release; and

7. The employee must be given a seven-day period to revoke the release.

Many employers have incorporated these requirements into their standard release language. There is, however, considerably less awareness of OWBPA’s additional requirements for releases issued in connection with an “exit incentive” or “other employment termination program offered to a group or class of employees.” The additional requirements apply, for example, when an employer offers an early retirement package or when employees are being offered severance during a layoff. In such situations, employers must be certain that, in addition to the requirements discussed above, the release includes the following:

1. The employee must be given at least 45 days (as opposed to 21 days) to consider the release; and

2. The employee must be provided with specific information concerning the group of employees affected by the layoff, including: (1) the factors used to determine whether employees were eligible for the termination program; (2) any time limits applicable to the termination program; (3) the identity of any “class, unit, or group of individuals covered by such programs;” (4) the job titles and ages of all individuals either eligible for or selected for the termination program; and (5) the ages of all individuals in the same job classification or organizational unit who were not eligible or selected for the termination program.

Assembling this information is often not a simple task. It requires close analysis of the workforce and is usually guided by the Equal Employment Opportunity Commission’s governing regulations and guidance documents. Despite the potential difficulty of the task, it is important that the information is properly presented. More than the effectiveness of the release may hang in the balance. If an employee decides to pursue an age discrimination claim, the information is likely to draw considerable attention during the litigation.

Employers must be careful to ensure that the provisions of OWBPA are fully satisfied. In Oubre v. Entergy Operations, Inc., the United States Supreme Court held that the release requirements of OWBPA must be strictly adhered to in order for the release of the ADEA claims to be valid and enforceable. Thus, the federal courts in New York and elsewhere have consistently held that substantial compliance with OWBPA is not enough. The release must contain all of the necessary components prescribed by the statute.