As is the case for companies in all sectors of the economy, layoffs, restructurings, reductions in force, and individual terminations are parts of the business lifecycle for almost all distributors. Telling someone they’re losing their job is rarely pleasant, especially when an employee feels they have been treated unfairly or that the stated reason for their firing was merely a pretense to obscure prohibited discrimination.
No distributor wants the uncertainty, disruption, and potential financial or reputational damage that are byproducts of employment litigation. Employer misconduct claims cost American companies $20.2 billion in 2021, according to a Vault Platform study. That’s why employers, even when they are under no obligation to do so, often offer severance packages to employees in exchange for the employee’s release of any employment-related claims. If a distributor worries that the worker may have viable claims (or even seeks to hedge a bet that an ex-employee will not assert age claims), paying for such an “insurance policy” against a lawsuit instead of paying lawyers and a potential judgment or settlement can be a bargain.
But when a termination and proposed severance package involves a worker 40 or older, an employer’s efforts to shield themselves from discrimination claims can inadvertently lead to other violations of federal law. Specifically, the Older Workers Benefit Protection Act (OWBPA) imposes strict and specific requirements on employers when asking terminated older workers to waive and release their rights.
Severance Requirements for Older Workers Under the OWBPA
Passed into law in 1990, the OWBPA is an amendment to the Age Discrimination in Employment Act of 1967 (ADEA). The OWBPA applies to workers over age 40 at companies with at least 20 employees. It addresses age discrimination in several ways, including requiring employers to follow specific procedures when asking employees to waive claims under the ADEA as part of severance agreements. If an employer doesn’t follow these requirements, any waiver of claims under the ADEA that an employee signed may well be void and unenforceable.
The disclosures and other obligations imposed on employers by the OWBPA are designed to ensure that the employer understands and has sufficient time to consider the consequences of waiving their rights and claims. Specifically, when an employer offers a proposed severance agreement to an employee 40 and over that contains a waiver of age claims, the OWBPA requires that:
- The employer must not use undue pressure to get the employee to sign a waiver of their rights;
- The proposed waiver must be accurate, succinct, and reasonably understandable to an ordinary person;
- Any release or waiver of claims must be in writing;
- The waiver must explicitly state that the employee is releasing their claims and waiving their rights under the ADEA;
- The employer must encourage the worker to consult with an attorney before signing the agreement; and
- The employer must give the employee up to 21 days to consider the severance offer (or 45 days if the termination is part of a reduction in force (RIF), defined as a layoff of two or more employees). Upon signing, the employee has seven days to revoke their signature.
Terminations as Part of a Reduction In Force
When termination is part of a claimed RIF (or group termination), employers have additional obligations in addition to the foregoing 45-day consideration period. That determination can be tricky, so distributors should consult counsel before taking any action. An employer engaging in a group termination must also provide the terminated employee with the following information:
- The ages and job titles of any other workers in the employee’s unit or department who are also being laid off;
- The ages and job titles of all other workers in the employee’s unit or department who are being retained; and
- The eligibility factors the employer used to determine who it laid off and who it retained.
As noted, any severance agreement involving a covered employer and employee that doesn’t comply with the OWBPA isn’t worth the paper it’s printed on. That means an employer can find itself doubly out of pocket – still on the hook for potential discrimination claims while also needlessly paying the terminated employee severance.
If you have questions or concerns about your company’s obligations under the OWBPA, please contact me at 312-840-7004 or firstname.lastname@example.org.