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What is a waiver under the Age Discrimination in Employment Act?
As a general matter, a waiver under the Age Discrimination in Employment Act of 1967 (ADEA) is a legal agreement between an employer and employee in which the employee gives up the right to pursue an age discrimination claim against the employer in exchange for something of value, often severance or early retirement benefits. For example, during a layoff, an employer might ask that an employee agree to give up whatever ADEA claims he or she may have against the employer in order to get severance benefits.
How does the ADEA govern waivers?
In 1990, Congress passed the Older Workers Benefit Protection Act (OWBPA) as an amendment to the ADEA. Title II of the OWBPA established certain minimum requirements that must be met in order for an ADEA waiver to be valid.
What were Congress's purposes in enacting the waiver provision in the OWBPA?
Congress enacted the waiver provision in order to resolve a debate over whether employers could ask older workers to waive their ADEA rights. Understanding that waivers are typically tied to the receipt of important economic benefits, Congress determined that employers could obtain waivers but, in order to protect workers' rights, Congress also imposed requirements with which waivers would have to comply.
What is "tender back"?
Under the traditional contract law principle of "tender back," an individual who believes that a waiver or other legal agreement is invalid must return i.e., tender back the payment received for the waiver before challenging it in court. A related principle is "ratification." An individual who fails to return the payment received for a waiver is said to have "ratified," or approved of, the waiver. Ratification prevents an individual from challenging a defective waiver in court.
Do the principles of "tender back" and "ratification" apply to ADEA waivers?
No. In 1998, EEOC issued a regulation, negotiated with EEOC stakeholders, that set forth the EEOC's interpretation of the waiver provisions of the OWBPA. Among other things, the negotiated regulation prohibited any requirement that an older worker return severance or other benefit payments before filing an administrative charge of age discrimination with EEOC, but it did not address tender back with respect to ADEA lawsuits. The U.S. Supreme Court resolved this issue in a 1998 case named Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998).
In Oubre, the Supreme Court held that the OWBPA, and not traditional principles of contract law, governs waivers of ADEA rights. More specifically, the Court held that an older worker cannot be required to tender back severance payments as a condition to filing suit under the ADEA. Additionally, by keeping the severance payments an older worker does not (and cannot) ratify an ADEA waiver that does not comply with the OWBPA.
What were the Supreme Court's reasons for its decision in Oubre?
The Court gave two basic reasons for its decision. First, the Court recognized that the validity of ADEA waivers should be based solely on the OWBPA statute because the statute takes precedence over traditional contract law. Second, the Court recognized that a tender back requirement would, as a practical matter, prevent older workers from challenging waivers that were not valid under the OWBPA. Older workers often need the retirement or severance payments to live on and may, in fact, already have spent the payments on living expenses. Therefore, many older workers would not be able to "tender back" the funds they received in order to bring the challenge.
Why did EEOC issue the regulation?
EEOC determined that it was important to include the prohibition against tender back in its regulation on waivers. In addition, EEOC recognized that there were several important related issues that also needed to be addressed in a manner consistent with the OWBPA and the Supreme Court's decision in Oubre.
What are the main points of the regulation?
Here is a summary of the regulation's main points, with references to the particular subsections:
How does the regulation apply to agreements in which an older worker promises not to bring an ADEA lawsuit and to pay damages and attorneys' fees to the employer if he or she brings suit?
In some agreements, commonly called "covenants not to sue," the older worker's receipt of early retirement, severance pay or other benefits depends on the worker agreeing to two things: (1) that he or she will not bring a lawsuit, and (2) if a lawsuit is brought, that the older worker will pay damages and attorneys fees to the employer. The proposed version of this regulation would have categorically prohibited covenants not to sue under the ADEA.
The final regulation takes a different approach, based on public comments to the proposal. It recognizes that covenants not to sue and similar agreements are, functionally, the same as waivers, in that older workers give up the ADEA right to sue for age discrimination. As a result, ADEA covenants not to sue, and similar agreements, are subject to the requirements and restrictions of the OWBPA just like any other ADEA waiver provision.
When subjected to the OWBPA requirements, a covenant not to sue like a waiver can serve only as an affirmative defense to an ADEA lawsuit. The monetary remedies traditionally associated with covenants not to sue under common law damages and attorneys' fees are not allowed under the final regulation because they are inconsistent with the OWBPA statutory scheme. These remedies would stop most older workers from challenging ADEA waivers in the same way that tender back does. They simply couldn't afford to. This would be true even if the waivers did not comply with the law. As the Oubre case teaches, the OWBPA does not allow for any measure that has the practical effect of protecting ADEA waivers that do not comply with the law.
What are the specific circumstances in which an employer can get back money it paid for an ADEA waiver?
If an older worker has successfully challenged a waiver, proved age discrimination, and obtained a monetary award, a court, in its discretion, may reduce the older worker's monetary award. However, the reduction may not exceed the amount the employer paid for the waiver in the first place, or the amount of the older worker's monetary award if it is less.
For example, if an older worker received benefits valued at $15,000 in exchange for a waiver and obtained $10,000 in monetary benefits after proving that there was age discrimination, the court could reduce the award by up to $10,000. If the older worker obtained $30,000 in monetary benefits from the lawsuit, the court could not reduce the award by more than $15,000, the amount received in exchange for the waiver. This rule recognizes that permitting an employer to recover more money from the older worker would deter most older workers from bringing age discrimination lawsuits. For the reasons discussed above, this would be inconsistent with the purposes of the law.
If an older worker challenges an ADEA waiver in court, does that allow the employer to avoid its duties under the waiver?
No. The regulation says an employer cannot "abrogate," or avoid, its duties under an ADEA waiver, even as to the older worker who has challenged it. An older worker has an OWBPA right to have a court determine his or her waiver's validity. Permitting an employer to stop making payments due under the agreement would make it very difficult for older workers to exercise this right.
Did EEOC solicit and evaluate public comments in connection with the regulation?
Yes. EEOC received 27 public comments in response to a notice of proposed rulemaking published on April 23, 1999. Nineteen comments were from employers or their representatives. Eight comments were from older workers or their representatives. EEOC carefully considered the public comments received, most of which were detailed and thoughtful. Our analysis of them is in the preamble to the final regulation.
Is the regulation binding?
Yes. EEOC has issued this regulation under its ADEA legislative rulemaking authority. It is legally binding, subject to limited review by the courts.
When does the regulation become effective?
The regulation becomes effective on January 10, 2001, 30 days after publication in the Federal Register.
This page was last modified on December 11, 2000.