Publications
BUYING YOUR PEACE
How Not To Prevent An Age Discrimination Claim
Due to certain legal presumptions in their favor, age discrimination claims brought by terminated employees over the age of 40 are becoming all too common. Consequently, as a matter of policy, many companies will cut a deal in order to buy their peace: they will pay a reasonable amount of severance beyond the amount they would otherwise be obligated to pay, in exchange for the terminated employee's agreement to sign a standard release of all claims. The companies' assumption is that even if they have not discriminated in any way, the extra money is a wise investment, when compared to the legal fees and distractions they will have to incur if litigation were commenced.
Early this year, new (and seriously under-publicized) EEOC regulations took effect that emasculate this strategy. Basically, the EEOC regulations provide that even though an employee has signed a release of the right to sue an employer in exchange for extra severance or other payments, the employee has the right to thereafter challenge the validity of the release, while at the same time retaining all of the extra severance and any other monies the employee received in exchange for the release. In addition, the employer must keep paying what it agreed to pay, even though the employee agreed not to sue and did so anyway. The employee gets to have his cake and eat it, too.
And as they say on the infomercials, but wait, there's more. A lot of the standard release forms companies typically use say that if the employee breaches the settlement deal, sues the company, and loses, the employee pays the company's counsel fees. Again, the point of the whole arrangement is deter employee claims. The EEOC regulations have invalidated that provision as well - you may not hold the employee responsible for your legal fees or other damages simply because the employee tried to challenge the release, even if the release agreement gives you this right.
All of this does not mean that the release will always be invalid. It simply means that older employees with whom you thought you had a "I pay severance/you don't sue" deal will be permitted to challenge the validity of the release without penalty. If the employee wins, he or she gets to sue you for age discrimination (but at that point must refund the extra severance which, of course, they will seek to credit against their claimed age discrimination damages). If the employee loses, he or she is none the worse for wear. The claims prevention lesson is this. As these new regulations become more well-known, improperly drafted release forms may actually encourage the commencement of claims. To really prevent litigation, employers must take as much care in crafting the release as they do in crafting the severance package. The release language is much more than just a formality, and your standard form will no longer do the trick. More than anything else, courts who judge the validity of releases of this type will look to see whether the employee made a "knowing and voluntary" deal. The employer must be in a position to prove that it supplied all information required by the age discrimination law and the latest regulations, and that the employee knew and understood what the employee was giving up and getting. This takes some real care and know-how.
As usual, please don't shoot the messenger.
Counsel Consulting Group LLC helps companies throughout the United States avoid employment and HR-related claims and liabilities. CCG assesses existing policies, procedures and problem areas; it provides customized liability-avoidance training to managers and executives; and it designs and implements business techniques that reduce employment liability risks on a long term basis. CCG also offers specialized workshops for managers and HR executives, customized consulting in focused employment-related areas, and CD-ROM and web-based training alternatives. For more information, contact us at info@powelltrachtman.com and visit our website at www.counselconsulting.com.
Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.
