Employers use severance agreements hopefully to secure a
clean parting of ways with employees who are let go. Paying a severance in exchange for a waiver
and release of potential legal claims, can be a way to avoid costly litigation. However, any waiver/release that is not
drafted properly can allow employees to take the severance package yet still sue
the company! Nowhere are these concerns
more acute than with severance agreements involving employees who are over the
age of 40. This is because in order to effectively waive age discrimination
claims available to workers 40 and older, a severance agreement must comply
with nuanced requirements of the federal Older Workers Benefits Protection Act
(OWBPA). As a federal court case now
pending in Minnesota illustrates, complying with the OWBPA can be easier said
than done.
The case is a class action lawsuit brought against corporate
giant, General Mills. The plaintiffs
were among approximately 850 employees who were terminated as part of a
corporate restructuring dubbed by the company as “Project Refuel.” The plaintiffs, all 40 and older and thus
covered by the Age Discrimination in Employment Act, are alleging that the
releases they signed as part of their severance agreements, were not “knowing
and voluntary,” as required by the OWBPA.
Adding insult to injury, OWBPA regulations do not require a person
claiming that a waiver and release was not knowing and voluntary, to pay back
the severance or other consideration given in exchange for agreeing not to sue. As a result, the plaintiffs in this case are
keeping the relatively generous severance they received in exchange for signing
their severance agreements, while suing to get out of their promises not to
sue!
It is important to note that no determination has yet been
made regarding whether General Mills’ severance agreements did or did not
comply with OWBPA. The company had tried
to argue that its agreements included an arbitration clause and, therefore, the
lawsuit should be stayed by the court to allow for arbitration of the
plaintiff’s claims. However, the federal
district court denied this request, citing explicit language from the statute
which states that disputes over compliance with the OWBPA must be heard
in a “court of competent jurisdiction.” Further, the court refused to stay the
plaintiffs’ lawsuit while General Mills is appealing its ruling regarding
arbitration to the U.S. Court of Appeals.
General Mills may wind up prevailing against these
plaintiffs’ attempt to use the OWBPA to get out of the waiver and release
agreements they signed; however, it does not change the fact that these
individuals are keeping the severances they were offered in exchange for not
suing, while still suing the company.
Obviously if the agreements are determined to fail to meet the stringent
requirements of the OWBPA – that is, if the court finds that the language is
insufficient to make the agreements “knowing and voluntary” – the company will
be defending against a class action age discrimination case by hundreds of
employees laid off in a sizeable reduction in force, or RIF.
Attorneys everywhere will no doubt be watching this case
since its outcome will have a significant impact on how severance agreements
will be drafted for anyone 40 or older.
In the meantime great care should be taken to avoid similar challenges
afforded to employees by the complicated and very nuanced, OWBPA.
Questions? Contact the attorneys of our Minneapolis office
at (952) 746-1700 or email Christine Beggan at chbeggan@wesselssherman.com for
more information.
