United States: EEOC Regulations Impose New Restrictions On Use Of ADEA Waivers

The Equal Employment Opportunity Commission (EEOC) recently finalized new regulations stating that, under the Older Workers Benefit Protection Act of 1990 (OWBPA), employees cannot be required to "tender back" or return consideration received for signing a waiver prior to the institution of a lawsuit challenging the validity of that waiver. 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. OWBPA specifically establishes guidelines for the implementation of such waivers.

The EEOC regulations specifically address the "tender back" issue in the context of ADEA waivers, an issue which was previously considered by the United States Supreme Court in Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998). Under traditional contract principles, an individual challenging a legal agreement must first tender back any consideration received in support of that agreement, prior to challenging the agreement. In Oubre, the Court held that workers protected by the ADEA could not be required to tender back severance payments or other benefits given in exchange for a waiver agreement before challenging the legality of the agreement in court.

The EEOC regulations codify the Supreme Court's holding and expand on its interpretation. The final rule explains that specific covenants not to sue and "other equivalent arrangements" are waivers subject to the rule in Oubre. Therefore, an older worker may retain severance or other benefits, even if the waiver agreement in question contains an express covenant not to sue. Further, the employer may not utilize alternative means of enforcing the waiver or covenant not to sue, such as a penalty provision for instituting suit. Moreover, while the employee may challenge the validity of the agreement, the employer may not suspend its own obligations under the agreement, e.g., to make benefits payments, pending the legal resolution of the employee's challenge. However, in that legal proceeding, the employer has the burden of demonstrating that the waiver was valid. Finally, the EEOC has gone so far as to suggest that the mere inclusion of overreaching waiver language may invalidate the entire agreement.

The EEOC has established a regulatory framework which, in all respects, favors the legal position of employees where they seek to challenge the validity of ADEA waivers. Nonetheless, such waivers remain an important tool for managing the departure of employees covered by the ADEA. Employers are advised to carefully review their waiver agreements to ensure conformity with the Supreme Court's decision in Oubre and the EEOC's supplementing regulations.