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New EEOC Rule Does Not “Love Me Tender”
Employers often
offer sweetened
severance or other
additional
compensation to
exiting employees in
return for a general
release of claims
barring these
employees from suing
the employer.
However, there are
many legal pitfalls
that may bar an
employer from
enforcing some, if
not all, of the
provisions of the
release agreement.
The result is that
unwary employers pay
ex-employees
additional
compensation for
nothing. One legal
pitfall is the
adverse effect of a
“tender back”
provision in the
agreement – a
provision meant to
protect the employer
by making a released
employee pay back
the severance before
legally challenging
the release.
Under the United
States Supreme Court
decision in Oubre v.
Entergy Operations,
Inc., an employee
who challenged the
validity of a
release of age
discrimination
claims did not have
to pay back the
severance before
challenging the
release (called a
“tender back
provision”) – even
if the release said
the employee had to
do so. In December
2000, the Equal
Employment
Opportunity
Commission went even
further by issuing
strong punitive
rules against
tender-back
provisions in age
discrimination
waivers.
Dissecting The EEOC
Regulation
The EEOC regulation
begins harmless
enough by merely
restating what the
Supreme Court said
-- that an employer
may not require an
employee to return,
or “tender-back,”
severance pay or
other benefits in
order to challenge a
waiver of age
discrimination
rights. However, the
rule also prohibits
the imposition of
other financial
penalties against an
employee for
challenging an age
discrimination
waiver in court. The
rule establishes
criteria governing
when an employer can
demand compensation
it has paid an
employee and what an
employer’s duties
are when a waiver is
challenged:
The regulation
prohibits an
employer to penalize
an employee for
challenging a waiver
agreement by
requiring the
employee to pay
damages to the
employer or pay the
employer’s
attorneys’ fees for
filing a challenge
to the waiver. The
regulation allows an
employer to recover
attorney’s fees only
where a challenge is
filed in “bad
faith.”
The regulation
allows an employer
to recover money it
paid for a waiver
only where the
employee
successfully
challenges the
waiver, proves age
discrimination, and
obtains a monetary
award. However, the
employer’s recovery
may not exceed the
amount it paid for
the waiver, or the
amount of the award
if it is less.
An employer must
live up to its
duties under the
agreement even if
the waiver is
challenged. This
means that where an
employer agreed to
make payments to an
employee under the
waiver agreement, it
must continue to
make payments even
though the employee
is filing suit to
challenge the very
thing the employer
is paying for – a
waiver of the
employee’s rights to
file suit.
Although not part of
the official
regulation, the EEOC
also opined that
mere inclusion of
tender-back language
in the waiver
agreement is enough
to invalidate the
waiver with respect
to age
discrimination
claims.
Final Thoughts
The EEOC regulation
requires employers
to strike all
tender-back language
out of their waiver
agreements as it
applies to a release
of claims for age
discrimination.
Employers also
should consider
removing the
language as it
applies to waivers
of other claims
where such waivers
of rights are
directed to be
“knowing and
voluntary”. As this
new EEOC regulation
demonstrates,
compliance with the
Older Worker
Benefits Protection
Act is only one of
many legal pitfalls
that can void an
employee’s release
of claims. Employers
need to take extreme
care in crafting
releases for exiting
employees. Seemingly
insignificant
omissions can lead
to an employer
paying additional
severance for
nothing. Employers
should seek the
input of legal
counsel in crafting
these agreements.
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