Is Your Company's Severance Agreement and Release Properly Drafted? (July 2003) by Kathleen D. Bruder |
Generally, a business provides a severance agreement and release to a terminated employee to obtain the employee’s agreement to not file any lawsuits against the business. Until recently, businesses were mindful and cautious of the EEOC’s opinion that a release prohibiting an employee from bringing any charge against the employer before the EEOC was invalid. According to the EEOC, the right to file a charge with the EEOC is protected by the Age Discrimination in Employment Act (“ADEA”) and cannot be waived. However, according to a recent decision of the Third Circuit Court of Appeals, inclusion of such a prohibition in a release does not invalidate the release. In Wastak v. Lehigh Valley Health Network, No. 02-2111, 20003 WL 21350230 (3d. Cir. June 10, 2003), the Third Circuit held that while the ADEA clearly prohibits employers from enforcing charge filing bans, “there is no indication that the mere presence of that contractual language would void an otherwise knowing and voluntary waiver.” Plaintiff, John Wastak, was terminated in March 1998 after eight years of service with Lehigh Valley Health Network’s Department of Psychology (“Lehigh Valley”) for conducting inappropriate lease negotiations. Following his termination, Wastak was given a Release in which he agreed to not file any claims against Lehigh Valley for any acts arising out of the termination of his employment. In consideration of his Release, he was provided with 36 weeks of income. As required by law, Lehigh Valley provided Wastak with 21 days to review the Release and also advised him to consult with legal counsel prior to executing the document. However, Wastak did not consult with legal counsel and instead executed the Release. Subsequently in December 1998, Wastak learned that Lehigh Valley hired a replacement for him who was 44 years old. Approximately seven months later, Wastak filed a complaint of age discrimination with the EEOC in July 1999. However, his EEOC Complaint was dismissed because it was not filed within 300 days of the accrual of his cause of action. He then filed an age discrimination Complaint in state court. Lehigh Valley removed the action to federal court and moved for summary judgment because Wastak signed a Release of all claims against Lehigh Valley in March 1998. The District Court for the Eastern District of Pennsylvania granted Lehigh Valley’s motion and rejected Wastak’s claim that the Release was void under the ADEA and Older Workers Benefit Protection Act (“OWBPA”) or that the agreement was otherwise invalid because he failed to enter into it knowingly and voluntarily. Wastak, joined by the EEOC, as amicus, appealed to the Third Circuit Court of Appeals and made many challenges to the Release including the argument that the Release’s prohibition of Wastak filing a claim with the EEOC invalidated the Release. The Third Circuit found that the language of the OWBPA does not call for invalidation of a release if it contains a faulty provision that bars the filing of an EEOC charge. The Court explained that while a contractual provision prohibiting an employee from filing a charge or participating in an EEOC investigation would be ineffectual, it would not “void an otherwise knowing and voluntary waiver.” In its analysis, the Third Circuit found the OWBPA waiver provisions to be divided into four subsections. The first and second subsections enumerate lists of mandatory prerequisites for a valid waiver and the narrow exceptions to those requirements. The third subsection allocates the burden of proof in regard to disputes about the first two subsections. Last, the Third Circuit found that the fourth subsection “clarifies that even otherwise statutorily compliant waiver agreements cannot be used to interfere with the EEOC’s exercise of its duties, or with an employee’s right to complain to the agency.” Because the fourth subsection was “crucially distinct from the list of necessary prerequisites for a valid waiver,” the Court held that Congress did not intend for the courts to invalidate waivers that violate the fourth subsection. Accordingly, inclusion of a provision that denies an employee the right to file a claim with the EEOC does not render the entire agreement void. Rhoads & Sinon offers a full range of labor and employment counseling and representation. Feel free to contact Ms. Bruder or any of our employment attorneys directly for more information about our firm and its available services. |
