Headlines and news stories about corporate downsizing, restructuring and the "off-shoring" of U.S. jobs to other countries are now common. In the increasingly global marketplace, where a premium is placed upon flexibility and efficiency, employers must be able to manage their workforces by increasing profit-producing positions while simultaneously streamlining their own corporate bureaucracy.

As many managers and attorneys know, appropriately drafted severance and separation agreements containing valid and enforceable waiver and release-of-claim provisions provide employers with a valuable tool to manage their workforces while also protecting themselves from discrimination claims and other employment-related claims.

Recent federal court decisions serve as stark reminders that significant litigation risks can remain despite the existence of what may appear to be valid waiver and release-of-claim language in a severance agreement. In the wake of these decisions, employers and their counsel must carefully review the clarity and scope of waiver-and-release language contained in any separation or severance agreements they plan to offer terminated employees. The urgency of such a review cannot be understated, particularly for employers with 15 or more employees.

Lockheed's lesson

For example, employers need to carefully review their severance agreements to make sure that the release-of-claim language is not overbroad or facially retaliatory in violation of federal law. In EEOC v. Lockheed Martin (444 F.Supp.2d 414, D. Md., 2006), Lockheed Martin presented an employee with a separation agreement that included a provision prohibiting her from pursuing "any claims or charges against the released party seeking monetary relief or other remedies for myself and/or as a representative on behalf of others." The court held that the release as written was "facially retaliatory" in violation of Title VII of the Civil Rights Act of 1964. While the court acknowledged that a release that merely waives a right to recover monetary damages under the anti-discrimination laws in exchange for offered severance benefits is appropriate, it held that Lockheed Martin's release went too far.

In a subsequent decision, the 6th Circuit U.S. Court of Appeals stepped back from the analysis contained in the Lockheed Martin decision, holding that the inclusion of a charge-filing ban in release language was not, in and of itself, unlawful retaliation. (See EEOC v. Sundance, 466 F.3d 490, 6th Cir., 2007.)

While the Sundance decision is a step in the right direction from an employer's perspective, other courts may adopt the reasoning employed by the district court in Lockheed Martin.

Make yourself understood

Employers and their counsel must also remember to keep the language in severance agreements as clear and easy to understand as possible. The need for clarity was highlighted in two cases addressing the propriety of severance agreements containing both release-of-claim and covenant-not-to-sue provisions.

In Thomforde v. IBM (406 F.3d 500, 8th Cir., 2005), IBM offered an employee severance benefits in exchange for his execution of an agreement that contained a provision releasing IBM from any claims arising under the Age Discrimination in Employment Act (ADEA). The agreement also, however, contained a provision stating that the employee agreed not to sue IBM, with the exception of "actions based solely under the (ADEA)."

The court noted that, under the Older Worker's Benefits Protection Act (OWBPA), an individual cannot waive any right or claim under the ADEA unless the waiver is "knowing and voluntary."

"A waiver," the act states, "will not satisfy this precondition unless it is written in a manner "calculated to be understood ... by the average individual eligible to participate." The court determined that the IBM agreement did not explain the relationship between the release provision and the covenant not to sue and that it used the terms in an interchangeable way. Given this lack of clarity, the waiver was deemed ineffective as to the employee's rights under the ADEA.

The 8th Circuit's ruling in Thomforde was echoed in Syverson v. IBM (472 F.3d 1072, 9th Cir., 2007), in which former employees who signed severance agreements filed a class-action lawsuit disputing the validity of those agreements based upon the use of release language covering ADEA claims and covenant-not-to-sue language specifically excepting ADEA claims. The court held that the inclusion of the release and the covenant not to sue engendered confusion and that the average employee would not "grasp the import of the distinction in a meaningful way."

Beyond the OWBPA requirements for the release of age-discrimination claims under the ADEA, as discussed in Syverson, clarity in waiver-and-release language may also be deemed essential under Title VII (and possibly other federal employment-discrimination statutes) given the U.S. Supreme Court's recent relaxation of the showing that a plaintiff must make to demonstrate an adverse employment action. (See Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 2006; the court found reassignment of duties to be actionable retaliation, even though both former and present duties fell within same overall job description.)

Under White, a plaintiff must establish "that a reasonable employee would have found the challenged action materially adverse, which ... means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination." In light of this holding, it is possible that the EEOC may contend, and a court may well soon determine, that even unclear waiver and release language deters a terminated employee from filing a charge of discrimination with an administrative agency and is therefore retaliatory.

A word to the wise

Given these recent court decisions, and until more definitive law proves otherwise, employers and their counsel must carefully examine the clarity and scope of existing waiver and release language in their severance and separation agreements. Employers must also recognize that offers of severance payments or other benefits that are conditioned upon overbroad or unclear waiver and release language may increase rather than reduce the likelihood of future litigation.

It is clear that provisions requiring employees to state affirmatively that they have not filed a discrimination charge or that otherwise seek to ban employees from assisting the EEOC in investigating and litigating actions under Title VII and the ADEA will be subject to intense scrutiny and challenge by the EEOC, at least outside of the 6th Circuit. The EEOC will also likely increase the number and frequency of lawsuits challenging employer policies and agreements that require terminated employees to waive their right to file discrimination charges in exchange for severance pay or benefits.

In light of the foregoing, employers need to understand that litigation will remain a possibility in many circumstances - despite the existence of clear and permissible waiver-and-release language - and they should take that reality into consideration before they elect to dole out gifts to departing employees.

Richard Braden is a partner in Goldberg Segalla LLP and can be reached at rbraden@goldbergsegalla.com. Brian Biggie is an associate at the firm and can be reached at bbiggie@goldbergsegalla.com.