While separation agreements are one way that an employer can effectively manage its post-employment litigation risks, the validity of a poorly drafted agreement could be contested in court. A recent decision serves as a reminder of the importance of drafting separation agreements in a clear manner that will survive legal scrutiny.
In Ridinger v. Dow Jones & Co., a 62-year-old magazine photo editor was terminated and sued his former employer, Dow Jones, for age discrimination. At the time of his termination, Mr. Ridinger accepted a severance package that included 20 weeks’ salary and other benefits in exchange for a separation agreement waiving any claims under the federal Age Discrimination in Employment Act (ADEA). Specifically, in one section of the document titled, “Waiver of Claims Against Employer,” the separation agreement stated, “This waiver and release does not apply to any claim that may arise under the ADEA after the date that Employee signs this Agreement.” Another section of the agreement, “Limitation on Promise Not to Sue” stated, “Therefore, the financial obligations of paragraph 4(b) would not apply to a suit filed solely under the ADEA, but Employee nevertheless understands that the waivers and releases contained in paragraph 4(a) still apply to ADEA claims and that he has waived all ADEA claims as part of this Agreement…”
Although he had signed a separation agreement, Mr. Ridinger sued Dow Jones for age discrimination and argued that the waiver provision concerning ADEA claims was unclear in violation of the Older Workers Benefit Protection Act (OWBPA) (http://tinyurl.com/3kes6ek), which requires that an employee waive his or her ADEA claim in a “knowing and voluntary” way and that a separation agreement be “written in a manner calculated to be understood.” (29 U.S.C. § 626(f)(1).) Mr. Ridinger also argued that the waiver provision violated Equal Employment Opportunity Commission (EEOC) regulations, which require a waiver to be drafted in plain language, not using “technical jargon” or “long, complex sentences,” and “geared to the level of understanding” of the employee, taking into consideration the typical employee’s education level. (29 C.F.R. § 1625.22(b)).
The Second Circuit Court of Appeals rejected Mr. Ridinger’s arguments and agreed with Dow Jones that it had written the separation agreement in a way so that it could be understood by its employees. The court looked at other cases that invalidated the company’s separation agreements because they contained technical legal terms that were not easily understood or parsed by a layperson and in combinations that could easily be misunderstood. In those cases, the companies required an employee to release all ADEA claims, but also stated that the employee’s “covenant not to sue” did not apply to actions “based solely under the ADEA.” Those courts found that it would not be easy for a layperson to distinguish between a release and a covenant not to sue, and thus, reasonable persons could conclude that they had not waived their right to bring forth an ADEA claim. However, in this case, the court found that Dow Jones’ terms in its separation agreement were sufficiently clear.
The bottom line is that courts will protect employers who take care to draft their separation agreements in plain English. Accordingly, employers should periodically review their separation agreements, especially if they include provisions related to age discrimination.