EEOC Issues New Guidance On Waivers Of Discrimination Claims In Employee Severance Agreements

Florida employers that that are considering offering severance agreements and releases in connection with a reduction in force may be interested in the following client alert, written by EBG attorneys Frank C. Morris, Jr. and Brian W. Steinbach.  It discusses the EEOC's memorandum Understanding Waivers of Discrimination Claims in Employee Severance Agreements.  The EEOC's memorandum does not make new law.  Still, the Q&A format makes for easy reading, and serves as a good refresher for employers and employees alike on the law governing the release of claims under the ADEA, Title VII, the ADA, and the EPA.

As has been reported routinely for many months, the extraordinary economic downturn has caused an unfortunate and still on-going stream of shutdowns, furloughs, and reductions-in-force ("RIFs"). To minimize potential legal exposure, from RIFs, many employers offer exiting employees severance compensation or benefits in exchange for waivers releasing the employers from any potential discrimination claims under state, local, and federal employment laws, including the Age Discrimination in Employment Act ("ADEA"), Title VII of the Civil Rights Act, the Americans with Disabilities Act ("ADA"), and the Equal Pay Act ("EPA"), as well as common law claims. Recognizing this, the Equal Employment Opportunity Commission ("EEOC") recently published guidance, titled Understanding Waivers of Discrimination Claims in Employee Severance Agreements, which attempts to summarize, in plain language, the statutory requirements for valid individual and group waivers under the ADEA, Title VII, the ADA, and the EPA. Although organized in a Q&A format targeted to employees, the guidance is also a valuable compliance tool for employers and their Human Resource departments. Below are highlights from this new guidance.

The guidance first discusses generally the nature of severance agreements with a release of claims and the general elements necessary for valid and enforceable waivers, particularly the requirement that a wavier be made knowingly and voluntarily. It then focuses on the unique requirements for release of ADEA claims under the Older Workers Benefits Protection Act ("OWBPA"). It also emphasizes that a waiver cannot prevent an employee from filing a discrimination charge with the EEOC or from testifying or participating in an agency investigation. The guidance explains that if an employee files an EEOC charge after signing a waiver, the employer cannot require the employee to return the severance pay he or she received. Similarly, after signing a waiver, an employee is not required to return severance pay before filing an age discrimination lawsuit (the courts are split on this issue under Title VII, the ADA or the EPA). However, if an employee successfully challenges a waiver, the court should reduce any monetary award by the amount of consideration the employee received for signing the waiver.

The guidance next addresses in detail the specific minimum requirements established by the OWBPA for a wavier of ADEA age discrimination claims to be considered "knowingly and voluntarily" According to these factors, the waiver must (1) be written in plain language easily understood by the employee eligible for termination; (2) specifically refer to rights or claims arising under the ADEA; (3) advise the employee, in writing, to consult an attorney before accepting the agreement; (4) provide the employee with at least 21 days (45 days for a program offered to a group or class of employees) to consider the offer; (5) provide the employee seven days to revoke his or her signature; (6) provide additional consideration beyond what the employee is already entitled; and (7) not waive future rights and claims. Furthermore, the guidance takes the position that employers "cannot attempt to ‘cure' a defective waiver by issuing a subsequent letter containing OWBPA-required information that was omitted from the original agreement." Material changes in the offer restart the 21-day or 45-day period for consideration.

The guidance then highlights the additional information employers must provide employees for "programs" offered in connection with group layoffs. Specifically, employees are entitled to information on: (1) the decisional units (portion of the company from which the employer selected the employees to terminate); (2) the eligibility factors for the program; (3) the time limits applicable to the program; and (4) the job titles and ages of all the employees who are eligible or were selected for the program and the ages of all individuals in the same job classification or organization unit who are not eligible or were not selected for the program. The EEOC describes this information as needed to allow employees to determine, before signing the waiver, whether age discrimination motivated the termination selections.

Notably, although both the EEOC's regulations and a sample waiver and release attached to the guidance indicate that the requirement to disclose "eligibility factors" runs to the general determination of who is and is not eligible for a particular program, in the guidance the EEOC notes without further comment that some courts have interpreted this to mean the actual criteria, such as job performance, experience or seniority, relied upon in making the final termination decision. Compare, e.g., Pagliolo v. Guidant Corp., 483 F. Supp. 2d 847 (D. Minn. 2007) (holding a release violated OWBPA by, among other things, failing to identify the general criteria by which employees were selected for termination) with Rupert v. PPG Industries, Inc., No. 07cv005, 2009 WL 596014, *49-*57 (W.D. Pa. Feb. 26, 2009) (reviewing decisions and rejecting any requirement to provide the criteria relevant to specific termination decisions, noting, inter alia, the absence of such factor in the EEOC's sample disclosure form). Thus, the EEOC fails to resolve or offer direction on this potentially vexing issue affecting the practical administration of severance programs.

Finally, the guidance includes an employee checklist on what to do when offered a severance agreement. As employees and their attorneys are likely to follow this closely, employers also should review this checklist in preparing and offering a severance agreement.

Supreme Court Applies More Stringent "But For" Standard of Proof in Age Cases

The following is a client alert authored by EBG attorney Barry Guryan on the Supreme Court's recent decision in Gross v. FBL Financial Services, which I reported on last week.   

On June 18, 2009, the Supreme Court of the United States ruled fohe first time that in order to prevail in a disparate treatment case brought under the Age Discrimination in Employment Act (ADEA), the plaintiff must prove that "but for" the alleged discrimination, the employer would not have taken the "adverse employment action." Unlike a Title VII case, the burden of persuasion does not shift to the employer when the employee shows that age was one of the factors in a mixed-motive case.

In a 5-4 decision written by Justice Thomas, the majority held that it would not extend the "mixed motive" analysis applicable to Title VII cases to ADEA cases. In Title VII cases, which prohibit discrimination based on race, sex or national origin, where an employer is motivated by both a permissible factor and an impermissible factor, (i.e. a mixed motive), the Court, historically, has applied the well-known burden-shifting analysis. Thus, if the plaintiff meets his or her initial burden of persuasion by demonstrating that the employer considered an impermissible factor, such as race, in taking an adverse action against the plaintiff, the burden then switches to the employer to prove that it would have taken the same adverse action in any event. Gross v. FBL Financial Services, Inc., No. 08-441.

The case was brought by Petitioner Jack Gross (Gross), who claimed that his employer, FBL Financial Group, Inc. (FBL), demoted him because of his age. At the time of his demotion he was 54. His duties were transferred to a woman who, at the time, was in her early forties. At trial, Gross presented evidence that age played a role in FBL's decision. The jury returned a verdict for Gross at the trial court level, after the trial judge, over FBL's objection, instructed the jury that it must return a verdict for Gross if he proved, by a preponderance of the evidence, that age was a "motivating factor" when FBL demoted him. The trial court also instructed the jury that it must find for FBL if it found that FBL would have demoted Gross regardless of his age.

On appeal, the majority held that the burden-shifting analysis does not even apply in a mixed-motive case brought under the ADEA. In reaching this conclusion, the majority noted that after the Price Waterhouse decision of 1989, which discussed the proper allocation of the burdens of persuasion in mixed-motive cases brought under Title VII, Congress explicitly amended Title VII, in 1991, by authorizing discrimination claims in which an improper consideration was a "motivating factor" for an adverse employment decision, even though other factors also motivated the adverse action. Since Congress limited its amendment to Title VII claims, the majority refused to apply the language of the amendment to the ADEA.

The Court concluded by interpreting the plain language of the ADEA, which prohibits various types of discrimination in employment "because of" age. The majority interpreted the phrase "because of" to mean that age was "the reason" that the employer decided to act. The majority concluded: "Thus, to establish a disparate treatment claim under the plain language of the ADEA, therefore, a plaintiff must prove that age was the ‘but-for' cause of the employer's adverse action." The plaintiff, therefore, retains the burden of persuasion throughout the case.

There were strong dissents written by Justice Stevens with whom Justices Souter, Ginsburg and Breyer joined. They stated that the "but for" standard was rejected in Price Waterhouse and that it should be rejected in cases alleging violations of the ADEA as well, since both statutes use identical language in prohibiting discrimination (i.e., both statutes prohibit adverse employment actions "because of" the impermissible factor). Moreover, there is precedent that Title VII analysis has historically been applied to the ADEA.

One of the most interesting questions that the Gross case raises is whether the Court's holding will extend to other discrimination statutes. Most notably is the Americans With Disabilities Act (ADA), which prohibits discrimination "because of" a disability. Even though the ADA, like the ADEA and Title VII, prohibits discrimination "because of" the protected category, the Supreme Court, if faced with the right facts, could apply the "but for" test to ADA claims, since, like the ADEA, discussed in Gross, Congress did not amend the ADA when it amended Title VII in 1991.

We will continue to follow these developments.

U.S. Supreme Court Rules on Burden of Proof in Age Discrimination Cases

The United States Supreme Court ruled today that a plaintiff bringing a disparate treatment claim under the federal Age Discrimination in Employment Act ("ADEA") must prove, by a preponderance of the evidence, that age was the “but-for” cause of the challenged adverse employment action. The burden of persuasion does not shift to the employer to show that it would have taken the action regardless of age, even when a plaintiff has produced some evidence that age was one motivating factor in that decision.  The case is Gross v. FBL Financial Services, Inc. (June 18, 2009). 

I will offer some analysis of the Gross decision in a future post.  Stay tuned.

Court Rejects Cat's Paw Theory, Vacates Jury Verdict

Jean La Fontaine was a 17th century French poet who penned a fable involving a monkey and a cat "in which a monkey convinces an unwitting cat to pull chestnuts from a hot fire. As the cat scoops the chestnuts from the fire one by one burning his paw in the process, the monkey eagerly gobbles them up, leaving none for the cat."  At least that's what Wikipedia says.  I had never heard of this fable until I started practicing law. 

In the area of employment discrimination, the "cat's paw" theory of liability applies to a situation where an employee with discriminatory motives convinces an unwitting supervisor to take an adverse employment action against another employee.  The supervisor's motives may be pure, but the employer can still be held liable because discrimination has tainted the decision-making process. 

Two employees of Saks Fifth Avenue in Bal Harbour, Florida, Lana Perez and Elena Leffler, recently persuaded a federal jury that the company terminated their employment because of age discrimination.  The jury awarded Perez $370,000 and Leffler $240,000.  However, following the trial, U.S. District Judge K. Michael Moore granted Saks's motion for judgment as a matter of law, ruling that there was insufficient evidence of age discrimination to support the jury's verdict.

The case turned upon the cat's paw theory of liability.  The company's Regional Director of Human Resources, Margaret Phelan, terminated the plaintiffs for allegedly giving unauthorized discounts to customers.  The plaintiffs did not contend that Phelan harbored any age-discriminatory animus, but did contend that her decision was influenced by the discriminatory animus of Raymond Terbecki, plaintiffs' manager, and Gloria Salerno, the store's Director of Human Resources.  The court found that a reasonable juror could have found that Terbecki (but not Salerno) had discriminatory motives.  Nevertheless, the court found that the cat's paw theory failed because there was no evidence Terbecki participated in the investigation into the alleged discounting scheme:

Without having participated in the Asset Protection investigation and in the absence of any contact with Phelan, Terbecki could not have influenced Phelan's ultimate decision to terminate Plaintiffs or skewed the results of the Asset Protection investigation to influence Phelan's decision. There is no evidence in the record that Terbecki used any other means of influencing Phelan's decision to terminate Plaintiffs. Therefore, even though a reasonable juror could have concluded that Terbecki harbored age animus, no reasonable juror could have found that Terbecki influenced Phelan's decision such that Phelan became a mere conduit for Terbecki's discriminatory bias or retaliatory motives.

The court further held even assuming arguendo that Salerno had discriminatory motives, "there was insufficient evidence for a reasonable juror to conclude that Salerno influenced Phelan's decision to terminate Plaintiffs such that Phelan was a mere conduit for Salerno's age animus or retaliatory motives."

For employment law practitioners, the Perez case serves as a reminder that it is not enough for a plaintiff alleging employment discrimination to demonstrate that someone at the company had discriminatory motives; the plaintiff must demonstrate that the adverse employment action at issue was tainted by that discrimination.  When the decisionmaking process is free from discrimination, the claim should, and probably will, fail. 


Miami Employer Defeats Direct Evidence on Motion for Summary Judgment

Jackson Memorial FoundationDirect evidence of discrimination is evidence that, if believed, would prove the existence of a fact without inference or presumption.  For example, in an age discrimination case, a statement by a supervisor during a termination meeting that he needs "someone younger" would likely be deemed direct evidence of age discrimination.

That was what the plaintiff in a recent case alleged her supervisor at Jackson Memorial Foundation told her during her termination meeting.  She brought suit under the Age Discrimination in Employment Act in a Miami federal court.  Following discovery, JMF moved for summary judgment, arguing that it had overwhelming evidence that the termination was made for legitimate, nondiscriminatory reasons, notwithstanding the alleged direct evidence. 

U.S. District Judge Joan Lenard agreed and granted JMF's motion. "The fact that a plaintiff has established a prima facie case under the ADEA with direct evidence... does not in and of itself warrant summary judgment against an employer," wrote Judge Lenard.  "As such, the Court rejects Plaintiff’s argument that Defendant’s 'concession that [Plaintiff] has direct evidence of age discrimination is itself sufficient to create a genuine fact issue necessitating a trial.'  Rather, in the face of direct evidence, the burden then shifts to an employer to prove that the same challenged employment decision would have been made absent any discriminatory intent." 

Judge Lenard then spent three pages describing the undisputed evidence of the plaintiff's unsatisfactory work performance and conduct, which led to a decision to terminate the plaintiff in January 2006, several months before the alleged discriminatory remark was made.  "There is simply no evidence," Judge Lenard concluded, "that the decision to terminate Plaintiff in January of 2006 was motivated by anything other than [the supervisor's] dissatisfaction with Plaintiff’s work performance and conduct." 

Congratulations to defense counsel, my partners Mike Casey and Kevin Vance , on this hard-fought victory. 


Unemployment Woes Continue While Reduction-in-Force Risks Increase

Florida's latest unemployment figures show a jobless rate of 5.5%, representing 512,000 unemployeed out of a labor force of 9,261,000. The unemployment rate is up up 1.6 percentage points over the year. Florida's unemployment rate is the highest since January 2003. Although the state has long been immune to job losses seen in other states, the state’s unemployment rate is now equal to the national unemployment rate of 5.5 percent.

To add insult to injury, in the recent case of Meacham et al. v. Knolls Atomic Power Laboratory, No. 06-1505, 553 U.S. ___ (June 19, 2008),  the United States Supreme Court increased employers' risks of being found liable for age discrimination in a reduction-in-force.  That case and its legal ramifications are summarized in this client alert authored by my partner Frank Morris, which I am reprinting below.

Reductions in Force: The Supreme Court Escalates The Legal Risks

While economists debate whether the United States is in a recession, there is no doubt that business conditions have greatly deteriorated as a result of the subprime crisis, high oil prices, and increasing inflation. There also can be no doubt that as employers consider possible reductions in force ("RIFs") in response, the Supreme Court’s decision in Meacham et al. v. Knolls Atomic Power Laboratory, No. 06-1505, 553 U.S. ___ (June 19, 2008), has greatly increased the legal risk from RIF decisions. In Knolls, the Court held in a 7-1 decision that employers bear the burden of proving a legitimate non-discriminatory reasonable factor other than age when a RIF has an adverse or disparate impact on employees 40 years of age or older.

Case Overview

Knolls is a federal contractor working on naval nuclear reactors and training. Knolls was ordered by the federal government to reduce its workforce. To determine which employees should be laid off, Knolls directed its managers to rate employees on three factors: performance, flexibility and critical skills. The scores on these three factors, along with a fourth factor, years of service, were then used to select those to be laid off. According to the Court, 30 of the 31 employees to be laid off were at least 40 years old, the initial threshold for coverage under the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq. ("ADEA"). The employees filed an ADEA charge with the Equal Employment Opportunity Commission ("EEOC") and ultimately a law suit based on both disparate treatment and disparate impact claims. A disparate impact claim alleges that the ADEA is violated if an employment policy that is neutral on its face (here, the four-factor selection criteria) has a statistically significant adverse or disparate impact when applied to over-40-year-old employees versus younger employees. Plaintiffs relied on a statistical expert who argued that managers had the greatest discretion in evaluating the flexibility and criticality factors and that the results for these two factors showed the strongest statistical ties to selection of the older employees. After trial, a jury ruled for Knolls on the treatment claim and for the plaintiffs on the disparate impact claim. The U.S. Court of Appeals for the Second Circuit first affirmed on appeal.

That was not the end of the case because the Supreme Court vacated that judgment in light of its decision in Smith v. City of Jackson, 544 U.S. 228 (2005). Smith held that employees pursuing age discrimination claims could rely on the disparate impact theory like employees alleging race, sex, or other claims of discrimination. The Court had earlier cast some doubt on whether the different situations of individuals covered by the ADEA would permit use of the disparate impact theory (see Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993). In Smith, the Supreme Court cited the Reasonable Factor Other Than Age ("RFOA") ADEA affirmative defense as protecting employers from liability for many regular employment practices. Under the RFOA analysis, an employer need not choose the employment practice with the least disparate impact of available alternatives, as is true in a business necessity defense to, e.g., a race or sex adverse impact claim. The Smith Court held only that the employer must select an alternative which is "not unreasonable." Because the Court found the practice in Smith was "unquestionably reasonable," it had not addressed how the RFOA defense interacts with the usual business necessity defense requirement in other disparate impact discrimination claims where the burden of proving the business necessity defense is on the employer (see Griggs v. Duke Power Co., 401 U.S. 424 (1971).

The Supreme Court’s decision in Smith thus caused the Second Circuit to reverse its first decision in Knolls because it had applied a "business necessity" standard rather than a "reasonable" test in assessing Knolls’ reliance on the four selection factors.

The Supreme Court reversed the Second Circuit’s second decision in favor of Knolls and held that an employer raising a RFOA affirmative defense to an ADEA disparate impact claim must both introduce evidence of its RFOA (i.e., bear the burden of production) and persuade the trier of fact of the reasonableness of the RFOA factor(s) (i.e., bear the burden of persuasion).

What This Means For Employers Contemplating Right Sizing Activities

The Court’s decision unequivocally requires employers to be able to prove the reasonableness of the factors it uses to reach employment decisions that have an adverse impact on older workers. As Knolls shows, litigation results in some cases can turn on whether the employees suing the employer, or the employer, bear the burden of persuasion.

While prudent employers have always exercised care in reaching decisions on RIFs, the Knolls decision unequivocally places an even higher premium on doing so. Key employer actions to prevent ADEA liability for implementing a layoff should include the following, among others:

  • Select factors to be used for layoff decisions with great care and review their potential defensibility with experienced counsel.
  • To the maximum extent feasible, make such factors turn as much as possible on more objective or measurable indicia.
  • Thoroughly train managers who will apply RIF factors to employees to make their decisions as objective as possible and to note specific facts supporting their rankings.
  • Remind all involved to avoid any inadvertent comments that might be cited as evidence of age animus.
  • Have a committee composed of individuals who represent various protected groups, obviously including those protected under the ADEA, make or review proposed RIF decisions.
  • Working with experienced counsel to maximize attorney client privilege claims, assess the potential statistical impact of proposed RIF decisions to see if they would produce adverse impact on the basis of age, race, sex or other protected status.
  • If the proposed RIFs would produce adverse impact, work with counsel to assess the defensibility of the decisions and the process of reaching them or whether further consideration would be appropriate.
  • Preserve all information supporting the decisions made so that the process can be defended if necessary and to prevent any issues concerning preservation and production of electronically stored evidence (ESI) in the event of litigation concerning the RIF.

Precisely at a time when the economy may force employers to make more RIF decisions, the Supreme Court has made defending such decisions decidedly harder for employers. Proper planning, processes, legal review and execution are absolutely essential for any employer contemplating a RIF and are critical to avoid liability under the ADEA in light of Court’s Knolls decision.