Labor & Employment Developments Blog

One of the most common requests that I receive as an employment attorney is to review severance offers.  I’ve had these kinds of requests from friends, relatives, acquaintances and (on rare occasions) clients and I seldom turn them down. I have probably handled hundreds of reductions in force for various corporate clients so I like to see how others handle them.  In the past month, I have reviewed two severances packages and both failed to follow the requirements of the Older Workers’ Benefit Protection Act (“OWBPA”).  I was not at all surprised.  If I had to guess, I would say that over 50% of the severance offers I’ve reviewed over the years are not in compliance with the OWBPA.    

Under the OWBPA, for a release of age discrimination claims to be valid, the following must be present:  

• the waiver must be in writing and be understandable;
• the waiver must specifically refer to ADEA rights or claims;
• the employee may not waive rights or claims that may arise in the future;
• the waiver must be in exchange for valuable consideration, i.e. more than the employee is otherwise entitled to receive;
• the waiver must advise the individual in writing to consult an attorney before signing the waiver; and
• the waiver must provide the individual at least 21 days to consider the agreement and at least seven (7) days to revoke the agreement after signing it.

The foregoing is required of any severance agreement offered to an employee who is over 40 years old.  Waivers in the context of a reduction in force have additional requirements. 

Initially, the requirements for waiver in the individual context apply with one modification.  When an exit incentive or other employment termination program (e.g. a severance program) is offered to a group or class of employees, the individual must be given a period of at least 45 days (as opposed to 21 days in the individual context) within which to consider the agreement.  Also, the employer must provide to all eligible participants the job titles and ages of those individuals eligible for the program and the ages of those individuals in the same job classification or organizational unit who are not eligible or were not selected for the program. 

Thus, in the context of a reduction in force, the employer must provide all employees who are over 40 years of age with a list of the employees in the same organizational unit who are being offered the severance incentive to waive their claims, i.e. losing their employment, and those who are not, i.e. remaining employed.  Moreover, the employer must disclose the eligibility criteria for the severance program. This informational requirement exposes the employer’s process for selecting employees for termination or determining which employees will be eligible for voluntary exit incentive programs.  If an employer does not comply with these requirements, waivers of age discrimination claims will not be valid.

Both of the severance offers I recently reviewed failed to include the list of employees who were losing their employment and those who were not.  One of the offers only provided 21 days to consider the offer despite being offered in a reduction in force in which multiple employees were being terminated.  In both cases, the employers were large corporations with tens of thousands of employees nationwide. 

The OWBPA rules and requirements are very detailed.  Employers should work carefully with legal counsel to develop and properly document the eligibility and selection process and to prepare the appropriate releases and notices.