Bad ADEA Release Held Invalid

I previously have posted on well-intentioned releases gone wrong. Here's another installment.

Separation agreements and releases of claims under the Age Discrimination in Employment Act are not valid unless they comply with the technical requirements of the Older Workers' Benefits Protection Act of 1989. These agreements must, among other things, be written in clear language, advise the employee to seek an attorney, provide up to 21 days (45 in case of a layoff of two or more employees) for the employee to consider the release, and a 7-day revocation period. When a release does not follow the OWBPA requirements, the employee may keep the severance and sue under the ADEA.

In Syverson v. IBM Corp., the Ninth Circuit held IBM's release was insufficiently clear, thereby invalidating the age discrimination release and allowing a class of laid-off employees to sue for age discrimination. Unfortunately for IBM, the Eighth Circuit already held that the release was invalid. The Ninth Circuit, however, performed its own analysis, and reached a similar conclusion.

The main problem with this release was that it contained a release of all claims (including ADEA claims), but also contained a "covenant not to sue," exempting ADEA claims. A release extinguishes a claim; a covenant not to sue is a promise not to assert a right in court.

The employees argued the release was unclear because it left the reader with the impression that he/she could bring a lawsuit under ADEA even after signing the release. IBM argued (reasonably) that the covenant not to sue was significant because it provided IBM protection from employees who released claims but then filed lawsuits anyway. IBM explained the release invalidated the claim, but the covenant not to sue would permit IBM to recover its defense costs. Why carve out the ADEA claim from the covenant not to sue? IBM said it intended to comply with the EEOC rule that a covenant not to sue cannot be used to preclude employees from challenging the validity of the ADEA release in court.

The Ninth Circuit said that the IBM covenant not to sue was ambiguous and hard to understand. The tension between the covenant and release was sufficient to invalidate the ADEA release.

So, if you use a "standard" release for employees 40 and over, you may wish to obtain a tune-up in light of this decision. Additionally, federal courts have been scrutinizing the validity of "birthday lists" required for effective ADEA releases in the context of layoffs. So, be careful out there!

DGV