When employees facing layoffs sign severance agreements before packing their boxes and heading out the door, employers think they have immunized themselves against lawsuits in return for providing a separation package.
But several large corporations discovered recently that it's not always that simple. Several ex-employees have successfully challenged severance agreements in court, some on substantive grounds, others on technicalities.
Some cases are the result of an EEOC initiative to protect severed workers' rights to file discrimination charges. Others result from plaintiffs' attorneys seeking to void waivers by seizing on technical violations of the Older Workers Benefit Protection Act (OWBPA).
Lockheed Martin, IBM and McDonald's are among the companies whose agreements have faced recent court challenges. The fact that the contested agreements came from corporations with substantial legal resources points to the difficulty of drafting such documents in the face of confusing federal regulations.
While employment attorneys are concerned about the liability many companies still face, they welcome the court decisions that help clarify the rules.
"[These decisions] will help everyone get it right," says R. Read Gignilliat, partner in Elarbee, Thompson, Sapp & Wilson. "It's not that employers are intentionally trying to put one over on employees, but they are getting caught on technical violations."
Some corporations are getting caught because they failed to change their severance documents after the EEOC signaled its intention to go after agreements that bar discrimination claims several years ago. Companies cannot ask people to give up their right to file a discrimination complaint, the agency said, although they can ask employees to waive the right to seek monetary damages through a lawsuit.
For example, when COMSAT Corp. merged with Lockheed Martin in 2000, Lockheed offered 20-year COMSAT veteran Denise Isaac a severance package but required that she sign a release of claims. It asked her to agree that "this release prohibits my ability to pursue any claims or charges ?? 1/2 seeking monetary relief or other remedies."
Isaac refused, and filed a complaint with the EEOC, alleging race, gender and age discrimination. Her attorney then sent Lockheed a letter, asserting her right to receive severance benefits and claiming the release was "retaliatory as written." Lockheed responded with a letter saying Isaac must withdraw her EEOC charge to receive any severance benefits.
With the two sides at a standoff, the EEOC took up Isaac's cause. In August a Maryland district court granted the EEOC summary judgment, finding that Lockheed violated anti-retaliation provisions of Title VII and the Age Discrimination in Employment Act (ADEA).
The court rejected Lockheed's argument that the release merely waived Isaac's right to recover monetary damages in exchange for severance benefits, saying the language was overly broad and effectively barred Isaac from filing a discrimination complaint. The follow-up letter, it added, offered her a "Hobson's Choice" between withdrawing an EEOC charge and forfeiting her severance.
On the heels of the Lockheed decision, the EEOC reached a settlement in another federal lawsuit it brought on behalf of a former employee of Ventura Foods, a California-based food-processing company. In the Sept. 1 consent decree, Ventura agreed to remove language that required separated employees to agree not to file a charge of discrimination in exchange for severance pay. Three weeks later, the EEOC brought a similar suit against Land O'Lakes.
"What employers need to realize is that the EEOC has shown a desire to take this position on a national basis," says Robert Reid, partner in Dinsmore & Shohl in Cincinnati. "The EEOC's mission is to eradicate discrimination. They will take a position against any effort to chill that."
In three other recent cases, employers were held liable for violating legal technicalities in the OWBPA, which requires severance agreements affecting workers over age 40 to be "written in a manner calculated to be understood" by the average employee. The regulations say that "usually will require the limitation or elimination of technical jargon and of long, complex sentences."
Two of the cases involved IBM employees who signed agreements but later decided to pursue age discrimination claims. Both the 9th and 8th Circuits held the agreements were too confusing for the average employee to understand. Now IBM is facing a host of ADEA claims and can't use the releases to block them.
"This should be a wake up call that we should go back and read [agreements] from the viewpoint of a lay person," says Glenn Patton, partner in Alston & Bird. "These layoff situations typically involve hundreds or even thousands of employees, so if you get it wrong, the consequences are high."
In another case, Burlinson v. McDonald's Corp., the courts addressed an OWBPA provision that requires companies to provide terminated and retained employees the job titles and ages of employees selected to be laid off. The requirement is intended to provide data employees can use to determine the viability of an age discrimination claim. But the question of whether the list should include all terminated employees companywide or whether it should be broken down by the terminated employees' divisions has never been clear.
In Burlinson, a Georgia federal court granted summary judgment for the employees, finding McDonald's releases violated OWBPA because they failed to provide the titles and ages of all terminated employees nationwide.
But the 11th Circuit reversed, saying the employer was only required to disclose information about employees laid off in the "decisional unit"--that part of the company from which the employee was selected for termination. The court noted that a local or regional manager made the selection, so the information on employees laid off in other regions would be irrelevant in determining whether age bias had played a part.
"The wording of the statute is very confusing," Gignilliat says. "This decision is very welcome. It jumps on one of the biggest problems in the OWBPA, and it is such a well-reasoned decision. I think it will be adopted in other circuits."
The convergence of cases has put a spotlight on severance agreements, and the EEOC or the plaintiffs' bar will be alert to faulty agreements going forward. Employment attorneys suggest that general counsel not waste any time in reviewing their severance agreements, as well as any follow-up communications.
It's important that all separating employees enter into severance agreements knowingly and voluntarily and that those agreements do not preclude the right to file EEOC claims.
When the separated group includes employees over age 40, additional attention must be given to the specific requirements of the OWBPA. That includes taking care in defining a defensible "decisional unit" and simplifying wording in all separation documents so employees understand them.
"Take the legalese out," Patton says. "In your effort to maximize the coverage of a release, you are open to a court saying it is unenforceable because the average person can't understand it."