Employment Law

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Enforceability of ADEA Waivers in Termination Agreements
Everett F. Meiners, Partner, Parker Milliken Clark O'Hara & Samuelian, Los Angeles, Contributing author to Advising California Employers published by CEB.

The Decision — Thomforde v International Business Machines Corporation (IBM)
The Facts
Terms of General Release Agreement
Exception on Covenant Not to Sue
Court of Appeal Decision
California Case — Syverson v IBM
Practical Impact of Thomforde
Conclusion


The Decision — Thomforde v International Business Machines Corporation (IBM)
The Thomforde court found that the waiver prepared by IBM was invalid because it did not comply with the explicit requirements of the Older Workers Benefits Protection Act (OWEPA) and the Code of Federal Regulations (See 29 CFR §1625.22 et seq.). The decision in Thomforde v International Business Machines Corporation (8th Cir, May 3, 2005, No. 04-1538) is important for those drafting settlement agreements that include waivers of the Age Discrimination in Employment Act (ADEA).

The Facts
Dale Thomforde had been an engineer for IBM for over twenty years. In 2001 IBM initiated a reduction in its work force which included Thomforde. As part of that reduction process, IBM prepared and presented a General Release and Covenant Not to Sue (General Release) to Thomforde, which included separate consideration for the General Release. Subsequent to signing, Thomforde filed a lawsuit that he had been terminated because of his age. He contended that the waiver of the protections of the ADEA was invalid because it was not a “knowing and voluntary” waiver.

Terms of General Release Agreement
The General Release agreement contained the standard language with respect to releasing “all claims, demands, actions or liabilities you may have against IBM of whatever kind including, but not limited to, those that are related to your employment with IBM ….” The document expressly stated that “this release covers, but is not limited to, claims arising from the [ADEA], as amended ….”

Exception on Covenant Not to Sue
The General Release also contained a covenant not to sue. In this portion of the General Release, Thomforde agreed that he would “never institute a claim of any kind against IBM” and that if he did, he would “pay all costs and expenses of defending against the suit incurred by IBM ….” However, in an attempt to comply with the ADEA and OWEPA requirements, the General Release contained an exception which stated that “This covenant not to sue does not apply to actions based solely under the [ADEA], as amended ….”

This latter provision was included to comply with the requirement that a release of an ADEA claim can not contain a provision prohibiting or penalizing a challenge to the “validity” of the release. The Code of Federal Regulations provides that “[No] ADEA waiver agreement, covenant not to sue, or other equivalent arrangement may impose any condition precedent, any penalty, or any other limitation adversely affecting any individual’s right to challenge the agreement.” This regulation also states that an employer can not require the “employees to tender back consideration received” or “require the employee to recover attorneys’ fees and/or damages because of the filing of an ADEA suit.” (See 29 CFR § 1625.23(b)).

Court of Appeal Decision
The court emphasized the requirements of the OWBPA which provide that an ADEA waiver must be “knowing and voluntary” and that in order to be knowing and voluntary it must at a minimum (emphasis by the court) satisfy a number of requirements, one of which is that the waiver be “written in a manner calculated to be understood by such individual, or by the average individual eligible to participate.”

In reaching its decision, the court also emphasized the requirement in 29 CFR §1621.22(b)(3) that “Waiver agreements must be drafted in plain language … [and] usually will require the limitation or elimination of technical jargon….”

In this case, the court concluded that the combination of the covenant not to sue, the ADEA waiver exception, and the release language which also waived all ADEA claims, was not “clear and unambiguous.” The court stated that “We can easily see how a participant under this Agreement could construe the statement that “[t]his covenant not to sue does not apply to actions based solely under the [ADEA]’ as an exception to the general release, not just an exception to the covenant not to sue.” Thus, the court concluded that the release was “ not written in a manner calculated to be understood by the intended participants as required by the OWBPA.”

California Case — Syverson v IBM
IBM cited an unpublished decision from the Northern District of California, (Syverson v IBM (ND Cal May 4, 2004), in support of its argument that the waiver agreement used in Thomforde satisfied the statutory requirements. The Eight Circuit found the Syverson decision to be unpersuasive, in part because that case relied on the discredited reasoning of the district court in the Thomforde case. In addition, the court noted that the Syverson case was now on appeal to the Ninth Circuit (9th Cir, July 26, 2004, No. 04-16449).

Practical Impact of Thomforde
Throughout the Thomforde case the court referred to the knowing and voluntary requirement of the OWBPA and the regulations. It emphasized that the agreement had to be “written in a manner calculated to be understood by… the average individual eligible to participate” and that “technical jargon” or “long, complex sentences” should be avoided. The court also found that the requirement that the individual must be advised in writing “to consult with an attorney prior to executing the agreement” had not been satisfied by the IBM waiver which merely stated that the waiving employee “had been advised to consult with an attorney.” The distinction according to the court was that a statement advising the employee to consult an attorney does not satisfy the statutory requirement that an employee must be advised to consult an attorney. 

Conclusion
Based on the Thomforde case, attorneys should review their release language if they intend it to act as a waiver of any age discrimination claims which a terminated employee may have. They should also watch for the forthcoming decision by the Ninth Circuit in the Syverson case (which has been fully briefed and is awaiting oral argument) for further guidance in drafting such releases.    

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