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The U.S. Equal Employment Opportunity Commission has been girding for a battle over its new rule that laid-off, older employees need not give back severance pay before mounting a court challenge to the validity of a waiver of the right to sue. But so far, affected employers haven’t proved as angry about the rule as expected. Business lawyers predicted that the “tender back” rule would make downsizing employers unwilling to offer severance packages to departing employees because they envisioned a flood of age bias suits. They are still highly critical of the final rule, which was released on Dec. 11. But the corporate bar and its business clients haven’t been upset enough to take the agency to court over it. And while business critics do not rule out challenges in the future by individual litigants, backers of the rule claim not to be worried. “This was a classic compromise” that successfully balanced the interests of employees and employers, says Ellen Vargyas, a senior EEOC attorney. Vargyas says that the rule mostly embodies a 1998 U.S. Supreme Court opinion that a company’s terminated employees older than 40 have a right to challenge the legal soundness of age discrimination waivers that they signed without first having to surrender any severance pay received as a quid pro quo. But, Vargyas adds, the agency’s final rule also makes it clear that employers who can prove that the waivers they have in hand were obtained fairly now have a “rock-solid affirmative defense” against any age discrimination case filed against them. Not all business lawyers, of course, are convinced that a level playing field will be achieved when the rule takes effect on Jan. 10. Nor do they all believe that the EEOC properly applied the high court’s decision of two years ago, a holding that arguably was limited to a gross violation of one ex-worker’s federally protected civil rights. With its new rule, “the EEOC is saying that even if the waiver the employee signed is clearly legal on its face, he has the right to hire a lawyer who can go to court to challenge” its validity without any financial penalty, says Randy Johnson, an attorney and vice president of labor and employee benefits at the U.S. Chamber of Commerce in Washington, D.C. “So, where’s the finality? Why should an employer be spending all that money up front just to get a hollow promise not to sue?” In response, Vargyas says that employers have only themselves to blame for the agency’s adoption of what they are now calling an expansive rule. Some companies, she says, have been trying to “creatively” circumvent the high court’s ruling by merely calling statutory age discrimination waivers “common-law covenants not to sue.” Vargyas notes that the EEOC has the statutory power to address such gray areas as they come to its attention. And she predicts that the agency’s new loophole closing will pass constitutional muster should a court test take place. Not that the expected future courtroom hostilities over the tender-back issue would be anything new. Numerous cases went to appellate courts in the 1980s over lawsuit waivers by terminated older employees. In 1990, Congress enacted Title II of the Older Workers Benefits Protection Act, which amended the federal Age Discrimination in Employment Act (ADEA). The action, Vargyas says, provided several tests for waivers used by employers in downsizing scenarios, including the requirement that older employees be given 21 days to think before signing away their right to sue for age discrimination. The amended law also gave employees older than 40 the right to rescind a waiver within seven days of signing it. The law remained silent on the tender-back issue. Both the plaintiffs’ and defense bars found devils in that missing detail. The 5th U.S. Circuit Court of Appeals, in the 1996 case of Oubre v. Entergy Operations Inc., 102 F.3d 551, ruled that an invalid waiver of rights under the federal law nevertheless could be ratified by a complaining employee’s acceptance and retention of the severance pay in question. In that pivotal case, a 41-year-old Louisiana utility employee got a poor performance review and was asked to leave the company. She agreed to accept severance pay and, in doing so, signed what appeared to be a confusing waiver of her right to sue. The worker later sued on the ground that she had been pressured to leave only because of her age. When the company moved to dismiss the suit, the ex-employee refused to give back the severance money and questioned the validity of the waiver. The 4th Circuit subsequently sided with the 5th Circuit in saying that the acceptance of money could be a ratification of a faulty waiver. But the reasoning behind those decisions was rejected by contrary rulings issued by the 3d, 6th, 7th and 11th circuits. In 1998, the U.S. Supreme Court granted certiorari in Oubre, 522 U.S. 422. It resolved the conflict by ruling that age discrimination waivers are, indeed, usable in the workplace, but that they can be challenged in court without first tendering back any severance pay already received. Business lawyers insist that they are not complaining about the EEOC’s having adopted a rule based on the Oubre opinion. But, says the Chamber’s Johnson, the agency’s interpretation fails to recognize that the high court’s ruling was limited to a company-induced waiver that was clearly illegal. “Most companies” in downsizing situations take “great care” to meet the ADEA waiver requirements, he argues. “There was no earthly reason to give a license to challenge all waivers in court,” regardless of their soundness, agrees Lawrence Z. Lorber, a partner in the Washington, D.C., office of New York’s Proskauer Rose. It’s little solace, say Johnson and Lorber, that the EEOC’s new tender rules recognize for the first time an employer’s right to seek attorney fees for lawsuit-waiver challenges filed in bad faith by an employee. The complaints coming from such business advocates, while understandable, simply miss the point, say those who defend the EEOC’s new rules. A REAL CHANGE? Tom Osborne, an attorney at the American Association of Retired Persons Foundation who helped prepare his group’s amicus brief and oral argument before the Oubre court, says that although the statutes and case law in question recognize the enforceability of “knowing and voluntary” waivers, those waivers have never been treated as presumptively valid. The recent attempts of some businesses to circumvent the Oubre decision via vaguely worded covenants not to sue, Vargyas says, illustrate the need to have a third party, such as the EEOC, monitor severance package transactions. Vargyas says that the EEOC’s final tender-back rules do recognize good-faith “covenants not to sue” as enforceable in court, so long as they also meet the statutory acid tests discussed in Oubre for ADEA age discrimination waivers. “We are essentially applying what might be called the duck test,” concludes Vargyas — that is, if an employer’s covenant not to sue “quacks” like an enforceable age discrimination waiver, it will be treated as one.

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