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[Federal Register: December 11, 2000 (Volume 65, Number 238)]
[Rules and Regulations]
[Page 77437-77447]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11de00-19]
[[Page 77437]]
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Part III
Equal Employment Opportunity Commission
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29 CFR Part 1625
Waivers of Rights and Claims; Tender Back of Consideration; Final Rule
[[Page 77438]]
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EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
29 CFR Part 1625
RIN 3046-AA68
Waivers of Rights and Claims: Tender Back of Consideration
AGENCY: Equal Employment Opportunity Commission.
ACTION: Final rule.
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SUMMARY: The Equal Employment Opportunity Commission (EEOC or
Commission) is publishing this final regulation stating that, under the
Older Workers Benefit Protection Act of 1990, employees cannot be
required to tender back the consideration received under a waiver
agreement before being permitted to challenge the waiver agreement in
court, and addressing related issues. The regulation protects older
workers' rights under the Older Workers Benefit Protection Act.
DATES: Effective January 10, 2001.
FOR FURTHER INFORMATION CONTACT: Carol R. Miaskoff, Assistant Legal
Counsel, or Corbett L. Anderson, Attorney-Advisor, 202-663-4689
(voice), 202-663-7026 (TDD).
SUPPLEMENTARY INFORMATION:
I. Background
A. The Older Workers Benefit Protection Act of 1990
In Title II of the Older Workers Benefit Protection Act of 1990
(Title II or OWBPA), Congress added section 7(f) to the Age
Discrimination in Employment Act of 1967, 29 U.S.C. 626(f) (ADEA), to
set out requirements for ADEA waivers that would ensure that ``older
workers [are] not coerced or manipulated into waiving their rights
under the ADEA.'' \1\ Congress decided not to require supervision of
ADEA waivers by the Equal Employment Opportunity Commission (EEOC or
Commission), but emphasized ``that the requirements of [T]itle II [are
to] be strictly interpreted to protect those individuals covered by the
Act.'' \2\
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\1\ 136 Cong. Rec. 27,061 (1990), reprinted in 1 Staff of Senate
Comm. on Labor and Human Resources, 102d Cong., Legislative History
of the Older Workers Benefit Protection Act (S. 1511 and Related
Bills), at 23 (1991).
\2\ S. Rep. No. 101-263, at 31 (1990, reprinted in 1 Staff of
Senate Comm. on Labor and Human Resources, 102d Cong., Legislative
History of the Older Workers Benefit Protection Act (S. 1511 and
Related Bills), at 350 (1991) [hereinafter S. Rep. No. 101-263].
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In the OWBPA, Congress proclaimed that ``[a]n individual may not
waive any right or claim * * * unless the waiver is knowing and
voluntary.'' 29 U.S.C. 626(f)(1). An ADEA waiver is valid only ``if
certain threshold requirements [are met and the waiver is] otherwise
shown to be knowing and voluntary.'' \3\ The OWBPA states that the
waiver agreement must be ``written in a manner calculated to be
understood [by the employee], or by the average individual eligible to
participate''; must specifically reference ADEA rights or claims; and
must advise employees to consult an attorney before signing the
agreement. ADEA waivers also must be in exchange for extra
consideration, and must not waive rights or claims that arise after the
agreement is executed.\4\ Finally, the OWBPA directs employers to give
employees specified periods of time to consider waivers and to revoke
them. Id. section 626(f)(1)(A)-(G). When employers offer waivers in
connection with an exit incentive or other group employment termination
program, they must give employees certain information about the
termination program itself, as well as lists of the job titles and ages
of individuals eligible or selected for the program and the ages of
those not eligible or selected but who were in the same job
classification or organizational unit. Id. section 626(f)(1)(H). See
also 29 CFR Part 1625.22.
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\3\ Id. at 31-32.
\4\ These requirements also apply to a waiver in settlement of
an ADEA charge filed with the EEOC. 29 U.S.C. 626(f)(2).
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In addition, an ADEA waiver is ``knowing and voluntary'' only if
the employee accepts it ``in the absence of fraud, duress, coercion, or
mistake of material fact.'' \5\ According to the OWBPA legislative
history, courts evaluating the validity of an ADEA waiver should
analyze this aspect of the ``knowing and voluntary'' question under the
``totality of the circumstances approach.'' Congress rejected
traditional contract principles as the basis for determining if an ADEA
waiver is knowing and voluntary.\6\
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\5\ S. Rep. No. 101-263, supra note 2, at 31. See also 29 CFR
1625.22(a)(3) (``Other facts and circumstances may bear on the
question of whether the waiver is knowing and voluntary, as, for
example, if there is a material mistake, omission, or misstatement
in the information furnished by the employer to an employee in
connection with the waiver.''). Accord Bennett v. Coors Brewing Co.,
189 F.3d 1221, 1228-29 (10th Cir. 1999); EEOC v. Johnson & Higgins,
5 F. Supp. 2d 181, 186 (S.D.N.Y. 1998).
\6\ S. Rep. No. 101-263, supra note 2, at 32. For the analysis
of ``knowing and voluntary,'' the Senate Committee gave its approval
to the ``totality of circumstances'' analysis used to uphold an ADEA
waiver in Cirillo v. Arco Chemical Co., 862 F.2d 448 (3d Cir.
1988), but disapproved of ``the approach adopted in Lancaster v.
Buerkle Buick Honda Co., 809 F.2d 539 (8th Cir.), cert. denied, 482
U.S. 928 (1987),'' which applied ordinary contract principles.
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Congress also provided that a court of competent jurisdiction would
resolve ``any dispute'' that may arise over whether a waiver agreement
was entered in compliance with the statutory requirements. 29 U.S.C.
626(f)(3). Congress intended that a valid OWBPA waiver would act as an
affirmative defense.\7\ The statute directs that the employer has the
burden of proving that an ADEA waiver complies with the enumerated
OWBPA requirements, assuming that the employer is the party asserting
the validity of the waiver. Id.\8\ Moreover, legislative history
reveals that ``once that occurs, the employee may produce additional
evidence to suggest that the waiver was not `knowing and voluntary,''--
i.e., that the waiver is not valid due to one or more of the non-
enumerated elements of the ``knowing and voluntary'' standard, such as
fraud, duress, coercion or mistake of material fact.\9\ In such a
circumstance, the employer then must prove, with respect to the issues
raised by the employee, that the waiver was both knowing and
voluntary.\10\
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\7\ S. Rep. No. 101-263, supra note 2, at 35 (``A waiver of
rights or release of claims is generally available as an affirmative
defense.'')
\8\ See also 136 Cong. Rec. 27,062 (1990) (Final Statement of
Floor Managers) reprinted in 1 Staff of Senate Comm. on Labor and
Human Resources, 102d Cong., Legislative History of the Older
Workers Benefit Protection Act (S. 1511 and Related Bills), at 26
(1991).
\9\ S. Rep. No. 101-263, supra note 2, at 35. Congress did not
intend to force employers to `` `prove a negative' where no evidence
of fraud, duress, or coercion exists.'' Id.
\10\ Id.
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B. The Negotiated Rule on Waivers of Rights and Claims Under the ADEA
In 1998, the EEOC published a final regulation on Title II of the
ADEA, the product of a negotiated rulemaking under the procedures in
the Negotiated Rulemaking Act, 5 U.S.C. 561 et seq. The final rule set
forth the EEOC's interpretation of the standards in section 7(f) of the
ADEA, covering the following subjects, among others: the wording of
waiver agreements, waivers of future rights, consideration, time
periods, informational requirements, waivers settling charges and
lawsuits, the burden of proof, and the EEOC's enforcement powers. See
29 CFR 1625.22.
Some commenters on the negotiated rule had urged the Commission to
address the question of whether employees can be required to tender
back the consideration received under a waiver agreement before
challenging the waiver agreement in court. However, about four months
prior to publication
[[Page 77439]]
of the final negotiated rule, the Supreme Court decided the issue of
tender back in Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998).
The Supreme Court held that a release that does not comply with the
OWBPA requirements cannot bar an employee's ADEA claims, even if the
employee did not tender back the consideration. The Commission decided,
in light of Oubre, to address tender back and related issues in a
subsequent guidance rather than in the negotiated rule.\11\ The
legislative rule published today fulfills that goal.
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\11\ However, with regard to the administrative process, section
(i)(3) of the negotiated rule provides that a waiver agreement
cannot impose ``any condition precedent, any penalty, or any other
limitation adversely affecting'' an individual's right to file a
charge or complaint with the EEOC or assist the EEOC in an
investigation. As noted in the preamble to the final negotiated
rule, this provision forbids a requirement in a waiver agreement
that an individual tender back the consideration before filing a
charge or complaint of discrimination with the EEOC or assisting the
EEOC in an investigation. 63 FR 30627 (1998).
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C. The EEOC's Rulemaking Authority Under the ADEA
Congress granted the EEOC authority under the ADEA to issue
legislative rules that it considers ``necessary or appropriate'' in
enforcing the Act. 29 U.S.C. 628.\12\ ADEA legislative regulations are
properly used to resolve statutory ambiguities or omissions, through
policies that are consistent with the purposes of the Act.\13\ If the
ADEA does not directly address a particular matter, the EEOC may adopt
any rule that is ``permissible'' under the Act. Chevron v. Natural
Resources Defense Council, 467 U.S. 837 (1984). A legislative rule is
permissible if it is a reasonable exercise of an agency's rulemaking
authority. Id. at 844, 845, 865, 866; Sanchez v. Pacific Powder Co.,
147 F.3d 1097, 1100 (9th Cir. 1998); Doe v. Dekalb County Sch. Dist.,
145 F.3d 1441, 1448 (11th Cir. 1998). A legislative rule is not
permissible if it is ``arbitrary, capricious, or manifestly contrary to
the statute.'' Chevron, 467 U.S. at 843; Arnold v. United Parcel
Serv., Inc., 136 F.3d 854, 864 n.8 (1st Cir. 1998). Legislative rules
have the effect of law and are binding on the general public, subject
to limited review by the courts. United States v. Storer Broadcasting
Co., 351 U.S. 192 (1956) (legislative rule has force and effect of
law).
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\12\ See American Ass'n of Retired Persons v. EEOC, 823 F.2d
600, 604 (D.C. Cir. 1987) (``It would be very difficult to find more
permissive statutory language [than in 29 U.S.C. 628].'').
\13\ See Pauly v. BethEnergy Mines, Inc., 501 U.S. 680, 696
(1991) (``When Congress, through express delegation or the
introduction of an interpretive gap in the statutory structure, has
delegated policymaking authority to an administrative agency, the
extent of judicial review of the agency's policy determinations is
limited.'').
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D. The Decision in Oubre v. Entergy Operations, Inc.
In Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998), the
Supreme Court addressed the question of whether the OWBPA's statutory
waiver scheme permits an employer to rely on contract theories of
ratification and tender back to defend an ADEA waiver that does not
comply with the OWBPA. The waiver in Oubre did not comply with three of
the OWBPA's threshold requirements,\14\ but the employer argued that it
nonetheless was enforceable based on contract principles of
ratification and tender back. The employer maintained that Ms. Oubre
ratified the defective waiver because she did not return the money paid
by the employer after discovering the waiver's deficiencies. Oubre, 522
U.S. at 425.
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\14\ In procuring Ms. Oubre's ADEA waiver, Entergy Operations,
Inc., did not comply with OWBPA in at least three aspects: (1) it
did not give her enough time to consider the waiver; (2) it did not
give her seven days after she signed the waiver to change her mind;
and (3) the text of the waiver did not specifically refer to ADEA
claims. Oubre, 522 U.S. at 424-25 (majority opinion).
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Rejecting this argument, the Supreme Court held that Ms. Oubre's
waiver could not be given effect because it did not comply with the
OWBPA, notwithstanding contract theories of ratification and tender
back. The Court reasoned that the validity of an ADEA waiver should be
determined solely with reference to the statutory scheme, because
``[t]he OWBPA sets up its own regime for assessing the effect of ADEA
waivers, separate and apart from contract law.'' Oubre, 522 U.S. at
427. The Court explained:
Congress imposed specific duties on employers who seek releases
of certain claims created by statute. Congress delineated these
duties with precision and without qualification: An employee ``may
not waive'' an ADEA claim unless the employer complies with the
statute. Courts cannot with ease presume ratification of that which
Congress forbids.
The Court also explained that reliance on these contract principles
would ``frustrate [the OWBPA's] practical operation as well as its
formal command.'' \15\ Many discharged employees would lack the
resources to return funds received for the waiver, as a condition of
ADEA litigation. The Court expressed concern that ``[t]hese realities
might tempt employers to risk noncompliance with the OWBPA's waiver
provisions * * *. We ought not to open the door to an evasion of the
statute by this device.'' \16\
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\15\ Oubre, 522 U.S. at 427 (majority opinion).
\16\ Id.
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Finally, the Court observed that, in the future, lower courts may
need to inquire ``whether the employer has claims for restitution,
recoupment, or setoff against the employee'' for return of the
consideration paid in exchange for the invalid waiver. The Court
expressly stated that it ``need not decide those issues here,
however.'' \17\ In his concurrence, Justice Breyer raised the
possibility of employers seeking restitution after suit commenced.\18\
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\17\ Id. at 428.
\18\ Id. at 433 (Breyer, J., and O'Connor, J., concurring).
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II. Review and Discussion of Public Comments
A. Introduction and General Comments
The Commission received 27 comments in response to this Notice of
Proposed Rulemaking (NPRM or Rulemaking), which was published in the
Federal Register on April 23, 1999. 64 FR 19952. Of these comments, 19
were from representatives of employers and eight were from
representatives of employees or older persons. Before reviewing and
discussing the public comments on specific sections of the NPRM, the
Commission addresses some general comments received from
representatives of employers.
First, employer representatives questioned the Commission's
authority to promulgate this regulation, arguing that the EEOC cannot
regulate the contents of an ADEA waiver agreement if the agreement was
entered into in a ``knowing and voluntary'' fashion under the OWBPA. As
explained in detail below, however, the Commission is regulating the
content of waivers only to the extent necessary to fully effectuate the
OWBPA's ``knowing and voluntary'' standard.
Employer commenters also asserted that the Commission does not have
the authority to regulate covenants not to sue. These comments led the
Commission to refine its reasoning related to covenants not to sue. For
the reasons set forth below, the Commission has the authority to
regulate covenants not to sue because they operate as waivers in the
ADEA context. Thus, as a logical outgrowth of the proposed rule and the
comments on it, the Commission has drafted the final rule to reflect a
unified approach to waivers and covenants not to sue, as well as tender
back and damages.
Furthermore, an employer representative contended that the proposed
regulation would not be
[[Page 77440]]
entitled to judicial deference because it interprets the Supreme
Court's decision in Oubre rather than the OWBPA itself. However, these
rules do not solely interpret the decision in Oubre. The EEOC is
construing the OWBPA through this regulation, and the regulation
promulgated herein is fully supported by a reasoned interpretation of
the requirements of the OWBPA. Obviously, the Commission is required to
take the Supreme Court's decision in Oubre into account in promulgating
the regulations.
Finally, several management representatives commented that this
regulation may undermine the Commission's support of voluntary
resolution of cases through mediation. Specifically, they contended
that this regulation may discourage employers from participating in
EEOC mediations because waivers entered into in conjunction with ADEA
mediation settlements will be perceived as vulnerable to challenge. The
Commission, however, is satisfied that this regulation will not weaken
its mediation program.
According to a recent independent and comprehensive survey of
employers and charging parties who have participated in the EEOC's
National Mediation Program, the overwhelming majority of participants
find it to be highly effective, express strong satisfaction with the
process, and are willing to participate again if party to a
discrimination charge.\19\ These survey results reflect that, among
other things, EEOC mediation is fully voluntary and is a process in
which the basic interests of both parties are addressed. A mediation
settlement is only achieved when the parties have addressed all of
their interests and identified a mutually satisfactory solution,
including agreement to any waiver provision. This is entirely distinct
from the situation where an employer conditions severance, early
retirement, or other benefits offered in connection with a layoff or
reduction-in-force on the signing of a waiver.
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\19\ See Dr. E. Patrick McDermott, Dr. Ruth Obar & Dr. Anita
Jose, An Evaluation of the Equal Employment Opportunity Commission
Mediation Program (Sept. 20, 2000) http://www.eeoc.gov/mediate/
report/.
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B. Comments on Proposed 29 CFR 1625.23(a): Tender Back
Paragraph (a) of this rule, as proposed and published for comment
in the Federal Register, stated:
An individual alleging that a waiver agreement was not knowing
and voluntary under the ADEA is not required to tender back the
consideration given for that agreement before filing either a
lawsuit or a charge of discrimination with EEOC or any state or
local fair employment practices agency. Retention of consideration
does not foreclose a challenge to any waiver agreement; nor does the
retention constitute the ratification of any waiver. A clause
requiring tender back is invalid under the ADEA.
Comments on this provision were not numerous. One employer
representative stated that the provision, while perhaps unnecessary in
light of the Supreme Court's holding in Oubre, was mostly
``unobjectionable.'' A few employer representatives objected vigorously
to aspects of the proposal, as discussed below. Employee
representatives did not comment.
1. The ``No Tender Back'' Rule Applies to All Waiver Challenges
The basic rationale for paragraph (a) of this regulation is that the
OWBPA forecloses the employer defenses of tender back and ratification
\20\ because these defenses would effectively result in enforcement of
noncompliant OWBPA waivers despite Congress' admonition that ``[a]n
individual may not waive'' an ADEA right or claim unless the waiver is
knowing and voluntary.\21\ Paragraph (a) of the proposed regulation
stated that ``[r]etention of consideration does not foreclose a
challenge to any waiver agreement; nor does the retention constitute
the ratification of any waiver.'' Three management representatives
asserted that the ``no tender back'' rule should apply only if the
waiver obviously fails to comply with OWBPA's enumerated statutory
requirements (for example, if the waiver does not refer to the ADEA, or
it does not advise legal consultation). Under this approach, it would
follow that tender back could be required if an individual challenged a
waiver on the basis of fraud, duress, or other circumstances beyond the
document itself.
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\20\ Oubre, 522 U.S. at 430-31 (Breyer, J., and O'Connor, J.,
concurring) (``As a conceptuall matter, a `tender back' requirement
would imply that the worker had ratified her promise by keeping her
employer's payment.'').
\21\ Oubre, 522 U.S. at 427 (majority opinion). See also id. at
430-31 (Breyer, J., and O'Connor, J., concurring).
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The Commission considered these comments but concluded, for the
following reasons, that the ``no tender back'' rule must apply
regardless of a waiver's facial OWBPA compliance. First, the validity
of a waiver agreement is not always apparent from its face, even with
regard to the enumerated OWBPA requirements. For example, assessing the
validity of a waiver in connection with an exit incentive or a group
termination program subject to the OWBPA's informational requirements
generally requires an examination of the unique facts of a particular
workforce reduction or termination. If the commenters' suggested
approach were adopted, the tender back requirement could operate to
allow employers to enforce group waivers that did not, in fact, comply
with the informational requirements. Such a result would undermine
enforcement of one of the OWBPA's critical components.\22\
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\22\ In enacting the OWBPA, Congress was especially concerned
about protecting older employees included in group terminations. See
S. Rep. No. 101-263, supra note 2, at 32 (``[E]mployees affected by
these programs have little or no basis to suspect that action is
being taken based on their individual characteristics. Indeed, the
employer generally advises them that the termination is not a
function of their individual status. Under these circumstances, the
need for adequate information * * * before waivers are signed is
especially acute.'').
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Second, the commenters' suggestion would open the door to
enforcement of OWBPA waivers that did not comply with the statute
because they were tainted by fraud or duress. The Commission does not
agree with the view that the OWBPA omits these common law prohibitions
and, therefore, that any such challenge remains subject to ratification
and tender back, even in the aftermath of Oubre. To the contrary,
Congress contemplated that the OWBPA's standard for ``knowing and
voluntary'' would incorporate both the enumerated statutory
requirements and the requirement that the waivers be adopted ``in the
absence of fraud, duress, coercion, or mistake of material fact.'' \23\
If the ``no tender back'' rule is necessary to effectuate the OWBPA's
enumerated requirements, then it also must be applicable to enforce the
fundamental requirement that OWBPA waivers be free of fraud, duress,
coercion, or mistake of material fact.\24\
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\23\ Id. at 31-32 (``The unsupervised waiver must be knowing and
voluntary. At a minimum, the waiving party must have genuinely
intended to release ADEA claims and must have understood that he was
accomplishing this goal. The individual also must have acted in the
absence of fraud, duress, coercion, or mistake of material fact.'').
See also id. at 35.
\24\ The Commission agrees with the conclusion reached on this
point by the court in Bennett v. Coors Brewing Co., 189 F.3d 1221,
1229 (10th Cir. 1999), in which the releases at issue complied with
the express statutory requirements of the OWBPA, but the court
nevertheless held that ``the appellants' failure to tender back
their severance benefits * * * ha[d] no effect on their ability to
challenge the waivers of their ADEA claims under the OWBPA'' because
of fraud, duress or other reasons. But see Reid v. IBM Corp., 95
Civ. 1755 (MBM), 1997 WL 357969 (S.D.N.Y. June 26, 1997) (holding
that the principles of ratification and tender back would apply
where a waiver met the minimum requirements of the OWBPA even if not
knowing and voluntary for some other reason, such as fraud or
duress). For the reasons discussed herein, the Commission believes
that Reid, which predates the Supreme Court's decision in Oubre, was
decided incorrectly.
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[[Page 77441]]
2. Tender Back Clauses
One employer representative recommended that the Commission permit
negotiation of tender back clauses as part of waiver agreements. The
Commission does not adopt this recommendation, and the final rule
retains the prohibition against tender back clauses.\25\ Allowing a
tender back clause would undermine the OWBPA, as interpreted in Oubre.
The basic rationale for this regulation is that the OWBPA abrogates the
common law doctrines of tender back and ratification because their
operation opens the door to enforcement of noncompliant OWBPA
waivers.\26\ Prohibiting tender back by operation of law, but allowing
it by operation of contract, would unacceptably undermine the statute
and elevate form over substance.
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\25\ However, the rule on tender back clauses has been removed
from paragraph (a) and incorporated into paragraph (b).
\26\ See Oubre, 522 U.S. at 427 (majority opinion).
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One employer representative commented that the Commission's use of
the word ``invalid'' in the NPRM as to tender back clauses ``leaves
open the question of whether * * * the inclusion of such provisions
might somehow invalidate the ADEA waiver itself.'' \27\ This employer
representative maintained that inclusion of a tender back clause should
not invalidate a waiver that otherwise was ``knowing and voluntary''
under the OWBPA. The final regulation does not address the question of
severability because the NPRM did not present the issue, and the record
on it is very limited. The Commission believes, however, that contrary
to the position advanced by the employer, there is a strong argument
that inclusion of an invalid provision in an ADEA waiver agreement--
such as a tender back clause or a damages provision--should invalidate
the entire waiver. Under this point of view, inclusion of such
provisions in a waiver would make the agreement misleading in a
material sense and thus violate the OWBPA's requirement that waivers be
calculated to be understandable by the individual or by the average
individual eligible to participate.\28\
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\27\ This commenter made the same observation regarding the
Commission's use of the phrase ``not permitted'' in paragraph (b) of
the NPRM as to covenants not to sue, and the discussion above also
applies to covenant not to see. One employee representative argued
however, that inclusion of a convenant not to sue should create a
rebuttable presumption in related litigation that the waiver was not
knowing and voluntary.
\28\ 29 U.S.C. 626(f)(1)(A).
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3. Tender Back and State or Local Fair Employment Practices Agencies
Two management commenters objected to the wording of paragraph (a)
where it stated that if an individual alleges that a waiver is not
knowing and voluntary, tender back is not required prior to ``filing
either a lawsuit or a charge of discrimination with * * * any state or
local fair employment practices agency.'' These commenters contended
that the Commission lacks authority to specify the conditions required
to file a complaint with state or local agencies. To clarify this
regulation, the Commission incorporates the following language in the
sentence referring to state and local agencies:
* * * or any state or local fair employment agency acting as an
EEOC referral agency for purposes filing the charge with EEOC.
4. Final Regulatory Language for Paragraph (a)
Accordingly, paragraph (a) of the final rule will state: \29\
\29\ Note that paragraph (a) of the final rule uses the phrase
``waiver agreement, covenant not to sue, or other equivalent
arrangement'' where appropriate to reflect the Commission's unified
approach to waivers and covenants not to sue. Section C of the
Preamble discusses covenants not to sue.
An individual alleging that a waiver agreement, covenant not to
sue, or other equivalent arrangement was not knowing and voluntary
under the ADEA is not required to tender back the consideration
given for that agreement before filing either a lawsuit or a charge
of discrimination with EEOC or any state or local fair employment
practices agency acting as an EEOC referral agency for purposes of
filing the charge with EEOC. Retention of consideration does not
foreclose a challenge to any waiver agreement, covenant not to sue,
or other equivalent arrangement; nor does the retention constitute
the ratification of any waiver agreement, covenant not to sue, or
other equivalent arrangement.
C. Comments on 29 CFR 1625.23(b): Covenants Not To Sue
Paragraph (b) of the proposed regulation, as published for comment
in the Federal Register, stated:
A covenant not to challenge a waiver agreement, or any other
arrangement that imposes any condition precedent, any penalty, or
any other limitation adversely affecting any individual's right to
challenge a waiver agreement, is invalid under the ADEA, whether the
covenant or other arrangement is part of the agreement or is
contained in a separate document. A provision allowing an employer
to recover costs, attorneys' fees, and/or damages for the breach of
any covenant or other arrangement is not permitted.
1. Summary of Employee Comments
Employee representatives stated that the use of covenants not to
sue clearly offends Congress' intent to allow individuals to test ADEA
waivers in court. One employee representative maintained that the
Commission needs to implement more powerful disincentives for using
covenants not to sue than simply stating that they are invalid under
the OWBPA. According to this commenter, an employer that uses a
covenant not to sue should be subject to: A rebuttable presumption in
related litigation that the waiver was not knowing and voluntary; an
automatic finding of a willful ADEA violation; and a finding of
retaliation if the employer seeks to recoup past benefits or abrogate
future benefits. The Commission has considered these comments but
believes that the final rule reflects the commenters' concerns without
unduly altering the legislative balance crafted by Congress.
2. Summary of Employer Comments
A number of management representatives acknowledged that a covenant
not to sue that is part of a waiver agreement is enforceable only if
the overall waiver agreement is knowing and voluntary under the OWBPA.
As a corollary to this proposition, several commenters agreed with the
employer representative who stated that ``[i]f the employee
successfully invalidates the release because it does not comply with
OWBPA, an employer's breach of contract claim is worthless.''
Some representatives of employers asserted that the Commission does
not have the authority to regulate covenants not to sue. Employers also
contended that the OWBPA does not affect the ability of the employer
and employee to enter into a covenant not to sue, under which the
employer is entitled to damages and/or attorneys' fees if the employee
goes to court and the covenant is upheld. Commenters on behalf of
employers asserted that a contrary result would encourage litigation
and discourage employers from offering attractive severance packages in
exchange for waivers. According to these commenters, the chilling
effect of the damages provisions commonly included in such covenants is
necessary to retain the OWBPA's balance between employer and employee
interests.
One employer representative argued against paragraph (b) of the
proposed rule because, in the commenter's view, ``a prevailing
defendant is already
[[Page 77442]]
entitled as a matter of right to receive full reimbursement for all of
its taxable costs (see 28 U.S.C. 1920), and may also be awarded its
counsel fees if * * * the employee's claim `was frivolous, unreasonable
or groundless.' Christiansburg Garment Co. v. EEOC, 434 U.S. 412
(1978).'' Other commenters made similar arguments. Finally, an employer
representative contended that, even if the Commission ultimately
concludes that the use of covenants not to sue is inconsistent with the
OWBPA, the Commission should provide that only the covenant, rather
than the entire waiver agreement, is unenforceable.
3. Discussion
The NPRM addressed the legality of covenants not to sue and stated
that such covenants were invalid due to the chilling effect on valid
ADEA claims of damages and/or attorneys' fees provisions as well as the
language of the covenants themselves. Because the chilling effect of
damages or attorneys' fees could give life to waiver agreements that
violate the OWBPA, the final rule continues to prohibit the use of
provisions allowing the recovery of damages and/or attorneys' fees
simply because suit has been filed. Based on further analysis in light
of the comments, however, the final rule recognizes that an ADEA
promise not to sue, by itself, is the functional equivalent of a waiver
and therefore subject to the OWBPA requirements and restrictions. Thus,
a covenant not to sue that comports with the requirements of the OWBPA
will provide the employer with a defense against the employee's ADEA
claim of age discrimination, and will entitle the employer to a
dismissal of the employee's suit after the covenant has been upheld. In
addition, attorneys' fees and costs will continue to be available under
established principles. The final rule prohibits additional damages
and/or attorneys fees because they would violate the statute. The final
rule adopts a unified standard for waivers and covenants not to sue
(and any other equivalent arrangements), pursuant to the Commission's
authority to enforce the OWBPA.
(a) Attorneys' Fees and Damages
(i) Attorneys' Fees and Costs Will Continue to be Available to
Employers Under Established Principles
As noted above, a few management commenters contended that the
prohibition against covenants not to sue in paragraph (b) of the NPRM
was inconsistent with the established law which permits the award of
attorneys' fees and costs to prevailing employers in certain
circumstances. One commenter took the position that prevailing
employers are entitled to attorneys' fees if the employee's claim was
``frivolous, unreasonable or groundless,'' and to costs as a matter of
right.
The courts have held that attorneys' fees are available for ADEA
defendants where the plaintiff litigated in ``bad faith.'' \30\ The
``frivolousness'' standard suggested by one commenter is the Title VII
standard and does not apply to the ADEA.\31\ In any event, the
Commission does not intend to displace the established principles
governing attorneys' fees under the ADEA. An employer would be entitled
to attorneys' fees if the employee's suit were brought in bad faith.
---------------------------------------------------------------------------
\30\ See Turlington v. Atlanta Gas Light Co., 135 F.3d 1428,
1437 (11th Cir.) (citing cases, and reasoning that because the ADEA
borrows the attorneys' fee provision of the Fair Labor Standards
Act, which speaks only in terms of attorneys' fees for plaintiffs,
``a district court may award attorneys' fees to a prevailing ADEA
defendant only upon a finding that the plaintiff litigated in bad
faith''), cert denied, 119 S. Ct. 405 (1998); Cesaro v. Thompson
Publishing Group, 20 F. Supp. 2d 725, 726-27 (D.N.J. 1998) (same).
\31\ Cf. Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421
(1978) (under Title VII a prevailing defendant can get attorneys'
fees ``upon a finding that the plaintiff's action was frivolous,
unreasonable, or without foundation, even though not brought in
subjective bad faith'') (emphasis added).
---------------------------------------------------------------------------
The Commission agrees with the commenters' point on the issue of
costs and therefore has deleted references to costs from the final rule
where appropriate. As with attorneys' fees, the Commission does not
intend to disturb established law with respect to costs. However,
employers may not recover costs beyond those available under
established law in ADEA cases.
In order to clarify these matters, the Commission has added a
sentence to paragraph (b) stating that the rule is ``not intended to
preclude employers from recovering attorneys'' fees or costs
specifically authorized under federal law.''
(ii) The Chilling Effect Conflicts with the OWBPA
The Commission remains concerned about the chilling effect that the
potential for attorneys' fees (other than those currently available)
and damages would have on good faith OWBPA challenges. Several
commenters in fact agreed that the possibility of such remedies exerts
a chilling effect on ADEA litigation, although employee and employer
representatives disagreed about the propriety of that chilling effect.
In the Commission's view, the financial risk of pursuing an ADEA claim
in the face of such remedies would, as a practical matter, discourage
individuals from pursuing even cases about which they were fairly
optimistic. Because the chilling effect of these penalties could give
life to waiver agreements that were not compliant with the OWBPA, and
thereby undermine enforcement of the statute, the Commission's final
rule forbids any provision that threatens to impose any condition
precedent, penalty, or other limitation that would adversely affect an
individual who exercises his or her right to challenge an agreement
covered by the OWBPA.
The Commission's conclusion that the chilling effect of damages or
attorneys' fees is at odds with the OWBPA is supported by the Supreme
Court's reasoning in Oubre. The Supreme Court in Oubre recognized the
effect that financial pressure may have on an individual's willingness
to bring a case. In the context of tender back, the Court reasoned that
many individuals will ``lack the means to tender [the] return'' of
funds received in exchange for the waiver and, therefore, will refrain
from bringing cases they otherwise might pursue.\32\ Employers'
perceptions that individuals will be deterred from seeking judicial
assessment of ADEA waivers, in turn, may ``open the door to an evasion
of the statute.'' \33\ The same unacceptable consequences that led the
Supreme Court to reject a tender back requirement in Oubre would result
if employee litigants faced the prospect of damages and/or attorney
fees for breach of covenants not to sue.\34\
---------------------------------------------------------------------------
\32\ Oubre, 522 U.S. at 427 (majority opinion).
\33\ Id.
\34\ Cf. Oubre, 522 U.S. at 431 (Breyer, J., and O'Connor, J.,
concurring) (``Courts must avoid allowing a recovery that has the
effect of substantially enforcing the contract that has been
declared unenforceable, since to do so would defeat the policy that
lead to the rule in the first place.'' (quoting d. Dobbs, Law of
Remedies 982 (1973))).
---------------------------------------------------------------------------
The chilling effect of damages or attorneys' fees also disturbs the
balance between litigation and voluntary resolution that Congress
crafted in the OWBPA. Congress was concerned about protecting employee
rights, particularly in the group termination context, as it allowed
unsupervised ADEA waivers.\35\ In the OWBPA, Congress allowed employers
to offer OWBPA-compliant waivers without EEOC supervision, but at the
same time vested in ``a court of competent jurisdiction'' the authority
to resolve ``any dispute that may arise'' over the validity of the
waiver.\36\ Permitting employers to chill employees from testing
unsupervised ADEA waivers, by threatening to impose damages or
attorneys' fees, would
[[Page 77443]]
impede access to judicial review and thus undermine this legislative
balance.
---------------------------------------------------------------------------
\35\ See S. Rep. No. 101-263, supra note 2, at 31-32.
\36\ See 29 U.S.C. 626(f)(3). See also supra notes 7-9.
---------------------------------------------------------------------------
Representatives of employers stated that a final regulation
prohibiting damages and attorneys' fees would send a signal to
employees that they could bring ADEA challenges ``with impunity.'' In
the Commission's view, the suggestion that such a regulation will
result in a flood of litigation is not persuasive. The Commission notes
that no facts have been offered in support of such a suggestion.
Employees executing waivers, covenants, or equivalent arrangements will
understand the consequence of the agreement--that their pursuit of ADEA
discrimination claims in litigation will fail if they knowingly and
voluntarily entered into their agreements. While the possibility of
frivolous lawsuits always exists, the Commission believes that a
knowing and voluntary process helps ensure that an employee who has
signed a waiver will not view a later lawsuit as fruitful.
(iii) The Chilling Effect of Damages Provisions Cannot Be Limited
to Situations Where the Underlying Waiver Is Valid.
Some employer representatives contended that damages provisions at
least should be enforceable when they are included in waiver agreements
that are found to be knowing and voluntary under the OWBPA. In this
circumstance, they reasoned, OWBPA compliance would not be undermined
if litigation were chilled. The Commission does not agree that the
chilling effect can be limited so neatly.
These commenters assume that the validity of ADEA waivers is easily
discernable from the face of the agreement. However, as discussed above
with respect to tender back, compliance with the OWBPA may not be
apparent from the face of the document if the statute's informational
requirements are applicable, or if the individual alleges that the
waiver is not knowing and voluntary on the basis of fraud, duress,
coercion, or mistake of material fact. See supra at II.B. Additionally,
as another management commenter acknowledged, even individuals who are
fairly certain that an ADEA waiver is unenforceable may choose not to
bring suit simply because they are unwilling to risk liability for
damages or the employer's attorneys' fees.
Two management commenters asserted that the Commission's own
administrative investigation of ADEA charges guarantees that the
Commission will advise individuals of the validity of their OWBPA
waivers before filing suit. The nature of the ADEA's enforcement
mechanism, however, belies this reasoning. ADEA charging parties need
not receive a ``right to sue'' letter before going to court. They
``need only wait 60 days after filing the EEOC charge. Thus, the ADEA
plaintiff can sue in court even if the EEOC has not yet completed its
investigation * * *.'' \37\ Moreover, were the Commission to assign
staff attorneys to assess the legal sufficiency of all waivers
presented in ADEA charges, as one commenter suggested, the waivers
would then be supervised by the EEOC. However, Congress rejected
proposals that EEOC supervise waivers.\38\ In any event, such
administrative assessment would not be determinative because ADEA
litigation in court is de novo. Cf. 29 U.S.C. 626(c)(1).
---------------------------------------------------------------------------
\37\ Hodge v. New York College of Podiatric Medicine, 157 F.3d
164, 168 (2d Cir. 1998) (citations omitted). See 29 U.S.C. 626(d).
\38\ S. Rep. No. 101-263, supra note 2, at 31 (stating the OWBPA
``provides for the first time by statute that waivers not supervised
by the EEOC may be valid and enforceable'').
---------------------------------------------------------------------------
(b) ADEA Covenants Not To Sue Are Equivalents of ADEA Waivers and
Therefore Subject to EEOC Regulation.
Absent imposition of attorneys' fees and/or damages for breach,
ADEA covenants not to sue are the functional equivalent of waivers. The
Commission interprets the OWBPA proscription that ``[a]n individual may
not waive any right or claim unless the waiver is knowing and
voluntary'' \39\ to govern covenants not to sue just as it does
waivers. The Commission finds support for its unified approach in
traditional contract principles,\40\ the decision in Oubre and in other
case law,\41\ and in discussion in the OWBPA legislative history.\42\
Common law distinctions between waivers and covenants not to sue \43\
are insufficient to exclude ADEA covenants from the OWBPA requirements.
Reading the statute to include covenants not to sue best respects the
OWBPA's ``practical operation as well as its formal command.'' \44\
Accordingly, a covenant not to sue under the ADEA is subject to the
OWBPA, as interpreted in this regulation, whether the covenant is
included in a waiver agreement, is in a second document, or is standing
alone. Under this analysis, an OWBPA-compliant covenant not to sue can
be asserted as a defense to defeat an ADEA claim, and thus will entitle
the employer to a dismissal of the employee's suit after the covenant
has been upheld. (An accompanying provision for damages is not
enforceable. See supra discussion at II.C.3.a)).
---------------------------------------------------------------------------
\39\ 29 U.S.C. 626(f)(1).
\40\ See J.D. Calamari, The Law of Contracts Sec. 21.11 (4th ed.
1998) (``[i]f the promise is one never to sue, it operates as a
discharge just as does a release'') (citing 5A Corbin on Contracts
Sec. 1251 (1964)); 66 Am Jur. 2d Release Sec. 2 (1973).
\41\ See Oubre, 522 U.S. at 433 (Breyer, J., and O'Connor, J.,
concurring) (writing interchangeably about waivers and promises not
to sue); Klee v. Lehigh Valley Hosp., No. 97-4642, 1998 WL 995850,
at *4 (E.D. Pa. Nov. 5, 1998) (treating covenant not to sue as
falling under the OWBPA: ``We also note that the covenant not to sue
in the severance agreement is valid because it comports with the
requirements elucidated by the statute for a knowing and voluntary
waiver of the right to sue under the ADEA.''), aff'd on other
grounds, 203 F.3d 817 (3d Cir. 1999).
\42\ Cf. H.R. Rep. No. 101-664, at 86 (1990), reprinted in 1
Staff of Senate Comm. on Labor and Human Resources, 102d Cong.,
Legislative History of the Older Workers Benefit Protection Act (S.
1511 and Related Bills), at 293 (1991) [hereinafter H.R. Rep. No.
101-664]; S. Rep. No. 101-263, supra note 2, at 60 (``Employees are
typically offered a substantial cash bonus to retire early in
exchange for signing a waiver or release agreeing not to sue the
company later for age discrimination.'').
\43\ ``The difference [between a release and a covenant not to
sue] is primarily in the effect as to third parties * * *.'' 66 Am
Jur. 2d Release Sec. 2 (1973). ``A general release of one among
several joint tortfeasors operates to release from liability all of
them. In contrast, a covenant not to sue will only release the one
to whom it is given.'' Frey v. Independence Fire & Cas. Co., 698
P.2d 17, 21 (Okla. 1985).
\44\ Oubre, 522 U.S. at 427 (majority opinion).
---------------------------------------------------------------------------
However, a point of caution is warranted with respect to such
covenants. Although ADEA covenants not to sue (absent damages) operate
as the functional equivalent of waivers, they carry a higher risk of
violating the OWBPA by virtue of their wording. An employee could read
``covenant not to sue'' or ``promise not to sue'' as giving up not only
the right to challenge a past employment consequence as an ADEA
violation, but also the right to challenge in court the knowing and
voluntary nature of his or her waiver agreement. The chance of
misunderstanding is heightened if the covenant not to sue is added to
an agreement that already includes an ADEA waiver clause. The covenant
in such a case would have no legal effect separate from the waiver
clause. Nonetheless, its language would appear to bar an individual's
access to court.
Employers therefore must take precautions in drafting covenants not
to sue so that employees understand that the covenants do not affect
their right to test the knowing and voluntary nature of the agreements
in court under the OWBPA. By investing ``court[s] of competent
jurisdiction'' with the authority to resolve ``any dispute that may
arise over * * * the validity of a waiver,'' \45\ Congress manifested
in the plain language of the statute its intention to permit an
employee who signed an ADEA waiver, to sue his or her employer upon the
belief that the waiver did not comply with the
[[Page 77444]]
OWBPA. Thus, any provision in a waiver agreement that would cause an
employee to believe that he or she could not seek a judicial
determination of the validity of the waiver misrepresents the rights
and obligations of the parties to the agreement. Such a
misrepresentation conflicts with the OWBPA requirement that a valid
waiver agreement must be ``written in a manner calculated to be
understood'' by the employee ``or by the average individual eligible to
participate.'' 29 U.S.C. 626(f)(1)(A).
---------------------------------------------------------------------------
\45\ 29 U.S.C. 626(f)(3).
---------------------------------------------------------------------------
(c) Discussion of Additional Management Recommendations.
Management representatives also commented that the proposed
regulation's reference to ``other arrangements'' could be read to
prohibit an employer from enforcing covenants not to sue that were
negotiated as part of noncompetition or trade secret clauses. The
Commission did not intend its regulation to extend beyond the ADEA in
this fashion. Accordingly, the Commission has revised the regulation to
refer specifically to an ADEA waiver agreement, covenant not to sue, or
other equivalent arrangement.
In addition, while the Commission takes no position on non-ADEA
provisions such as non-disparagement and confidentiality clauses, it
notes that settlement agreements sometimes contain such clauses along
with liquidated damages provisions for breach. A reasonable employee
must be able to determine that any liquidated damages provisions for
breach of non-ADEA clauses have no effect on the employee's ability to
bring an ADEA charge or lawsuit challenging the waiver.
4. Final Regulatory Language for Paragraph (b)
Accordingly, paragraph (b) of the final rule will state:
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 prohibition
includes, but is not limited to, provisions requiring employees to
tender back consideration received, and provisions allowing
employers to recover attorneys' fees and/or damages because of the
filing of an ADEA suit. This rule is not intended to preclude
employers from recovering attorneys' fees or costs specifically
authorized under federal law.
D. Comments on 29 CFR 1625.23(c): Restitution, Recoupment, or Setoff
Paragraph (c) of the proposed regulation stated that if an employee
successfully challenged a waiver and prevailed on the merits of an ADEA
claim,
courts have the discretion to determine whether an employer is
entitled to restitution, recoupment, or setoff (hereinafter,
``reduction'') against the employee's damages award. These amounts
never can exceed the lesser of the consideration the employee
received for signing the waiver agreement or the amount recovered by
the employee.
The remainder of this proposed regulation included, among other
provisions, ``[a] nonexhaustive list of the factors that may be
relevant to determine whether, or in what amount, a reduction should be
granted.''
1. Summary of Employee Comments
Employee representatives endorsed the position that only setoff or
recoupment should be allowed, and only to the extent that the employee
wins damages based on a finding of employment discrimination. These
commenters contended that employees would be chilled from bringing
meritorious waiver challenges and age discrimination cases by the
possibility of being required to return a severance payment under any
other circumstances. They contended that this chilling effect also
would discourage individuals from pursuing injunctive relief in the
absence of significant damages. Even if damages were awarded, however,
employee representatives favored denying recoupment or setoff when the
consideration for the release was paid by a party other than the
employer. For example, they stated that employers should not be allowed
to recoup their consideration when it had been paid by a bona fide
employee pension or welfare benefit plan under ERISA in the form of
enhanced benefits. One employee representative also asserted that a
reduction should not be permitted if the employer had willfully
violated the ADEA. Finally, this commenter urged the Commission to
delete employers' financial condition as a factor for courts to
consider in determining whether recoupment was appropriate.
2. Summary of Employer Comments
Commenters representing employers criticized the Commission's
proposal that restitution, recoupment, or setoff be permitted only to
the extent that the employee is ultimately awarded damages for
employment discrimination. Employers emphasized that the Supreme Court
in Oubre did not decide the question of restitution, recoupment, or
setoff, and that Justice Breyer explored the possibility of restitution
in his concurrence.
Employers contended that restitution should not be limited to the
lesser of the consideration or the plaintiff's recovery. They reasoned
that restitution in excess of the plaintiff's recovery is ``a
reflection of the plaintiff's overcompensation for the satisfaction of
potential claims,'' rather than a tender back penalty. Some employers
expressed concern about the situation of the employer whose waiver is
invalid but who prevails on the underlying age claim; under the
Commission's proposed rule, this employer would not be entitled to
restitution.
Employers also asserted that setoff should not be discretionary if
damages are awarded, because existing law entitles them to a reduction
of back pay awards by the amount of severance pay. Most employer
representatives criticized the factors proposed by the Commission for
courts to use when deciding whether to grant a reduction, or how much
to grant. They contended that some of the equitable factors proposed by
the Commission would result in ADEA plaintiffs receiving double
recovery because the court already would have addressed the same
considerations in awarding damages. Employers also criticized the
Commission's proposal that courts could equitably apportion the amount
paid for the waiver among the rights waived, to calculate the proper
reduction in ADEA damages. Employers emphasized that they pay one
amount to a departing employee in exchange for a waiver of all his or
her rights under the pertinent laws, and in their view, this amount
cannot be apportioned.
3. Discussion
The Commission has considered the comments submitted and, for the
reasons set forth below, has not changed its position that restitution,
recoupment, or setoff must be limited to the lesser of the amount of
the award to the prevailing ADEA plaintiff, or the amount of
consideration the employee received for the waiver. The Commission,
however, has decided to delete from the final regulation the list of
factors ``that may be relevant to determine whether, or in what amount,
a reduction should be granted.'' \46\
---------------------------------------------------------------------------
\46\ 64 FR at 19957.
---------------------------------------------------------------------------
The Commission's rule on restitution, recoupment, and setoff, is
based on the same statutory interpretation as the rule prohibiting
employers from obtaining damages or attorneys' fees for breach of a
covenant not to sue or another agreement covered by the OWBPA.
Restitution can be tantamount to tender back if it is awarded in the
absence of plaintiff's damages or in excess of those
[[Page 77445]]
damages.\47\ If the prospect of making tender back before litigation
would deter those who lack funds from pursuing good faith cases, then
the prospect of making the same payment at the conclusion of litigation
also would have a chilling effect. To state the obvious, plaintiffs do
not know before bringing a case whether, or to what extent, they will
obtain damages.
---------------------------------------------------------------------------
\47\ As stated in note 3 of the NPRM, recoupment and setoff, by
definition, serve to limit the defendant's recovery to no more than
the amount of plaintiff's damages. Black's Law Dictionary 1275, 1372
(6th ed. 1990).
---------------------------------------------------------------------------
Accordingly, if restitution were not limited in the way set out in
paragraph (c), employees deciding whether to bring suit would confront
the possibility of not winning damages (or winning negligible damages)
but still being compelled to return their full severance pay.\48\ For
those individuals who have used the severance pay for living expenses
and lack the means to return it now or in the future, the prospect of
restitution would present a large financial risk that would discourage
them from moving forward. Even though this potential financial cost of
bringing suit would not impose the same immediate and certain obstacle
as a tender-back requirement, it nonetheless could be significant,
especially for those older workers with limited or declining earning
potential. As a result, older workers could be deterred from bringing
age discrimination claims even though their waivers, if so challenged,
might not be knowing and voluntary under the OWBPA. The Commission
cannot allow this result consistent with its mandate to enforce the
OWBPA.\49\
---------------------------------------------------------------------------
\48\ These individuals would include those who contemplate
seeking primarily injunctive relief, for example, reinstatement in
their former position.
\49\ Cf. H.R. Rep. No. 101-664, supra note 42 at 90-91 (stating
that legislation on ADEA waivers could impose, among others, the
requirement that, ``[i]f the waiver is set aside for any reason, any
damages received through a discrimination action shall be offset by
the consideration received for the waiver'') (emphasis supplied).
---------------------------------------------------------------------------
This position is consistent with the Supreme Court's interpretation
of the OWBPA in Oubre. The majority and Justice Breyer spoke of
employer claims and requests for restitution, recoupment, or setoff
against the former employee.\50\ The Commission is not barring claims
for restitution, recoupment, or setoff. The Court in Oubre, however,
did not rule on the availability of restitution, recoupment, or setoff.
Therefore, Oubre does not preclude all limits on the extent to which
these remedies may be available. In the Commission's view, the limits
contained in this regulation are appropriate because they will
reinforce compliance with the OWBPA waiver provisions. Importantly,
they also are consistent with the Court's reasoning in Oubre that
common law contract principles cannot be allowed to interfere with
enforcement of the statute.\51\
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\50\ Oubre, 522 U.S. at 428 (majority); id. at 433 (Breyer, J.,
and O'Connor, J., concurring).
\51\ See id. at 427 (``The OWBPA sets up its own regime for
assessing the effect of ADEA waivers, separate and apart from
contract law.''). Cf. supra note 6, discussing legislative history
showing that Congress rejected the use of contract law principles
for analyzing OWBPA waivers.
The Commission is not persuaded that an employer who prevails on
the merits of the ADEA discrimination claim, but who nonetheless
used an invalid OWBPA waiver, should receive restitution of the
amount paid for the waiver. The basic principle is that restitution
generally is unavailable if the agreement is unenforceable on
grounds of public policy, ``unless denial of restitution would cause
disproportionate forfeiture.'' Restatement (Second) of Contracts
Sec. 197 (1981). As one employee representative observed, the denial
of restitution would not cause a disproportionate forfeiture if the
employer materially violated the OWBPA waiver provisions.
---------------------------------------------------------------------------
The Commission, however, has deleted the list of factors for
deciding whether, and to what extent, to award restitution, recoupment,
or setoff. These factors were not central to the Commission's
interpretation of the statute. Additionally, many of the employer
comments regarding the factors were persuasive. For example, the
Commission agrees that it typically would be difficult to equitably
apportion a waiver payment among all the different claims waived. The
Commission also understands employers' concerns about the proposed
factors addressing the nature and severity of the underlying employment
discrimination. Finally, the Commission understands employee
representatives' comments favoring the deletion of the factor
addressing the employer's financial condition.
Because the Commission is deleting this list of factors, it would
be inappropriate to add new factors as suggested by employee
representatives. The Commission, therefore, cannot incorporate two
employee representatives' recommendation to direct courts to consider
whether a release payment was provided directly by the employer or by
an ERISA pension fund. While the Commission agrees that this may be an
important consideration,\52\ the Commission believes its significance
is properly resolved by the courts.
---------------------------------------------------------------------------
\52\ See Doyne v. Union Elec. Co., 953 F.2d 447, 451 (8th Cir.
1992) (``The magistrate judge held that Doyne's back and front pay
awards should be reduced by the amount of pension benefits he has
received and will receive * * *. We are persuaded by the arguments
of Doyne and the Equal Employment Opportunity Commission, amicus
curiae, that the pension payments are from a collateral source and
should not have been deducted.'') EEOC v. O'Grady, 857 F.2d 383, 391
(7th Cir. 1988) (district court's refusal to offset pension benefits
against a back pay award was not an abuse of discretion).
---------------------------------------------------------------------------
4. Final Regulatory Language for Paragraph (c)
Accordingly, the paragraph (c) of the final rule will state:
Restitution, Recoupment, or Setoff
(1) Where an employee successfully challenges a waiver
agreement, covenant not to sue, or other equivalent arrangement, and
prevails on the merits of an ADEA claim, courts have the discretion
to determine whether an employer is entitled to restitution,
recoupment or setoff (hereinafter, ``reduction'') against the
employee's monetary award. A reduction never can exceed the amount
recovered by the employee, or the consideration the employee
received for signing the waiver agreement, covenant not to sue, or
other equivalent arrangement, whichever is less.
(2) In a case involving more than one plaintiff, any reduction
must be applied on a plaintiff-by-plaintiff basis. No individual's
award can be reduced based on the consideration received by any
other person.
E. Comments on 29 CFR 1625.23(d): Abrogation
Paragraph (d) of the proposed regulation stated that:
No employer may unilaterally abrogate its duties under a waiver
agreement to any signatory, even if one or more of the signatories
to the agreement or EEOC successfully challenges the validity of
that agreement under the ADEA.
The Commission received several comments from representatives of
employers about this provision. One commenter stated that this proposed
rule could be interpreted as prohibiting abrogation in circumstances in
which there has not been an ADEA challenge. By its terms, the proposed
language only pertains to the ADEA, and therefore no change is
warranted.
Another commenter stated that an employer and employee should be
allowed to include as part of a waiver agreement a provision stating
that if the ADEA waiver is defective under the OWBPA, the employer will
correct the defect and the employee will be required to execute the
corrected waiver rather than file suit in court. The Commission is not
persuaded by this comment. Congress could not have intended, in
commanding that employees ``may not waive'' an ADEA claim unless the
waiver satisfies the OWBPA, to allow employees' OWBPA rights to be
subject to a promise which itself does not comply with the OWBPA.
Accordingly, a promise to correct a defective waiver has no effect on
the
[[Page 77446]]
employee's ability to pursue an ADEA claim.
Another commenter argued for a rule stating that when an employer
learns that a release is invalid under OWBPA, the employer may stop
making payments due under the release, cure the defect, and offer the
employee a new release in exchange for new consideration. According to
this commenter, the employee in that situation would be free to sign
the new release or pursue an ADEA claim. The Commission does not agree
that an employer may cancel its obligation to the employee as soon as
it learns that a waiver does not comply with the OWBPA.\53\ The
Commission agrees, however, that the employer in this circumstance may
present the employee with a new ADEA waiver, independently valid under
each of OWBPA's requirements, which the employee is free to accept or
reject.
---------------------------------------------------------------------------
\53\ See Butcher v. Gerber Prods. Co., 8 F. Supp. 2d 307, 315-17
(S.D.N.Y. 1998) (interpreting Justice Breyer's concurrence in Oubre,
and deciding that an invalid release could not permit the employer
to use ``self help'' by withholding severance benefits from an
employee who filed an ADEA claim).
---------------------------------------------------------------------------
One commenter interpreted the language that no employer may
``unilaterally'' abrogate to mean that an employer may abrogate its
duties with respect to an individual who has challenged the waiver as
not knowing and voluntary, reasoning that the employee's action would
make the abrogation bilateral. The Commission does not intend this
interpretation. An employee does not abrogate a waiver agreement,
covenant not to sue, or other equivalent arrangement by exercising the
guaranteed OWBPA right to have the agreement's validity determined by a
court.\54\ As stated above, an OWBPA waiver gives the employer an
affirmative defense, not a guarantee of freedom from litigation. To
avoid any further misinterpretation, the Commission has removed the
word ``unilaterally'' from the final rule.
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\54\ The Commission thus does not agree with the Butcher court's
suggestion that if a waiver is held valid, the employer is entitled
to terminate severance benefits because the employee breached the
release agreement by filign suit. Id. at 313.
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The Commission has adopted the following final rule on abrogation
in paragraph (d):
No employer may abrogate its duties to any signatory under a
waiver agreement, covenant not to sue, or other equivalent
arrangement, even if one or more of the signatories or the EEOC
successfully challenges the validity of that agreement under the
ADEA.
This rule applies to the Commission's administrative process as
well as litigation.
Executive Order 12866, Regulatory Planning and Review
Pursuant to section 6(a)(3)(B) of Executive Order 12866, this final
rule has been reviewed by the Office of Management and Budget. Under
section 3(f)(1) of Executive Order 12866, EEOC has determined that the
regulation is significant, but will not have an annual effect on the
economy of $100 million or more or adversely affect in a material way
the economy, a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or State or local or tribal
governments or communities. Therefore, a detailed cost-benefit
assessment of the regulation is not required.
Paperwork Reduction Act
EEOC certifies that the rule does not require the collection of
information by EEOC or any other agency of the United States
Government. The rule does not require any employer or other person or
entity to collect, report, or distribute any information.
Regulatory Flexibility Act
In the NPRM, the Commission certified that the proposed regulation
will not have a significant economic impact on a substantial number of
small entities. The Commission reached this conclusion because the
regulation does not impose a burden that is not imposed by the OWBPA.
One management representative commented that the Commission did not
provide a factual basis for the certification, pursuant to 5 U.S.C.
605(b).
The Commission has reconsidered the issue of certification. It
continues to believe that its initial analysis is correct. It also
concludes that, even assuming that the regulation imposes additional
burdens on small entities, it would not have a significant economic
effect on a substantial number of small entities. Between 1995 and
1999, a total of 98 charges involving waivers under the ADEA were filed
against ADEA-covered small entities (those with between 20 and 499
employees) \55\ with the EEOC and with state and local fair employment
practices agencies, combined. This results in an average of only about
20 charges per year against small entities. An ADEA lawsuit cannot be
filed without first filing an ADEA charge with the EEOC.
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\55\ The size standard used by the Small Business Administration
varies by industry; however, the SBA uses the ``fewer than 500
employees'' cut off when making an across-the-board classification.
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According to statistics published by the Small Business
Administration, Office of Advocacy, there are about 530,000 ADEA-
covered small entities.\56\ Thus, on average each year, there is only
one ADEA charge filed against a small entity challenging a waiver for
every 26,500 ADEA-covered small entities. No evidence has been
presented to the Commission supporting the conclusion that there would
be an increase in charges against small entities. Even if, after this
regulation takes effect, there is a discernable percentage increase in
ADEA charges involving waivers filed against small entities, the total
number of such charges will remain insignificant because the current
number of charges is so small. Based on the foregoing, the Commission
concludes that the rule will not have a significant economic impact on
a substantial number of small entities.
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\56\ The Commission used figures for the years 1992 through
1996, the most recent years for which statistics are available from
the Small Business Administration. Although the number of small
entities generally does not vary greatly from year to year, it rose
slightly each year during that period, from 508,000 in 1992 to
552,000 in 1996. If that upward trend has continued, then the
average number of small entities during the period of 1995 to 1999
would be somewhat higher.
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List of Subjects in 29 CFR Part 1625
Advertising, Age, Employee benefit plans, Equal employment
opportunity, Retirement.
Dated: December 5, 2000.
Ida L. Castro,
Chairwoman.
For the reasons set forth in the preamble, the Equal Employment
Opportunity Commission amends 29 CFR part 1625 as follows:
PART 1625--AGE DISCRIMINATION IN EMPLOYMENT ACT
1. The authority citation for part 1625 continues to read as
follows:
Authority: 81 Stat. 602; 29 U.S.C. 621; 5 U.S.C. 301;
Secretary's Order No. 10-68; Secretary's Order No. 11-68; sec. 12,
29 U.S.C. 631; Pub. L. 99-592, 100 Stat. 3342; sec. 2, Reorg. Plan
No. 1 of 1978, 43 FR 19807.
2. Section 1625.23 is added to Subpart B--Substantive Regulations,
to read as follows:
Sec. 1625.23 Waivers of rights and claims: Tender back of
consideration.
(a) An individual alleging that a waiver agreement, covenant not to
sue, or other equivalent arrangement was not knowing and voluntary
under the ADEA is not required to tender back the consideration given
for that agreement before filing either a lawsuit or a charge of
discrimination with EEOC or any state or local fair employment
practices
[[Page 77447]]
agency acting as an EEOC referral agency for purposes of filing the
charge with EEOC. Retention of consideration does not foreclose a
challenge to any waiver agreement, covenant not to sue, or other
equivalent arrangement; nor does the retention constitute the
ratification of any waiver agreement, covenant not to sue, or other
equivalent arrangement.
(b) 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 prohibition includes, but is not limited
to, provisions requiring employees to tender back consideration
received, and provisions allowing employers to recover attorneys' fees
and/or damages because of the filing of an ADEA suit. This rule is not
intended to preclude employers from recovering attorneys' fees or costs
specifically authorized under federal law.
(c) Restitution, recoupment, or setoff. (1) Where an employee
successfully challenges a waiver agreement, covenant not to sue, or
other equivalent arrangement, and prevails on the merits of an ADEA
claim, courts have the discretion to determine whether an employer is
entitled to restitution, recoupment or setoff (hereinafter,
``reduction'') against the employee's monetary award. A reduction never
can exceed the amount recovered by the employee, or the consideration
the employee received for signing the waiver agreement, covenant not to
sue, or other equivalent arrangement, whichever is less.
(2) In a case involving more than one plaintiff, any reduction must
be applied on a plaintiff-by-plaintiff basis. No individual's award can
be reduced based on the consideration received by any other person.
(d) No employer may abrogate its duties to any signatory under a
waiver agreement, covenant not to sue, or other equivalent arrangement,
even if one or more of the signatories or the EEOC successfully
challenges the validity of that agreement under the ADEA.
[FR Doc. 00-31367 Filed 12-8-00; 8:45 am]
BILLING CODE 6570-01-P
This page was last modified on December 11, 2000.