Collette Hampton worked on an assembly line in a Ford Motor Co. factory in Chicago from February 2004 to January 2007. During that time, she alleges she was sexually harassed “almost daily” by male co-workers, who made lewd comments, sent her sexually suggestive notes, requested sexual favors and physically grabbed her. Hampton requested a transfer, complained to several supervisors and called the company’s harassment hot line. She says the company didn’t do enough to stop her co-workers’ behavior. She eventually took a medical leave for stress and depression.

Hampton hired an attorney and filed a complaint with the Equal Employment Opportunity Commission (EEOC) in December 2005, seeking the right to sue Ford for what she said was a hostile work environment. While the EEOC was investigating her claim, the auto industry was starting to experience major financial problems. In September 2006, the United Auto Workers, which represented Hampton, agreed to a one-time voluntary buyout of 75,000 unionized Ford employees.

Hampton, who would have been subject to termination in a seniority-based RIF, immediately jumped at the opportunity for a voluntary buyout. On the first day the program became available, she signed an agreement. In exchange for a cash payout of $100,000, Hampton agreed to “waive and release any and all rights and claims … and not to institute any proceedings of any kind against Ford Motor Company … relating in any way to [her] employment or the termination.”

Hampton didn’t consult her attorney about whether she was getting a good deal. And one month later, when the EEOC issued Hampton a right-to-sue letter for her harassment claims, her lawyer went straight to the Federal District Court for the Northern District of Illinois with a Title VII suit.

Judge George Lindberg dismissed the case, holding that Hampton had waived her claims. Hampton appealed, arguing that the waiver should not have covered the claim pending before the EEOC. The 7th Circuit upheld the district court’s decision in April.

“[T]he Waiver unambiguously covered any and all claims arising prior to the date Hampton signed, including her discrimination claims,” Judge Michael Kanne wrote. “Hampton provides a litany of circumstances that allegedly led her to believe that she was not releasing her Title VII claims. Notably missing, however, is a direct assertion that she did not read or understand the Waiver.”

Contract Considerations

In Hampton v. Ford, numerous factors played in Ford’s favor. The plaintiff received a large payout, she had an attorney at the time she signed the agreement, and if she hadn’t taken the buyout, she would have been terminated anyway. She even had some paralegal training, including a course on contracts, which the 7th Circuit noted in its decision. All of these factors made it easy for the court to decide that the agreement was fair and Hampton accepted it knowingly.

“On these facts, it’s not surprising that Ford prevailed,” says Thomas Birchfield, a partner at Fisher & Phillips. “It was an unambiguous contract which the employee had plenty of time to consider.”

But as more employers consider ways to trim payrolls, they should be wary of the numerous pitfalls voluntary buyouts can present. First, employment attorneys caution that any agreement must clearly enumerate what the employee is waiving.

“Typically, you would want the agreement to spell out that the employee is waiving claims under all of the obvious employment statutes,” says Carla Rozycki, partner at Jenner & Block.

Second, such buyout agreements must be truly voluntary. If there’s any hint that the employee was coerced, or given an ultimatum to sign or face termination, the court can find that the waiver of claims was not “knowing and voluntary” and leave the employer holding the bag–having paid a severance package and then facing lawsuits.

There’s also some risk in offering a payout to an employee such as Hampton who has a pending claim before an administrative agency. Ford’s waiver would have been meaningless if the EEOC had decided to take up Hampton’s case.

“All you can do is get the employee to waive her right to sue,” Birchfield points out. “The EEOC still could have prosecuted the claim.”

Protecting Age Claims

Employers also must be wary of the special considerations that arise when an employee is asked to waive age discrimination claims. In Hampton, Ford’s contract specifically carved out age discrimination claims from the broad waiver.

“The Older Worker Benefits Protection Act (OWBPA) triggers conditions that the employer has to meet,” Rozycki says. “If you don’t follow those conditions to a ‘T,’ the release can be invalidated.”

Among those requirements are that the employee is given 45 days to consider the contract plus an additional seven days to revoke his signature after accepting the agreement, The employer also must advise the employee to speak to an attorney and provide statistics regarding who the buyout affects within the company.

Rozycki advises that it’s a best practice for employers to consider the OWBPA’s strict provisions whenever drafting a waiver or release of claims.

“If you look at the case law regarding the requirement that the waiver must be knowing and voluntary, many of the factors the courts take into account are similar to the requirements imposed by the OWBPA,” she points out.