United States: Ambiguities in ADEA Waivers May Crater Releases

Originally published May 18, 2005

Since 1990, when the Congress enacted the Older Workers Benefit Protection Act (OWBPA), waivers of age discrimination claims must contain provisions intended to ensure that individuals act voluntarily and knowingly when giving up any right or claim they might have under the Age Discrimination in Employment Act (ADEA). Employers who fail to follow waiver requirements may find that a claim they believed was settled or released is in fact alive.

The latest such instance occurred when the employer, IBM, used an overly legalistic document that combined release and covenant not to sue language. A recent opinion from the Eighth Circuit Court of Appeals - Thomforde v. International Business Machines Corp., 2005 U.S. App. LEXIS 7592 (May 3, 2005) - held that the release of ADEA claims contained in a general release and covenant not to sue was sufficiently ambiguous that it did not constitute a knowing and voluntary waiver of the employee's rights under the ADEA.

The Facts

Dale Thomforde, an engineer with 28 years of service, was part of a reduction in force at IBM in 2001. During that process, he was presented with a document entitled "General Release and Covenant Not to Sue (Agreement)" that contained the terms "release" and "covenant not to sue" used interchangeably throughout the document. In exchange for a certain amount of money, the Agreement required Thomforde to release IBM from claims arising under the ADEA. It then went on to state that "[t]his covenant not to sue does not apply to actions based solely under the [ADEA], as amended. That means that if you were to sue IBM. . . only under the [ADEA], as amended, you would not be liable under the terms of this Release for their attorneys' fees and other costs and expenses of defending against the suit. This Release does not preclude filing a charge with the U.S. Equal Employment Opportunity Commission."

After reading the Agreement, Thomforde asked his supervisor if the exception for ADEA claims contained in the covenant not to sue meant he could sue IBM if his suit was limited to claims under the ADEA. His supervisor contacted IBM's legal department and sent Thomforde an e-mail stating, "Regarding your question on the General Release and Covenant Not to Sue, the wording is as intended by IBM. The site attorney was not comfortable providing an interpretation for you and suggested you consult with your own attorney."

Thomforde took this advice, consulted with counsel, signed the Agreement, and thereafter filed a charge with the EEOC alleging age discrimination under the ADEA.

Lower Court Found for Employer, But Was Overturned

IBM sought to dismiss the EEOC charge based on the waiver in the Agreement, but the EEOC issued a Notice of Right to Sue and Thomforde filed a lawsuit under the ADEA. IBM's motion for summary judgment maintained that Thomforde knowingly and voluntarily released his claims against IBM by signing the Agreement and accepting the benefits provided; that the waiver conformed to the Older Workers Benefit Protection Act (OWBPA); and that the Agreement was unambiguous. Thomforde argued he did not knowingly and voluntarily waive his ADEA rights because the Agreement preserved his right to file such a claim; the waiver did not conform to the OWBPA because it was not written in a manner that could be understood by the individual signing the Agreement; he did not understand he was surrendering his rights under the ADEA under the "totality of circumstances" approach; and, under state contract principles, the Agreement was ambiguous.The District Court granted IBM's motion for summary judgment, finding that Thomforde clearly waived any potential claims against IBM by signing the Agreement.

On appeal, the Eighth Circuit found the Agreement failed to explain the relationship between the release and covenant not to sue and used those terms interchangeably, making the Agreement unclear. The court held that, given the lack of clarity coupled with IBM's refusal to explain the Agreement to Thomforde, the Agreement was "not written in a manner calculated to be understood by the intended participants as required by the OWBPA." The Agreement was thus found ineffective as a matter of law to waive Thomforde's rights under the ADEA.

What Employers Should Do

  • Review all "form" releases, separation agreements, settlement agreements, and covenants not to sue that you now use. Ensure that the language in each document is consistent and clear;
  • Keep in mind that the basic requirements for an effective waiver are: that it be part of an agreement written in a manner that the average person can understand; that it specifically refer to rights or claims under the ADEA (not merely a general description of claims released); that it state that the individual does not waive rights that may arise after the date of the waiver; that it state that the individual is giving up rights or claims in exchange for something to which he or she is not otherwise entitled (i.e., special consideration); that it advise the individual to consult with any attorney before signing; that the individual be given specific time periods within which to sign (21 days in an individual case, 45 days in a reduction-in-force situation); that the individual be given at least 7 days after signing to revoke the agreement ("cooling-off period"); and, in the case of reductions in force, that it contain certain specified information relating to the group affected;
  • not to sue that you now use. Ensure that the language in each document is consistent and clear;

  • Take steps to ensure that, to avoid confusion and conflicting language, all divisions, business units, and departments utilize the same separation agreement, settlement agreement, or release in connection with the release of claims when separating employees over the age of 40 as part of a reduction in force or part of a layoff;
  • not to sue that you now use. Ensure that the language in each document is consistent and clear;

  • Identify one individual as the point person who will respond to all inquiries regarding the meaning of agreements containing releases of claims against the company. This will ensure consistency and accuracy in the information imparted to those releasing any claims against the company; and
  • not to sue that you now use. Ensure that the language in each document is consistent and clear;

  • In light of this recent interpretation by the Eighth Circuit, employers are advised to contact legal counsel prior to entering into any release, separation agreement, settlement agreement or covenant not to sue with an employee age 40 or over to ensure legal compliance.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.

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