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As courts look at releases more skeptically, so should human resource professionals.
Second in a two-part series
Employers often provide severance to buy legal peace. However, some employees and their lawyers are fighting back -- accepting the severance and then attacking the very agreement that led to the severance payment.
It is not enough to make sure you give employees enough time to decide whether to sign severance agreements and extend to employees the right to revoke the severance agreements.
Employers need to be careful not to restrict employees from contacting the U.S. Equal Employment Opportunity Commission (EEOC) and not to include in the general release claims that cannot be waived by private agreement.
The severance agreement should be understandable to employees. Otherwise, employees may be able to bring a claim that you had intended them to release on the ground that they did not understand what they were waiving.
Human resource professionals can play a leading role in helping ensure that releases are understandable. If you don’t understand the release you’re handing to an employee, chances are that the employee won’t understand it either and that the courts won’t be understanding should your employer seek to enforce it.
For there to be an effective waiver of age claims, the Older Workers Benefit Protection Act (OWBPA) requires that the employer specifically reference the Age Discrimination in Employment Act (ADEA) in the general release.
Other federal laws do not require that they be mentioned for a general release of claims under them to be enforceable. Whether the employee knowingly and voluntarily waived a particular type of claim becomes the question under other laws, such as the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964.
Nevertheless, to maximize the likelihood that a court will find that an employee knowingly waived a particular claim, employers ordinarily are well-advised to mention that particular claim by name. If the general release references the ADA, Title VII or other laws, the employer is more likely to get summary judgment on the issue when claims are brought under those statutes.
That said, employers need to be careful not to assume that more is necessarily better and list every conceivable statute. Claims under certain statutes clearly cannot be released by private agreement, and referencing those claims in a severance agreement may place the employer in a bad light before a judge evaluating the general release.
For example, employees cannot waive by private agreement any claims that they may have under the Fair Labor Standards Act (FLSA). Employees usually can waive their rights to damages under the FLSA only if the waiver agreement is supervised by either the U.S. Department of Labor (DOL) or a court.
Accordingly, while a general release can cover claims to wages generally, it should not cover claims under the FLSA specifically. Other claims that ordinarily cannot be waived by private agreement, and therefore ordinarily should not be mentioned in the general release, include, but are not limited to, claims for workers’ compensation and unemployment compensation benefits.
The FMLA Gamble
What about claims under the Family and Medical Leave Act (FMLA)? The FMLA was modeled after the FLSA, so can FMLA claims be waived?
The DOL’s current regulations provide that “employees cannot waive, nor may employers induce employees to waive, their rights under FMLA” (29 CFR §220(d)). However, the DOL has interpreted this regulation as preventing employees from waiving prospectively any substantive rights under the FMLA, such as the right to leave or reinstatement, but allowing employees to waive retrospectively any claims they may have for damages under the FMLA.
The 5th Circuit has adopted the DOL’s enforcement position (Faris v. Williams WPC-I Inc., 332 F.3d 316 (5th Cir. 2003)). However, the 4th Circuit has held that an employee cannot waive any FMLA claims (Taylor v. Progress Energy Inc., 493 F.3d 454 (4th Cir. 2007)).
In February, the DOL proposed new FMLA regulations. In the proposed rule, the DOL adopts the approach taken by the 5th Circuit rather than the 4th Circuit.
Consistent with the recommendation of the U.S. solicitor general, the U.S. Supreme Court on June 16, 2008, decided not to review the 4th Circuit’s decision. The solicitor general had taken the position that it was not necessary for the Supreme Court to review the decision because the new FMLA regulations resolve the ambiguity that had existed under the old regulations as to whether FMLA claims can be waived. However, the 4th Circuit’s decision also rested upon statutory analysis that does not change as a result of the regulatory changes. To the extent that the 4th Circuit continues to adhere to the position that the FMLA statute, modeled after the FLSA, does not allow the waiver of FMLA claims by private agreement, the changes in the FMLA regulations are of no moment in the 4th Circuit.
With this background, should an employer reference FMLA claims in its general release? Unfortunately, there is no uniform answer. Rather, look at factors such as the jurisdiction where the employee was employed and the likelihood that the employee may insert such a claim.
For example, if you operate in the 4th Circuit, encompassing North Carolina, Maryland, South Carolina, Virginia and West Virginia, there is greater risk in referencing the FMLA in your general release, despite the changes recommended by the proposed rule.
Conversely, in the 5th Circuit, including Louisiana, Mississippi and Texas, employers appropriately can reference FMLA claims in their general release based on binding 5th Circuit authority.
In other parts of the country, where there have been no authoritative appellate decisions, employers may take the risk of referencing the FMLA, particularly if the proposed regulation is published in final form. In deciding to take this risk, employers need to consider the risk of not including a reference to the FMLA. If the FMLA is not mentioned by name, it may allow the employee to argue more persuasively that he or she did not “knowingly” waive his or her FMLA claims, particularly if other statutes are mentioned by name.
Anticipate the Unknown
Lack of clarity about the release of FMLA claims highlights the importance of having as many protections in an agreement as possible to allow the agreement to be enforceable, even if it is held to be overbroad in terms of the claims it covers.
For example, an employer should include not only a severability clause, which is common, but also narrowing language that is similar to what it includes in its noncompete agreements, language that is less common. That way, if a court concludes that some, but not all, FMLA (or other) claims can be waived, the court can narrow the reference to FMLA (or other) claims, instead of having only the contractual authority to remove the unenforceable language in its entirety.
For the same reason, employers may wish to break out the general release into subparts rather than have one painfully long run-on sentence that no third-grade teacher would approve of. This makes removing or modifying overbroad or unenforceable language easier for a court and makes the agreement more understandable.
In deciding what claims to list, the employer should consider federal and state laws that may impose additional requirements.
For example, in determining whether a discrimination claim has been waived under the state’s equal employment opportunity law, a state court might require that the employer reference the statute by name. At a minimum, addressing the state statute by name may help resolve the issue on summary judgment rather than at trial.
There may be additional twists under state law that should be incorporated into the “boilerplate.” Most severance agreements cover any claims employees may have, known or unknown. In California, however, unknown claims can be released only if the employer cites a provision of California law dealing with unknown claims (Cal. Civ. Code §1542).
General Release Limits
Don’t be surprised if an employee who has been paid to sign a general release later files a charge of discrimination.
While some employers include a general release and a covenant that precludes the employee from filing a charge, the law clearly states that an employee cannot waive the right to file a charge with the EEOC. But employees generally can waive their rights to damages under Title VII, the ADEA and the ADA.
Any attempt by an employer to preclude an employee from filing a charge with the EEOC will be found void and against public policy (see, e.g., EEOC v. Cosmair, Inc. L’Oreal Hair Care Div., 821 F.2d 1085 (5th Cir. 1987)).
The EEOC has filed lawsuits against large employers who have included in their severance agreements provisions precluding employees who signed such agreements from filing charges with the EEOC. The agency’s efforts have been largely successful.
Accordingly, make sure severance agreements contain no language that reasonably could be interpreted as precluding an employee from filing a charge with the EEOC. For example:
Should employers go one step further and state affirmatively in the severance agreement that the employee retains the right to file a charge with the EEOC although waiving the right to damages?
The likely legal question is whether the agreement leaves the impression that an employee cannot file a charge with the EEOC. Stating that employees can file charges obviously makes it all but impossible for employees to argue that they were left with a contrary impression.
However, including such language is not without legal risk. It may encourage an employee to file a charge that he or she never would have considered filing. In other words, you may end up with the claim you are trying to avoid.
Once again, employers must deal with risk selection, not risk avoidance, and balance competing considerations.
Under the OWBPA, for a release of age claims to be enforceable, there must be “consideration.” That means the employee must receive something to which he or she is not already entitled. Consideration is also ordinarily a requirement for non-ADEA claims.
Generally speaking, employers do not have to provide severance pay. Consequently, if an employer does provide severance pay, this may serve as the consideration.
However, in some circumstances an employer must provide severance pay. An employee may be entitled to severance pay as a result of:
When an employee’s entitlement is according to a plan or individual or collective agreement, whether the employer can require a release for the severance depends on the terms of the agreement. Some agreements condition an employee’s eligibility for severance on the employee’s signing a severance agreement and general release. In these cases, the employer appropriately can make the release mandatory for the severance.
Conversely, if the agreement does not state that signing a general release is a condition precedent to payment, the severance may not constitute adequate consideration, unless there is a question as to whether another condition precedent for payment has been satisfied. Some agreements provide that an employee is not eligible for severance pay if he or she is terminated for “cause.” The employer’s waiving of its position that there was cause may constitute consideration to support the general release if there is a good-faith dispute on that issue.
In some cases, the employee’s unconditional entitlement to severance will be clear. In these cases, if the employer wants to obtain an enforceable release, the employer must provide the employee with either additional severance or some other compensation or benefit that the employee is not entitled to, such as a bonus or deferred compensation.
No matter how thoughtful the agreement may be legally, an employee may be able to get out from under it if it is too complicated or legalistic.
Employees have been successful in attacking unduly complicated severance agreements on the ground that the release was not knowing and voluntary because they did not understand what they were waiving.
The ADEA specifically requires that the waiver be written to be understood “by such individual or the average individual eligible to participate” (29 USC 626(f)(1)(a)). The fact that the employee has been encouraged to consult with an attorney does not immunize the document from legal attack on the ground that it is too complicated for a non-lawyer to understand.
Here’s where not having a legal background actually may be to an HR professional’s advantage, assuming you’re not a lawyer, too. Take a look at your form severance agreements. Do you understand them? If not, there’s a good chance an employee less familiar with the law won’t either.
Discuss with your attorney each provision you have concerns about in terms of simplicity and clarity. Boilerplate language can and should be changed from legal speak to plain speak.
Here are some steps to make your agreement more understandable and less likely to be attacked:
Employees may already have difficulty understanding the reason they were selected for the event, such as a layoff, that resulted in the release being presented to them. Making them even more confused only makes it that much more likely that the employees will sue.
Make sure you understand the release first, including its limits, before asking employees to sign.
The author is vice chair of WolfBlock’s Employment Services Group and managing principal of the WolfInstitute. His practice in Philadelphia concentrates on preventive planning, counseling and training.
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