speaker handouts - media.straffordpub.com

CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS.

If no column is present: click Bookmarks or Pages on the left side of the window.

If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages.

If you need assistance or to register for the audio portion, please call Strafford customer service at 800-926-7926 ext. 10

Reductions in Force and Layoff Alternatives: Minimizing Employer Liability

Best Practices to Ensure Compliance with WARN, ADEA and FLSApresents

Today's panel features:Robert W. Ashmore, Partner, Fisher & Phillips, Atlanta

David J. Murphy, Partner, Morrison & Foerster, Palo Alto, Calif.Karen G. Schanfield, Attorney, Fredrikson & Byron, Minneapolis

Thursday, September 3, 2009

The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific

The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference.

A Live 90-Minute Audio Conference with Interactive Q&A

Strafford Publications

RIFs & Layoff Alternatives:Minimizing Employer Liability

Presented by :

Robert W. AshmoreFisher & Phillips [email protected]

September 3, 2009

Atlanta · Charlotte · Chicago · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las VegasNew Jersey · New Orleans · Orlando · Philadelphia · Portland · San Diego · San Francisco · Tampa

www.laborlawyers.com

Fisher & Phillips LLPATTORNEYS AT LAW

Solutions at Work®

www.laborlawyers.com ● Phone (404) 231-1400

2

What We Will Discuss Today

• Why to consider RIF alternatives• Cost cuts in FLSA minefields • Pros\cons of Work Share Programs• Why to consider a VSP vs. a RIF


Solutions at Work®


3

Why Consider RIF Alternatives?

• Protect business and work force• Faster recovery from recession• Save recruiting, hiring, training costs• Build morale, public image• Reduce liability in any later RIF• Solid RIFs take time, planning!


Solutions at Work®


4

Why Consider RIF Alternatives?

• Recent Court rulings: Disparate impact age claims; higher selection standards; reverse discrimination; strict approach to OWBPA compliance; waivers of reinstatement in RIFs now in question

• Higher COBRA costs for employers• Swine flu will affect even health

companies


Solutions at Work®


5

Pre-RIF Cuts Need Not Be Small!

• Atlanta company recently announced– Net loss of $400 million– Temporary furloughs of all

employees nationwide (26 plants)– Upper management: 20% pay cuts– Reduced salaried workweek/base pay– Cost-saving measures to avoid RIF


Solutions at Work®


6

Some Alternatives to a RIF

• Hiring freeze, attrition, performance terminations

• Pay freezes\reductions, benefit changes• Reduced hours, re-scheduling, transfers• Voluntary time off• Alternative pay plans, practices• Furloughs, temp closings, Work Share• VSPs


Solutions at Work®


7

Benefits Issues

• Room for significant cuts but consider:• Benefit plans, policies, handbook• Individual employment agreements• Any union bargaining agreements• ERISA, COBRA• State laws – e.g., re accrued vacation


Solutions at Work®


8

Caution Regarding IRS Code Section 409A

• Section 409A provides tax specifications for nonqualified deferred compensation plans. Applies to programs where compensation is earned now but not paid until a future date.

• Complex, requires legal review.• Exemptions include, e.g., “short term

deferrals”, firings, layoffs, and RIFs, provided terminations meet certain criteria


Solutions at Work®


9

Pay Reductions

• If decrease wage\salary rates:Non-exempt: Min. wage (FLSA - $7.25) Exempt: Salary min. - $455\workweek

• Commission rate reductions• Advance notice of changes• Revised employment agreements• Possible benefits impact


Solutions at Work®


10

Pay Issues for Hourly under FLSA:Examples

• Minimum wage: Beware deductions• Off the clock work• Which hours count as "overtime"?• How must you calculate overtime?


Solutions at Work®


11

Beyond the FLSA

• Some jurisdictions require: -Higher than FLSA minimum-wage-Overtime after eight hours in a workday-Paid time for breaks and meals-Narrower exemptions from overtime-Greater benefits protection


Solutions at Work®


12

Controlling Hours/Schedules

• Reduce or change non-exempt schedules

• Limit or prohibit overtime

• Must actually enforce any such limits

• Unemployment considerations

• Benefits impact?


Solutions at Work®


13

Controlling Hours/Schedules

• Reduces wage costs for hourly-paid

• But only works with hourly-paid

• Changes in workweeks; schedules

• With salaried/non-exempt: Might have to change the “deal”


Solutions at Work®


14

Impact Of Time-Off For Exempts

• Salary must be predetermined amount per pay period, not subject to reduction because of variations in quality or quantity of work.

• Must generally pay salary for every workweek exempt employee performs any work.

• Can't dock salary for absences caused by employer's operating requirements or needs.

• Can dock salary for certain disciplines, certain safety violations, and FMLA absences.


Solutions at Work®


15

Time-Off Options For Exempts

• Furlough for unpaid workweek (no work performed)

• Allow employee to take unpaid day off voluntarily for personal reasons (no work performed)

• Require days off and compensate through paid-leave allotments (assuming a plan or policy allows it)


Solutions at Work®


16

Time-Off For Exempts

• Some FLSA-exempt employees do not have to be paid salary

• Examples: -Outside salespeople -Some hourly-paid computer employees -Teachers

• Their FLSA exempt status will not be hurt by requiring unpaid time off


Solutions at Work®


17

Converting Exempt To Non-Exempt

• Can change salaried exempts to hourly, non-exempt

• Permits more flexible work hours, pay• Cannot return them to salary quickly• Consider possible morale issues• Possible overtime costs


Solutions at Work®


18

Temporary Furloughs\Shutdowns

• Advantages:• Reduced overhead, no WARN liability• Retain workforce, avoid recruiting, etc.• Disadvantages:• Unemployment compensation• Possible loss of top performers• Impact on customers, employees


Solutions at Work®


19

Immigration (IRCA) Issues

• Cannot place H-1B visa holders on furlough.• Can terminate H-1B visa holders but must:

– Withdraw the Labor Condition Application (LCA) filed with the DOL

– Notify Citizenship and Immigration Services (CIS)

– Offer to pay the employee’s return transportation costs


Solutions at Work®


20

Work Share Programs (WSPs)

• Now in 18 states- AZ, AR, CA, CT, FL, IA, KS, LA, MD, MA, MN, MO, NY, OR, RI, TX, VT, WA Federal bill pending in Congress

• Benefits: Retain workers, morale, close to full pay, can rotate participation

• Downsides: Affects U\C account, paperwork, reports, pay delays, employees must also draw on their U\C banks. Some states require benefit coverage; most employers provide it.


Solutions at Work®


21

Voluntary Separation Programs (VSPs)

• Voluntary resignation incentives based on age and\or length of service

• Specifically allowed by “Safe Harbor” of ADEA

• VSPs ease transitions for older workers• VSPs allow replacement of higher paid

with lower paid workers.


Solutions at Work®


22

Voluntary Separation Programs (VSPs)

• Advantages for employers:-Fewer legal risks than a RIF-Those who resign in a VSP aren’t counted in a later RIF or for WARN-Some offered early resignation may have high pay but declining skills, no record for firing


Solutions at Work®


23

Risk Areas of VSPs

• Avoiding coercion claims• Avoiding fraud, misrepresentation claims• Answering questions about future plans• Retaining the workers you need• Importance of time limits• Benefits of a one-time, ltd duration VSP


Solutions at Work®


24

Implementation

Thought and Planning . . .

Brief\involve top management Balance financial health and work

force preservation Effective communications Publicize the positives


Solutions at Work®


25

• Explain, reinforce need for changes• Discuss effects on future workload• Seek employee support for changes

Maintaining Employee Morale


Solutions at Work®


26


Solutions at Work®

Thank You

Fisher & Phillips LLP945 E. Paces Ferry Road, Suite 1500

Atlanta, Georgia 30326www.laborlawyers.com

(404) 231-1400

Atlanta · Charlotte · Chicago · Columbia · Dallas · Denver · Fort Lauderdale · Houston · Irvine · Kansas City · Las VegasNew Jersey · New Orleans · Orlando · Philadelphia · Portland · San Diego · San Francisco · Tampa

www.laborlawyers.com

© 2008 Morrison & Foerster LLP All Rights Reserved

BEST PRACTICES FOR ENFORCEABLE RELEASESAND CURRENT WARN ISSUES

David J. MurphyMorrison & Foerster LLP

2

Starting Point: Traditional Contract Principles

• Provide valid consideration• Avoid fraud claims• Avoid duress claims• Use clear and unambiguous terms

• 2 federal circuits (4th and 8th) focus on this approach• Typical state law requirements mirror this, and other

specific requirements should be checked

3

“Knowing and Voluntary” Standard

• Genesis in Alexander v. Gardner-Denver Co. (S.Ct. 1974)

• Waiver of Title VII claims must be “voluntary and knowing” (issue actually waiver of Title VII trial de novo in federal court after arbitration under CBA)

4

“Totality of Circumstances” to Assess “Knowing and Voluntary” Requirement

• Followed by most federal circuits (1st, 2nd, 3rd, 5th, 6th, 7th, 9th, 10th & 11th) as Approach for Validity of Employee Releases

• Adopted by EEOC

5

“Totality of Circumstances”

• Factors: All should be considered in drafting and implementing any employee release program

• Time Allowed for Employee to Consider Release• Employee’s Input into Release Terms• Clarity (and common “understandability” of release)• Adequate Consideration (exceeding existing entitlements)• Employee Notice and Opportunity to Consult with Counsel• Employee’s Education and Business Experience

6

“Totality of Circumstances” Factors: A Balancing Test

• Employer as drafter controls first 5 (time allowed, employee input, clarity, adequate consideration, notice and opportunity for counsel)

• Employee is focus of the last (education and business experience)

• Other employee-focused questions added: Did employee actually read? Understand rights? Consult counsel?

7

Some Practical Points Under “Totality of Circumstances” Approach

• Consider level of employees involved (higher=less concern)

• Don’t include “future” claims, but may want “known and unknown” (Cal. Civ. Code § 1542)

• Affirmatively encourage consulting counsel• When feasible, have employee input (not likely in RIF)• Provide as much time to consider as possible

8

ADEA Waivers – OWBPA Statutory Requirements

• Must be in writing• Follow special rules if e-mail• Specifically refer to ADEA being waived• 21 day single/45 day group consideration periods• 7 day revocation period after execution• Disclosure of required “statistical data”

9

ADEA Waivers – Other Issues

• Covenants not to sue?• unlawful retaliation per some courts• not understandable to layperson

• Tenderback/ratification clauses?• not under Oubre for ADEA• might allocate consideration if need this clause

10

Other General Release Provisions

• Specifically exclude other contracts still want enforceable (noncompete, proprietary info agreements)

• Have a severability clause

11


• General exclusion that release effective “except as prohibited by law for nonwaivable rights and entitlements?”• Cal. S.Ct. in Edwards v. Arthur Andersen (Aug. 7, 2008)

explicitly said not required• General contract principles to make contract valid and lawful not

require this• Despite dissent: “In terrorem effect”

12


• Other Express “Carve-Outs”?• EEOC charge filing• Workers’ compensation• Unemployment compensation• Vested ERISA benefits• FLSA or state wage and hour?• FMLA?

13

Other Express “Carve-Outs”

• Practical benefits of Express “Carve-Outs”

• Employee questions reduced• Helps avoid overreaching claims• But do lose “prophylactic” effect

• Always check state law for other “carve-out”requirements

14

EEOC Guidance

• New EEOC Guidance : UNDERSTANDING WAIVERS OF DISCRIMINATION CLAIMS IN EMPLOYEE SEVERANCE AGREEMENTS (July 2009)

• Adopts same basic “knowing and voluntary”standard, but from an employee-friendly approach

• Reinforces need for EEOC claim-filing carve-out.

15

WARN ISSUES: Effect of State Laws

• NEW STATE LAWS: NEW YORK EXAMPLE

• NEED TO CONSIDER DIFFERING STATE LAWS AS A REGULAR FACTOR: OFTEN MORE EXPANSIVE

• Chart comparing and contrasting federal, California and New York laws highlights this

16

WARN ISSUES IN CURRENT TIMES

• “TROUBLED COMPANY’ EXCEPTIONS• “Faltering Company”• “Unforeseen Business Circumstances”• “Liquidating Fiduciary”

• OTHER CURRENT PRACTICAL ISSUES: “single site of employment”, state law questions and what is the “employment loss period” at issue

17

THANK YOU.

pa-1357118

BEST PRACTICES FOR DRAFTING AND NEGOTIATING ENFORCEABLE EMPLOYMENT RELEASES

DAVID J. MURPHY MORRISON & FOERSTER LLP

September 3, 2009

A. General Contract Law Requirements: Comply with ordinary and traditional contract principles (see, e.g., the Fourth Circuit in Shea v. Commercial Credit Corp., 930 F.2d 358 (4th Cir. 1991); the Eighth Circuit in Ulvin v. NW. Nat’l Life Ins. Co., 943 F.2d 862, 866 (8th Cir. 1991)

1. Agreement must be supported by valid consideration.

a. The employee must receive something to which he/she is not entitled in exchange for the release of claims.

(i) Usually this is in the form of monetary compensation.

(ii) Payment can be contingent on other factors, i.e. the employee remaining unemployed to continue to receive structured severance payouts.

b. The consideration cannot be earned but unpaid compensation or benefits.

2. Avoid fraud claims (i.e., don’t misrepresent the restrictions or benefits of the release)

3. Avoid duress claims (i.e., don’t threaten employee with adverse results if they refuse to sign)

4. Use clear and unambiguous terms

a. Consider enumerating all released claims.

(i) Although it will add bulk and complexity to the release, it protects the employer from later claims that the employee did not intend to release certain claims.

(a) See Seman v. FMC Corp. Ret. Plan for Hourly Employees, 334 F. 3d 728 (8th Cir. 2003) (finding that because an agreement settling age and disability discrimination claims did not clearly release disability retirement benefit claims, the

pa-1357118 2

employee could pursue an ERISA claim for such benefits).

(ii) Avoid broad language; be specific.

5. Comply with any state-specific contract law requirements (which generally mirror these same factors but may require other specific points).

B. A More Detailed Approach Used By Most Federal Circuits: Release must be “Knowing and Voluntary” according to “Totality of Circumstances” standard

1. The “knowing and voluntary” requirement has its genesis in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974). Although the actual issue in that case was whether arbitration under a collective bargaining agreement of a Title VII claim precluded a trial de novo in federal court, the Court’s statement in a footnote that any “waiver” of Title VII rights must be “voluntary and knowing” has led to this as a standard enforced by most federal courts in evaluating releases.

2. The federal courts have developed a “totality of circumstances” approach to address whether release agreements are “knowing and voluntary.”

3. This was first developed in Covenry v. United States Steel Corp., 856 F.2d 514 (3rd Cir. 1988), and involved a severance release of Title VII and ADEA claims as well as all related state and federal claims. The court identified the factors to be assessed as follows:

a. The employee’s education and business experience;

b. The amount of time the employee had, or had access to, the waiver before signature;

c. The role of the employee in deciding the terms of the severance agreement;

d. The clarity of the waiver;

e. Whether the employee actually consulted with, or was represented by, legal counsel; and

f. Whether the employee received consideration for the waiver that exceeded any benefits to which he or she was already entitled.

See also, Senn, Knowing and Voluntary Waivers of Federal Employment Claims, 58 Fla. L.Rev. 305 (2006). Other federal circuits now use the same or close variations of this approach (sometimes adding whether the employee actually knew his or her rights, or whether the employee actually read the release involved, as an expansion of those factors).

pa-1357118 3

4. Besides the 3rd Circuit, this same basic approach now is used by the 1st, 2nd, 5th, 6th, 7th, 9th, 10th and 11th circuits. See, e.g., Dorn v. Gen Motors Corp., 131 F.App’x 462, 468-69 (6th Cir. 2005) (applying the totality test and concluding that the plaintiff had knowingly and voluntarily waived his ADEA claims); Cuchara v. Gai-tronics Corp., 129 F.App’x 728, 730-32 (3rd Cir. 2005) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his Title VII, ADA, and ERISA claims); Yablon v. Stroock & Stroock Lavan Ret. Plan and Trust, 98 F.App’x 55, 57 (2d Cir. 2004) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his ERISA claims); Nicklin v. Henderson, 352 F.3d 1077, 1080-81 (6th Cir. 2003) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his disability discrimination claims under the Rehabilitation Act of 1973, 29 U.S.C. §§ 701-718 (2000 & Supp. II 2002)); Smith v. Amedisys Inc., 298 F.3d 434, 441, 443-44 (5th Cir. 2002) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his Title VII sexual harassment, discrimination, and retaliation claims); Melanson v. Browning-Ferris Indus., Inc., 281 F.3d 272, 276-78 (1st Cir. 2002) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived her Title VII sexual harassment and retaliation claims); Bennett v. Coors Brewing Co., 189 F.3d 1221, 1228-29 (10th Cir. 1999) (finding that the district court had erred by not applying the totality test to the plaintiffs’ ADEA waivers on the “issue of whether the waivers were knowing and voluntary”); Morais v. Cent. Beverage Corp. Union Employees’ Supp. Ret. Plan, 167 F.3d 709, 712-15 (1st Cir. 1999) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his ERISA claims); Tung v. Texaco Inc., 150 F.3d 206, 208 (2d Cir. 1998) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his Title VII race and national origin discrimination claims); Livingston v. Adirondack Beverage Co., 141 F.3d 434, 438-39 (2d Cir. 1998) (remanding to the district court to evaluate the plaintiff’s waiver of Title VII race harassment claims under the totality test); Bledsoe v. Palm Beach County Soil & Waver Conserv. Dist., 133 F.3d 816, 819-20 (11th Cir. 1998) (applying the totality test and remanding the case for a jury trial on whether the plaintiff knowingly and voluntarily waived his ADA claims); Rivera-Flores v. Bristol-Myers Squibb Caribbean, 112 F.3d 9, 10-14 (1st Cir. 1997) (applying the totality test and concluding that the plaintiff knowingly and voluntarily waived his ADA and ERISA claims); Pierce v. Atchison, Topeak & Santa Fe Ry. Co., 110 F.3d 431, 437, 434-35 (7th Cir. 1997) (justifying its adoption of the totality test over a pure contract-based approach because the latter “does not give sufficient weight to the federal interest in ensuring that the goals of the ADEA are not undermined by private agreements born of circumstances in which employees . . . lack information regarding their legal alternatives”); Wager v. Nutrasweet Co., 95 F.3d 527, 531-33 (7th Cir. 1996) (applying the

pa-1357118 4

totality test and concluding that two plaintiffs had knowingly and voluntarily waived their Title VII sex discrimination and Equal Pay Act pay claims); Puentes v. United Parcel Serv., Inc., 86 F.2d 196, 198-99 (11th Cir. 1996) (applying the totality test and remanding the case for a jury trial on whether the plaintiffs knowingly and voluntarily waived their Title VII race and national origin discrimination claims); Vaefaga v. Or. Steel Mills, No. 94-35705, 1995 U.S. App. LEXIS 34930 (9th Cir. Nov. 17, 1995) (applying the totality test and concluding that the plaintiff’s Title VII waiver was “voluntary, deliberate, and informed” (quoting Stroman v. W. Coast Grocery Co., 884 F.2d 458, 462 (9th Cir. 1989))); Wright v. Sw. Bell. Tel. Co., 925 F.2d 1288, 1292-93 (10th Cir. 1991) (applying the totality test and concluding that the plaintiff had knowingly and voluntarily waived his Title VII race discrimination and ERISA claims). See also, Senn, supra, 58 Fla. L.Rev. 305 at n.155.

5. The EEOC has also given its approval to settling discrimination claims through settlement agreements reviewed according to the “knowing and voluntary” approach. U.S. Equal Employment Opportunity Comm’n, Notice No. 915.002, Enforcement Guidance on Non-Waivable Employee Rights under Equal Employment Opportunity Commission (EEOC) Enforced Statutes § III(C) (Apr. 10, 1997), http://www.eeoc.gov/policy/docs/waiver.html [hereinafter EEOC Notice].

6. Other practical and legal points for consideration under the “Totality of Circumstances” approach:

a. What type of job classifications are involved—the higher the level, the lower the concern.

b. Future claims should not be waived, but “unknown” claims may be if properly referenced. See Cal. Civ. Code §1542.

(i) However, restricting reemployment opportunities at the company may be enforceable.

c. Affirmatively encourage employees to consult an attorney.

(i) This is REQUIRED for ADEA releases, discussed below.

d. When feasible, allow the employee to have input into the agreement.

(i) Allowing employee input and bargaining enhances the voluntariness of the agreement.

(ii) This is not required and may not be feasible in RIF context.

e. Provide an adequate time period for employee consideration.

pa-1357118 5

(i) An employer should allow an employee to consider the agreement for a reasonable amount of time.

(ii) Courts have held that one week was adequate in some circumstances.

(a) Brees v. Hampton, 877 F. 2d 111, cert. denied, 493 U.S. 1057 (1990) (finding that the release was voluntary because the plaintiff had one week to review).

(b) However, in light of the more generous timeframes allowed in the ADEA context (discussed below), an employer should consider the longer ADEA consideration period as a guideline.

C. ADEA Releases – Additional Requirements (29 U.S.C. §626(f))

1. The release must be in WRITING.

a. Written in a manner to be understood by the employee or an average employee eligible to participate.

b. Avoid technical jargon and long, complex sentences.

c. Do not exaggerate benefits or minimize limitations of the agreement.

d. Do not mislead, misinform or fail to inform.

e. If the agreement is electronically disseminated, several safeguards must be followed. 29 C.F.R. §2520.104b-1(c).

(i) Return-receipt allowing employer to confirm the employee’s receipt of agreement.

(a) Follow-up voice-mail or notification is recommended.

(ii) Protect confidential or personal information against unauthorized access.

(iii) Format electronic document consistent with written documents.

(iv) Notice the importance of the document in the subject line of the email communication.

pa-1357118 6

2. Release must specifically refer to rights arising under the ADEA. 29 U.S.C. §626(f)(1)(B).

3. Future ADEA rights may not be waived. 29 U.S.C. §626(f)(1)(C).

a. Have the employee sign the agreement as close to the actual termination date or after the termination date if feasible.

4. Consideration must be paid. 29 U.S.C. §626(f)(1)(D).

a. Older workers do not have to be paid more than younger workers.

(i) DiBiase v. SmithKline Beecham Corp., 48 F. 3d 719 (3d Cir. 1995) (holding that an older employees accrued claims cannot be assumed to be more valuable than another’s accrued claims).

5. Advise employee in writing to consult an attorney. 29 U.S.C. §626(f)(1)(E).

6. Provide an adequate consideration period.

a. For releases in conjunction with a reduction in force, the employee must be given 45 days to consider the release and statistical data disclosures (discussed below). 29 U.S.C. §626(f)(1)(F)(ii).

(i) In a non-RIF situation, only 21 days are required. 29 U.S.C. §626(f)(1)F(F)(i).

b. The employer may revoke the offer during this period, if the employee has not yet accepted the offer.

c. The consideration period starts running when the employer gives the employee its final offer.

7. Provide a Revocation Period.

a. The employee must be given at least 7 days following the execution of the release in which he/she may revoke the release of ADEA claims. 29 U.S.C. §626(f)(2).

b. The release is unenforceable until expiration of the revocation period. 29 U.S.C. §626(f)(1)(G).

8. Disclosure of Statistical Data and other information. 29 U.S.C. §626(f)(1)(H)(i), (ii).

a. The employer must provide the employee with:

pa-1357118 7

(i) Any class, unit, or group of individuals covered by the employment termination program, any eligibility factors for the program, and any time limits applicable to it.

(ii) The eligible list - The job titles and ages of all individuals eligible or selected for the program.

(iii) The ineligible list - The ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.

b. Data should be presented in a manner most probative of any potential disparate impact on older workers.

c. Data must be presented in a manner understandable to the average worker.

(i) Raczak v. Ameritech Corp., 103 F. 3d 1257 (6th Cir. 1997) (holding that in deciding whether data complies with the statute, the question must be one of “understandability.”)

d. Give all decisional unit statistical data lists to each decisional unit member.

e. Suggested Approach:

(i) Identify the employment termination program, i.e. all layoffs and exit incentives that are part of an integrated RIF effort.

(ii) When in doubt, err on the side of a single employment termination program.

(a) If doubt exists, explain in a cover memo (that sets forth the required eligibility criteria and time limit information) that data is for, for example, a layoff and exit incentive program commenced on [date].

(b) Use some identification system, such as asterisks, to permit a person to determine who was eligible or selected for each arguably separate employment termination program.

(iii) Present completely accurate, up-to-date data when data is delivered to the employee.

(iv) Provide data on a cumulative basis (program-incentive-to-date) using the frozen initial population as the baseline.

pa-1357118 8

(a) In cover memo note this fact and the date as of which the data was current.

(b) Offer to consider providing updated data to persons requesting before signing releases, to the extent it is convenient to do so.

(c) Only provide such updated data when requested.

(v) Use the smallest rational unit as the decisional unit.

(a) Most likely this will be the group as to which a primary decisionmaker made “either/or” choices.

(vi) Identify in each decisional unit’s data precisely what the decisional unit is (e.g. the accounting department in the Oakland plant).

(vii) Give the employee the individual data for his or her own decisional unit and offer to provide all other decisional unit data on request.

(a) Burlison v. McDonald’s Corp., 455 F. 3d 1242 (11th Cir., 2006) (holding that the informational requirements are limited to the decisional unit that applies to the discharged employees).

(b) Consider listing all decisional units that are not affected and offer to consider providing those other decisional unit numbers to persons who request them before signing releases, to the extent convenient to do so.

D. Additional Issues for Consideration in ADEA Releases

1. If the release waives ADEA claims it may be wise to eliminate the attorneys’ fees provisions and covenant-not-to-sue.

a. Employer’s enforcement of such a clause may be considered unlawful retaliation.

(i) Cf. Mass. v. Bull HN Info. Sys., 16 F. Supp. 2d 90 (D. Mass. 1998) (finding a covenant-not-to-sue clause offensive to congressional intent with respect to the ADEA and OWBPA).

b. EEOC regulations have invalidated such regulations with regard to ADEA claims. 29 C.F.R. §1625.23(b).

pa-1357118 9

(i) It may be enough to provide an exemption for ADEA claims; however, the better practice may be to eliminate the provision in its entirety.

(ii) Exemptions for ADEA claims have been voided for being written in a manner that cannot be understood by the average employee.

(a) See, e.g., Thomforde v. IBM, 406 F. 3d 500, 503-04 (8th Cir. 2005) (holding that a layperson would not appreciate the difference between a release and a covenant-not-to-sue and therefore not understandable to the average employee).

2. Tenderback/Ratification clauses

a. Generally, an employee who retains the consideration paid for a release is barred, even in the absence of an express tenderback requirement, from challenging the enforceability of the release.

b. However, in the ADEA context, even if there is a tenderback clause, an employee can bring a post-release ADEA claim, without first paying back the severance payment.

(i) Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998) (rejecting the tenderback doctrine as to ADEA releases).

c. In response to Oubre:

(i) Include representation in the release demonstrating ADEA release requirement compliance.

(ii) When possible, include an admission in the release stating that the releaser has not been the victim of age discrimination (or other wrongful acts).

(iii) Make sure that the release includes a reasonable tenderback clause that is broad enough to extend to non-ADEA claims and defectively waived ADEA claims.

(a) Such a tenderback requirement might be enforceable, although not to preclude an ADEA lawsuit.

(iv) The release should explicitly allocate as much of the release’s consideration to ADEA claims as is reasonable, allowing the employer to get the maximum possible set-off against ADEA damages if paid later.

pa-1357118 10

(v) Consider eliminating the covenant-not-to-sue clause in its entirety; or include a clear ADEA exception.

(vi) Require any subsequent disputes among the parties to be resolved by arbitration.

E. Other General Release Provisions to Consider

1. Arbitration: consider requiring any subsequent disputes among the parties to be resolved by arbitration.

2. Specific Exclusion of Other Agreements: If you want other employment-related agreements to remain in effect after the release is executed (such as noncompetes or proprietary information agreements), consider specifically excluding them.

3. Severability Clauses

a. Given the limitations on releases, it is possible that one or more provisions in a release will be unenforceable.

b. Therefore, severability clauses make good sense and should generally be included.

4. Express “Carve-Outs”

The consideration of “carve-outs” for possible express exclusion from the release’s coverage raises both legal and practical issues. If an employer does not intend the release to apply to certain of these areas (such as, for example, workers’ or unemployment compensation claims), listing an express exclusion for these areas can substantially reduce employee questions and concerns about entering into the release. At the same time, it also can enter into the legal consideration of the validity of the release, particularly where claims are made that the release itself is overreaching.

In some instances, including non-waivable items can lead to attacks that the entire release itself should be voided. This itself can be addressed at the time a claim is raised as to whether the release should apply to a certain area. So it cannot be overlooked that the employer always has at least some choice in its own course of action to avoid these types of overreaching claims where the entire release is sought to be voided.

At the same time, by listing express exclusions, a release may lose much of its prophylactic effect as preventing other claims from being raised, so this operates as a form of an incentive for employers not to include express “carve-outs.” In any event, the laws of each state where the release is likely to be sought to be operative at some point in the future should always be checked to determine the full nature and extent of these potential non-waivable claims.

The following is a brief listing of the areas more commonly considered for inclusion of express “carve-outs”:

pa-1357118 11

a. A General “Carve-Out” for Employees Rights and Entitlements Not Waivable by Law.

(i) In Edwards v. Arthur Andersen, __ Cal.4th ___ (2008), the California Supreme Court decided this month that such a clause is not required. Instead, it relief on general contract principles to construe a contract as lawful whenever possible, and held that this did not have to be specifically stated even thought the employee rights were nonwaivable.

(ii) The dissent raised the “in terrorem” effect on employees, such that they would not challenge overbroad releases due to the risks and costs of litigation, but the majority rejected this.

(iii) This kind of express “carve-out” still may be advisable in other states, and possibly even in California due to federal law concerns.

b. EEOC and Other Governmental Entity Charge Filing Rights “Carve-Out” Clause

(i) An employee cannot waive the right to file a charge with the Equal Employment Opportunity Commission (“EEOC”), but the employee can waive not only the right to recover in his or her own lawsuit but also the right to recover in a suit brought by the EEOC on the employee’s behalf. See EEOC v. Cosmair, Inc., 821 F.2d 1085, 1091 (5th Cir. 1987). According to federal court in Maryland, a release that requires waiver of the right to file an EEOC charge in order to receive severance benefits is retaliatory and void. See EEOC v. Lockheed Martin, 444 F.Supp.2d 414 (D. Md. 2006). Other federal circuit courts, however, have held that a release requiring the waiver of this right is not retaliatory and does thus does not void the release. See EEOC v. Sundance Rehabilitation Corp., 466 F.3d 490 (6th Cir. 2006); Wastak v. Lehigh Valley Health Network, 342 F.3d 281 (3rd Cir. 2003). According to these courts, while the entire release will not be voided, the provision requiring employees the right to file or pursue EEOC claims itself may be unenforceable.

(ii) As a result, many companies include this express exclusion, particularly to avoid issues of approval of releases by the EEOC.

c. Workers’ Compensation Claim “Carve-Out” Clause

pa-1357118 12

(i) Generally, a workers’ compensation claim cannot be waived in a general release according to applicable state law, but must be processed through the agency in that state responsible for workers’ compensation claims. See, for example, Cal. Lab. Code § 5001.

(ii) Since most companies do not usually intend to have these workers’ compensation claims covered by release agreements not involved in the workers’ compensation system, this type of exclusion is frequently listed.

d. Unemployment compensation claim “carve-out” clause.

(i) It also is a general rule under virtually all state laws that unemployment compensation benefits cannot be waived in a release agreement. See, for example, Cal. Unemp. Ins. Code § 1342.

(ii) Employers often include this express exception for the practical benefit of persuading employees that the release itself will not preclude them from these unemployment benefits; it thereby may make the release more likely to be accepted by the employee who is facing the loss of a job and a more immediate need for these benefits.

e. ERISA Benefits “Carve-Out” Clause

(i) An employee cannot waive benefits already vested under ERISA plans, and a release seeking the same is considered to be void. See, for example, 29 U.S.C. § 1053(a)(1).

(ii) Employers seldom seek to extinguish vested ERISA benefits, so inclusion of this “carve-out” is often considered.

f. FLSA/State Wage and Hour Rights “Carve-Out” Clause

(i) According to federal law, a waiver of minimum wage and overtime claims under the Fair Labor Standards Act (“FLSA”) requires government supervision and approval by the U.S. Department of Labor in order to be valid. See 29 U.S.C. §§ 201-219 (2000). Similarly, many state laws provide that waivers of wage claims are not valid, or at least have open questions with respect to their validity, unless approved by the applicable state agency. See, for example, Cal. Lab. Code § 206.5.

(ii) While U.S. Department of Labor (“DOL”) review is a

pa-1357118 13

stated requirement, as a practical matter it is usually not reasonably possible to run an employee severance and release program, or even to settle and resolve individual employee claims, while submitting release agreement terms for DOL review and approval. As a result, especially where the employer believes that disputed claims are involved, including these FLSA and other wage and hour “carve-out” terms in employee release agreements is less common, notwithstanding these stated requirements.

g. FMLA Rights “Carve-Out” Clause

(i) The Fourth Circuit has split from other federal courts and held that a U.S. Department of Labor regulation precludes both the prospective and retrospective labor of all FMLA rights, including claims for past violations. See Progress Energy, Inc. v. Taylor, 493 F.3d 454 (4th Cir. 2007). Other federal circuits, however, have allowed retrospective waivers of prospective FMLA claims in severance agreements, and this clearly appears to be the better rule. See, for example, Faris v. Williams WPC-I, Inc., 332 F.3d 316, 318 (5th Cir. 2003); see also Burkhart Layering Administrative Law and Basic Contract Principles: Analyzing the Waiver of FMLA Claims in Severance Agreements, 33 Iowa J. Corp. L. 983 (2008).

(ii) The U.S. Department of Labor itself does not agree with the viewpoint of the court in the Fourth Circuit, and affirmatively argued before the United States Supreme Court in a petition for certiori that the case was wrongly decided. See Progress Energy Inc. v. Taylor, U.S. No. 07-539, Solicitor General’s Brief, 5/16/08. Further, the DOL has proposed a regulation that would clarify the FMLA regulations to specify that employees and employers voluntarily agree to the settlement of past claims without first obtaining permission or approval from the U.S. Department of Labor or a court. See BNA Daily Labor Report, 26 DLR AA-1, 2/8/08. Therefore, unless this issue is involved in the Fourth Circuit, it would not appear to be a matter which most employers would expressly exclude from employee release agreements.

F. EEOC Guidance on Release Issues

1. The EEOC issued its guidelines on releases entitled “Understanding Waivers of Discrimination Claims in Employee Severance Agreements in July, 2009.

pa-1357118 14

2. These adopted the same basic “knowing and voluntary” standard, but with an “employee-friendly” view, and emphasized the need for the EEOC carve-out..

1 of 20 pa-1357113

A BRIEF OVERVIEW OF THE WORKERS ADJUSTMENT AND

RETRAINING NOTIFICATION ACT (“WARN”) & COMPARISON TO STATE MINI-WARN ACTS IN CALIFORNIA AND NEW YORK

DAVID J. MURPHY MORRISON & FOERSTER LLP

SEPTEMBER 3, 2009

I. GENERALWARN CONSIDERATIONS.

This memorandum provides an overview of the federal Worker Adjustment and Retraining Notification Act (“WARN”) as well as to the California and New York “Mini-WARN” Acts. In the discussion section on the newest state WARN law, which is the New York law, the differing applications of these three laws are compared and contrasted. A summary chart comparison the requirements of the federal WARN Act to these state mini-WARN acts is also provided1 to illustrate the additional considerations that come into play when these state laws must be considered.

II. COMPLIANCE WITH THE FEDERAL WARN ACT.

Businesses that employ over 100 full-time workers are subject to the WARN Act. The WARN Act requires covered employers to provide affected employees, as well as local and state government officials, with sixty days’ notice prior to a “plant closing” or a “mass layoff.” The first step in complying with the WARN Act is to determine whether the employer will take action that implicates the Act.

1 Many other states have passed mini-WARN Acts that may impact national employers, including but not limited to Connecticut (Conn. Gen. Stat 31-51n-o), Hawaii (Haw. Rev. Stat. 394B-2), Illinois (820 Ill.Comp.Stat.65/1 et seq.), Kansas (Kan. Stat Ann. 44-616), Maine Me. Rev. Stat. 625-B), Maryland (Md. Code Ann., Lab. & Empl. 11-301(b)(1) and Md. Reg. Lab., Lic. & Reg. 09.33.02.03), Massachusetts (Mass. Gen. Laws Ann. Ch. 151A, Sec. 71 et seq.), Michigan (Mich. Comp. Laws Ann. 450.732), Minnesota (Minn. Stat. 116L.976), New Jersey (N.J. Admin Code tit.12, Sec. 12:17-3.5), Ohio (Ohio Rev. Code Ann. 4141.28(C)), Oregon (2004 Or. Laws 285A.516), Pennsylvania ((15 Pa. Cons. Stat. 2581), South Carolina ((S.C. Code Ann. 41-1-40), Tennessee (Tenn. Code Ann. 50-1-601(2)), Washington (Wash. Rev. Code 23B.19.020.15(c) et seq.) and Wisconsin (Wis. Stat. 109.07), as well as the New York and California laws specifically discussed herein. These laws run the gamut from purely voluntary to much broader and stricter requirements than federal WARN, particularly in the New York and California laws.

2 of 20 pa-1357113

1. Plant Closing Defined.

A plant closing is the permanent or temporary shutdown of a single site of employment, or one or more operating units within the site, during a thirty-day period that results in an employment loss for 50 or more full-time employees. 29 U.S.C. § 2101(a)(2). For purposes of determining the number of employees affected by a plant closing, “part-time” employees are ignored. Notice must be given, however, to part-time employees if WARN Act notice is otherwise required. A part-time employee is defined as both 1) an individual who is employed either for an average of fewer than twenty hours per week or 2) an individual who has been employed for fewer than six of the twelve months preceding the WARN notice date. Further, temporary employees are included when determining the number of employees who have suffered an employment loss for purposes of a plant closing, even though they are not entitled to WARN Act notices.

The Code of Federal Regulations defines an “operating unit” as “an organizationally or operationally distinct product, operation, or specific work function within or across facilities at the single site.” 20 C.F.R. § 639.3(j).

2. Mass Layoff Defined.

A mass layoff is defined as a reduction in an employer’s workforce that is not the result of a plant closing, but which produces an employee loss at a “single site” of employment during any 30 day period involving either: (1) fifty or more full-time employees, provided those affected constitute at least thirty-three percent of the full-time workforce; or (2) at least five hundred full-time employees, regardless of what percentage of the workforce the affected employees constitute. As with plant closings, temporary project employees count toward the employee threshold test, while part-time employees do not.

A “single site” of employment has been interpreted to include not only a single building, but also groups of structures that form a campus or industrial park. The Department of Labor(“DOL”) regulations provide that “separate buildings or areas which are not directly connected or in immediate proximity may be considered a single site of employment if they are in reasonable geographic proximity, used for the same purposes, and share the same staff and equipment. 20 C.F.R. § 639.3(i)(3). Alternatively, “[c]ontiguous buildings owned by the same employer, which have separate management, produce different products, and have separate workforces are considered separate sites of employment.” 20 C.F.R. § 639.3(i)(5).

Unfortunately, there is no clear-cut test to utilize the factors provided by the regulations. Instead, each location must be evaluated on a case by case basis. For example, in Frymire v. Ampex Corp. (10th Cir. 1995) 61 F.3d 757, the court found that two facilities did not constitute a single site of employment for purposes of the WARN Act, even though the facilities were previously in the same structure and were currently located only 150 feet apart. The court relied upon the fact that the facilities’ operations were essentially separate, they did not share employees, the operations each provided to the other were minor, and the facilities had different products.

By way of comparison, the court in Carpenters Dist. Council v. Dillard Dep’t Stores (5th Cir. 1994) 15 F.3d 1275 held that two separated places of employment, several miles apart,

3 of 20 pa-1357113

constituted a single site of employment. The court reasoned that the sites were separate only to avoid employee overcrowding, the two sites remained integrated, and the employees working at both facilities relied upon common support staff.

Thus, companies must look at each possible “site of employment” on a case by case basis to determine if those particular employees are sufficiently numerous to qualify under the WARN act. In determining what constitutes a “single site of employment”, the courts nonetheless have made clear that two factors are preeminent – geographical proximity and operational connection. The more significant factor for the courts is the former. Courts have stated “geographical considerations are the strongest factors in determining whether separate facilities owned or operated by the same employer are considered single or separate sites under the Act.” (Teamsters Local Union 413 v. Driver's, Inc. (6th Cir. 1996)101 F.3d 1107; Wiltz v M/G Transp. Servs. (6th Cir. 1997) 128 F3d 957, 13 BNA IER Cas 720, 134) Courts have separated the measures of distance into two degrees – “contiguity” and “geographical proximity.” As the distance between sites grows, supporting factors become more significant. By way of example, “non-contiguous sites in the same geographic area which do not share the same staff or operational purpose should not be considered a single site. For example, assembly plants which are located on opposite sides of a town and which are managed by a single employer are separate sites if they employ different workers.” 20 C.F.R. §639.3 (i)(4) Based on this, courts have decided “once the contiguous/noncontiguous geographic determination is made, the operational, managerial and labor variables can defeat or reinforce the presumptions established by the proximity or contiguity factors” (Teamsters Local Union 413 v. Driver's, Inc., supra, 101 F.3d 1107). These variables can include the sharing of personnel between sites, overlap in management, an integrated or shared production model, and how the federal government and relevant unions classify the sites.

3. Employment Loss Defined.

A key factor in determining the existence of either a plant closing or mass layoff is whether the requisite number of employees suffered an “employment loss.” An employee suffers an employment loss if:

1) the individual’s employment ends for any other reason other than a discharge for cause, voluntary departure, or retirement;

2) the individual is placed on a layoff exceeding six months; or

3) the individual’s hours are reduced by more than fifty percent during each month in a six-month period.

A determination of the number of employees that will suffer an employment loss will be complicated if the employer implements a severance plan prior to closing a plant or engaging in mass layoffs. It is possible that some employees who accept a severance offered by the employer will allege that they were constructively discharged, and thus entitled to WARN Act notification. The few courts that have addressed this issue have concluded that an induced resignation by means of a severance plan does not constitute an employment loss. For example,

4 of 20 pa-1357113

one court held that early retirement in lieu of layoff is not an employment loss under the WARN Act. See Rifkin v. McDonnell Douglas Corp. (8th Cir. 1996) 78 F.3d 1277. Similarly, another court held that employees who voluntarily resigned merely to avoid feared layoffs did not suffer an employment loss for purposes of the WARN Act. See Hollowell v. Orleans Reg’l Hosp. (E.D. La. 1998) 1998 WL 283298. Accordingly, if an employee accepts a severance package offered by the employer, that employee probably will not be counted in determining whether the requisite number of employees suffered an employment loss.

Because employees that accept a severance offer probably will not count in determining the existence of a plant closing or mass layoff, the employer may have difficulty in accurately determining the number of employees who will suffer an employment loss until after it implements its severance plan. The employer has several options that will allow it to address this issue.

First, the employer may wait until after the identified employees either accept or reject a severance offer being offered by the employer. Such a wait will allow the employer to determine whether the number of employees subject to layoff fell below the threshold number, thus potentially alleviating the need for the WARN Act notice requirement. The disadvantage of this option is the resulting delay for those sites where the WARN Act applies since the employer would need to provide notice and then wait the requisite 60 days before initiating any layoffs.

The second option is to provide WARN Act notice to all employees targeted for layoff in conjunction with the offering of the severance package. Further, the WARN Act permits the employer to issue a conditional notice, provided the event will lead to a plant closing or mass layoff less than 60 days after the event. 20 C.F.R. § 639.7(a)(3). Thus, the employer may issue WARN Act notices conditioned upon not enough employees voluntarily resigning. This option allows the employer to layoff employees shortly after implementing its severance plan, instead of having to recalculate the number of affected employees and then wait the mandatory 60 days for those employees subject to the WARN Act. The disadvantage of this option is that the employer will likely provide unnecessary WARN Act notices, including those required to be provided to government agencies, since less than the threshold number will be affected at some sites after implementation of the severance plan.

4. Employment Loss Period Defined.

Although the determination of whether a plant closing or mass layoff has occurred is normally based on employment losses occurring during a 30-day period, the employer must also take into consideration employment losses occurring during a 90-day period. That is because if two or more groups suffer employment losses at a single site of employment during a 90 day period, each of which is fewer than the minimum number required to trigger the WARN Act notice requirement, the groups will be aggregated unless the employer demonstrates that the losses resulted from separate and distinct causes and not from an attempt to evade the WARN Act.

The specific federal WARN regulation at issue in this respect provides that, “in determining whether a plant closing or mass layoff has occurred or will occur, employment losses for 2 or more groups at a single site of employment, each of which is less than the minimum number of employees...but which in the aggregate exceed that minimum number, and which occur within

5 of 20 pa-1357113

any 90-day period shall be considered to be a plant closing or mass layoff unless the employer demonstrates that the employment losses are the result of separate and distinct actions and causes and are not an attempt by the employer to evade the requirements of this Act." If, however, one group is large enough to trigger the WARN Act notice requirement by itself, the groups will not be aggregated.

Under federal WARN, there essentially is a rebuttable presumption that all workforce reductions occurring within 90 days of each other result from the same cause. The employer bears the burden of proving that multi-phase employment losses resulted from separate and distinct causes and are not a mass layoff. Allen v. Sybase, 468 F.3d 642, 653 (10th Cir. 2006). Courts concede that “WARN is less than clear with respect to mass layoffs occurring in an aggregation setting,” Allen, 468 F.3d at 649. Still, most employer attempts to prove separate and distinct causes have been rejected by courts.

Indeed, the courts addressing this issue have made clear that "layoffs that are occasioned by continuing and accelerating economic demise are not the result of separate and distinct causes." See, e.g., United Paperworkers Int'l Union v. Alden Corrugated Container Corp., 901 F. Supp 426, 435-36 (D. Mass. 1995); Hollowell v. Orleans Reg'l Hosp. LLC, 217 F.3d 379, 383 (5th Cir. 2000); Oil, Chemical and Atomic Workers International Union, Local 7-629, AFL-CIO, v. RMI Titanium Company, 199 F.3d 881, 883 (6th Cir. 2000); Allen v. Sybase, 568 F.3d 642, 653 (10th Cir. 2006).

In United Paperworkers, for instance, the employer provided three separate reasons for its various layoffs: credit problems, a closing of one facility, and significant reorganization of another facility. However, in light of evidence suggesting that each proffered reason related to a broader trend of financial troubles predating the layoffs by several years, the court declined to regard the employer's reasons as separate and distinct causes. United Paperworkers, 901 F. Supp. at 435-36.

5. Notice Requirement.

After determining that a mass layoff or plant closing will occur at a single site, the employer must provide timely notice to the following four parties: (1) the nonunion affected employees; (2) representative of affected unionized employees; (3) the state’s dislocated worker unit; and (4) the local government where the closing or layoff is to occur. 20 C.F.R. § 639.7. “Affected employees” includes managerial and supervisory employees, part-time employees (even though they are not counted when calculating the threshold number), employees on temporary layoff who have a reasonable expectation of recall prior to notice of the plant closing or mass layoff, and permanent employees working at temporary facilities or on temporary projects. “Temporary project” employees, consultants, contract employees of another employer who are paid by that employer, and self-employed individuals, however, are not considered “affected employees,” and thus need not be given WARN Act notice. Temporary project employees are individuals “hired with the understanding that their employment was limited to the duration of the facility or the project or undertaking.” 20 U.S.C. § 2102(1); 29 C.F.R. § 639.5(c).

6 of 20 pa-1357113

Any reasonable delivery method of the notice is acceptable, provided it is designed to ensure receipt at least 60 days in advance of employment loss. This includes personal delivery by hand, first class mail, or insertion of notice into an employee’s pay envelope.

6. Penalties For WARN Act Violations

An employer that violates the WARN Act must pay back pay and benefits for each affected employee for every day of the violation, up to a maximum of 60 days. 29 U.S.C. § 2104(a)(1). Failure to give notice to a unit of government is subject to a civil penalty of not more than $500 for each day of the violation. This penalty will not be imposed, however, if the employer pays each affected employee the amount for which the employer is liable under the WARN Act within three weeks from the date the employer ordered the plant closing or mass layoff. 29 U.S.C. § 2104(a)(3). A court may also award reasonable attorneys’ fees to the prevailing party.

7. Pay In Lieu Of Notice

An additional option for an employer’s consideration is to pay employees instead of providing notice. Although the employer will still be in violation of the WARN Act, there would be no damages provided the employer pays the correct amount of salaries and benefits to which the employee would be entitled. As explained above, there will be no civil penalty for failing to notify government officials if the employer pays each affected employee.

Similarly, the employer may also avoid compliance with the WARN Act by immediately placing employees on a leave of absence for 60 days with full pay and benefits. Because some courts impose liability for every day in the 60 day period, not just days worked, the leave of absence may need to encompass at least 60 work days to ensure that the employee receives 60 days’ worth of salary and benefits.

8. Employee’s Notice

To comply with the WARN Act, an employer’s written notice to each affected employee should include the items listed below. The notice must be based on the best information available to the employer at the time the notice is given (which may not be complete or accurate).

State that the employee may reasonably expect to lose his or her job as a result of the planned action.

State the name and telephone number of a company official from whom further information may be obtained.

State whether the planned action (i.e., plant closing or layoff) is permanent or temporary, and if an entire plant is to be closed, the notice must say so.

Set forth the expected date of the first termination and the recipient’s termination or a two-week window in which the terminations are to occur.

Indicate whether bumping rights exist.

7 of 20 pa-1357113

If applicable, explain why less than 60-days notice is being given.

9. Notice to Government Officials

To comply with the WARN Act, an employer’s written notice to the government should include the items listed below. The notice should be sent to the state dislocated worker unit and the chief elected official of the local government:

Set forth the name and address of the employment site where the plant closing or mass layoff will occur.


Set forth the expected date of the first termination and the anticipated schedule for the terminations or set forth a two-week window in which the terminations are to occur.

Set forth the job titles of positions to be affected and the number of affected employees in each job classification.

State whether the planned action (i.e., plant closing or layoff) is permanent or temporary, and if an entire plant is to be closed, the notice must say so.

Indicate whether bumping rights exist.

If applicable, explain why less than 60-days notice is being given.

If applicable, set forth the name of each union representing affected employees and the name and address of the chief elected official of each such union.

Alternatively, an employer may provide a written notice containing the following items as long as the other information listed above is available on site and is readily accessible:

Set forth the name and address of the employment site where the plant closing or mass layoff will occur.


Set forth the expected date of the first termination or a two-week window in which the terminations are to occur.

Set forth the number of affected employees

10. The “Troubled” Company Situations: What WARN Rules Apply?

8 of 20 pa-1357113

In the current difficult economic climate, ‘troubled” companies may have to close without having the time period for a WARN notice available to them. Special Rules can apply in these situations, and a brief summary is set forth below.

A. Faltering Company Exception (29 USCS § 2102(b)(1)) The “faltering company exception” has a very clear statutory and regulatory basis. Section 2102(b)(1) of the WARN Act allows for an exception to the 60 day period where such warning would have precluded the acquisition of capital necessary to avoid or postpone a shutdown. However subsequent Department of Labor regulations greatly circumscribe the exception’s applicability. 20 C.F.R. § 639.9(a) states that the exception must be “narrowly construed.” In order to invoke the exception the employer must (1) “be able to identify the specific actions taken to obtain capital or business” (20 C.F.R. § 639.9(a)(1); see also UMW Int'l Union v. Lehigh Coal & Navigation Co., 2005 U.S. Dist. LEXIS 31050 (requiring “objective evidence” of defendants attempts at financing), and Local 397, Int'l Union of Electronic, etc. v. Midwest Fasteners, Inc., 1990 U.S. Dist. LEXIS 16085 (D.N.J. Oct. 22, 1990) (coordinating sale of a facility does not qualify as “raising additional capital”)) (2) “articulate that the additional capital, if obtained, would avoid shutdown and would keep the job site open for a reasonable period of time” (20 C.F.R. § 639.9(a)(3)), (3) “show that there was a realistic opportunity to obtain the financing” (20 C.F.R. § 639.9(a)(2)), and (4) “establish that it reasonably and in good faith believed that a potential customer or source of financing would have been unwilling to provide the new business or capital if notice were given” (20 C.F.R. § 639.9(a)(4)). Additionally, a Third Circuit case, Carpenters Dist. Council v. Dillard Department Stores, added an additionally required the layoff must actually be caused by the failure to obtain sufficient capital (Carpenters Dist. Council v. Dillard Dep't Stores (5th Cir. 1994) 15 F.3d 1275). See also 54 Fed. Reg. 16061(April 20, 1989) (“The need for notice will only be triggered if the employer fails to obtain the business or financing it seeks.") and Roeder v. United Steelworkers (In re Old Electralloy Corp.) (W.D. Pa. 1993) 162 B.R. 121 (An extended discussion of good faith attempts to procure capital, with the court appearing particularly impressed by the fact that the facility maintained normal operating capacity during the ‘crisis’ period) B. Unforeseen Business Circumstances Exception (29 USCS § 2102(b)(2)(A))

29 USCS § 2102(b)(2)(A) states “an employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required." Loehrer v McDonnell Douglas Corp.(5th Cir. 1996) 98 F.3d 1056, has set the standard across multiple circuits for determining what constitutes this “reasonable foreseeability”. Its facts dealt with the closure of a facility geared towards the production and design of US Navy fighter jets On January 7, 1991, the Navy withdrew from its contract with McDonnell Douglas for the particular brand of fighter produced at the St. Louis facility. On January 14, 1991 the company gave notice to the facility’s employees of termination effective January 29th. The question before

9 of 20 pa-1357113

the court was whether that termination constituted a “reasonably foreseeable business circumstance.” The test the court applied, with one significant addition, was taken entirely from a DOL regulation, namely 20 CFR 639.9 (b)(1)-(2). The inquiry focuses on two characteristics – (1) the foreseeability of the incident and (2) whether the employer was reasonable in failing to foresee the situation. In describing the first element, 20 CFR 639.9 (b)(1) states the typical unforeseen circumstance is one “caused by some sudden, dramatic, and unexpected action or condition outside the employer's control.” By way of example, the regulation lists “A principal client's sudden and unexpected termination of a major contract with the employer, a strike at a major supplier of the employer, … an unanticipated and dramatic major economic downturn, …[or] a government ordered closing of an employment site that occurs without prior notice.” In describing the second element, 20 CFR 639.9 (b)(2) describes the test of reasonability as “focus[ing] on an employer's business judgment. The employer must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market.” It is therefore from the vantage point of a similarly situated businessman looking forward, rather than from hindsight, that the court is supposed to make the determination. The significant addition referenced above owes itself to the particulars of the case. The military aero-space industry is a highly unique sector. In its decision, the Loehrer court noted the “unique, politically charged area of defense contracts.” Even where a government cure letter in the months proceeding and the negative business climate gave some indication of the cancellation, the court found “the Government has rarely ever cancelled a contract for a program for which the Government had stated a need.” The court found that given nature of the industry, a stated desire for aircraft by a government official muddied the waters sufficiently to make a cancellation “reasonably unforeseeable.” It is apparent from this that courts are willing to apply particular industry practices to what constitutes “reasonably foreseeable.” Similarly, Hotel Employees International Union Local 54 v. Elsinore Shore Associations (3rd Cir. 1999) followed the Loehrer v McDonnell Douglas Corp. standard virtually in its entirety. The facts of the case deal with a casino which was forced to close under government order without giving the requisite warning. The court found the unforeseeable business circumstances exception applicable. In establishing the standard, it first cited to 20 C.F.R. § 639.9(b)(2). It then cited to Loehrer v McDonnel Douglas Corp., stating “in making this determination, we consider the facts and circumstances that led to the closing in light of the history of the business and of the industry in which that business operated.” In finding the closure reasonably unforeseeable, the court stated that, even though the casino was on notice that the Casino Control Commission could order them to close, the timing of any future closure order was not immediately known. Given that uncertainty, the court held that a set 60 day warning period could not be enforced or even accurately predicted.

C. Proper Notice Still Is Required

10 of 20 pa-1357113

However, even when the “faltering company” and “unforeseen business circumstance” exceptions apply, notice is still required as soon as practicable. For example, in Jones v Kayser-Roth Hosiery, Inc., a court found that notice immediately prior to a plant closing was insufficient where a company had knowledge 30 days prior that a major account necessary to the plant’s continued existence was lost. Even though this would fall under the unforeseen business circumstances exception, in order for this to fully cover the company from liability, notice would still have to be given by the company upon being informed of those circumstances. Jones v Kayser-Roth Hosiery, Inc. (ED Tenn. 1990) 748 F Supp 1276. The form of the notice given is particularly important. In order to be properly covered under 29 USCS § 2102(b)(1) or (2)(A), the notice itself must state facts specifically describing the circumstances leading to the closing. For instance, in Grimmer v. Lord Day & Lord, because of the employer’s “failure to include in its notice a brief statement of the facts constituting the basis for giving shortened notice” it was precluded from using this approach as an affirmative defense. Grimmer v. Lord Day & Lord (S.D.N.Y. 1996) 937 F. Supp. 255. D. Liquidating Fiduciary Exception The “liquidating fiduciary exception” addresses the issue of whether, in the bankruptcy context, an entity can be held liable for WARN violations. In short, in order to avail itself of this defense, an entity must show that its primary purpose in operating the business is strictly the liquidation of assets. A typical example of this defense is the Third Circuit case, Official Comm. of Unsecured Creditors of United Healthcare Sys. v. Medical Staff, Local 1199J (3d Cir. 1999) 200 F.3d 170, 174. In that case, a district court held a debtor healthcare organization to be an “employer” under the WARN Act, making it and its creditor liable for violations and back-pay. The organization’s creditors appealed, arguing that the business was not being operated as a going concern, but rather only in preparation for liquidation. The organization, the creditor argued, should therefore not be considered an “employer” under WARN. The court agreed, and influential in the court’s decision was a Department of Labor commentary, cited as 54 Fed. Reg. at 16045, commenting on the WARN definition of employer as set forth in 20 C.F.R. § 639.3(a)(1)(ii). In that commentary, the DOL states “a fiduciary whose sole function in the bankruptcy process is to liquidate a failed business for the benefit of creditors does not succeed to the notice obligations of the former employer because the fiduciary is not operating a ‘business enterprise’.” However, the WARN requirements may still apply where “the fiduciary … continue[s] to operate the business for the benefit of creditors” (54 Fed. Reg. at 16045).

In finding that the debtor entity was being operated not as a going concern, but rather as a business liquidating its affairs, the court stated looked at the debtor entity’s operations. For instance, it had “discharged or transferred all of its patients, … was no longer admitting new patients, … [and] employees were no longer engaged in their regular duties.” (Official Comm. of Unsecured Creditors of United Healthcare Sys., supra)

11 of 20 pa-1357113

III. CALIFORNIA “MINI” WARN ACT (CAL. LAB. CODE SEC. 1400 ET SEQ.)

The California mini-WARN Act became effective January 1, 2003 and is located at California Labor Code Section 1400 et seq.. It establishes the California equivalent to the federal WARN Act. California commercial or industrial facilities that employ or have employed at least 75 employees over the past year are required to provide 60 days notice prior to taking any of the following actions: (1) a “mass layoff”: the layoff of 50 or more employees within a thirty-day timeframe; (2) a “relocation”: the removal of all or substantially all of the operations of the employer to a location at least 100 miles away; or (3) a “termination”: the cessation or substantial cessation of the industrial or commercial operations of the employer.2

However, the California notice requirements do not apply to the following: (1) a closing or layoff that is a “result of the completion of a particular project or undertaking of an employer” that is covered by the California Wage Orders 11, 12, or 16, in which the affected employees were hired with the understanding that their employment was limited to the duration of the project or undertaking; or (2) seasonal employees who are hired with the understanding that their work is temporary and seasonal in nature.

If the situation involves a “relocation” or “termination” but not a “mass layoff,” the California notice requirements are not applicable if the state’s Employment Development Department (“EDD”, which administers unemployment compensation and related matters) determines the following conditions are met: (1) at the time notice was required, the company was actively seeking capital or business, (2) had the capital or business been obtained, the company could have avoided or postponed the relocation or termination, and (3) the employer reasonably and in good faith believed that giving notice would have precluded it from obtaining the needed capital or business. In order to qualify for this exception, the employer must provide the EDD with documentation relating to the employer’s efforts to seek capital or business and an affidavit verifying the content of the documents.

The California counterpart to the federal WARN Act, is broader than the WARN Act in many respects. One of these is involved in the California law's focus on a "covered establishment". In lieu of the complex definition of "plant closing" in the federal WARN Act, a "termination" under California law is defined as the cessation or substantial cessation of industrial or commercial operations in a "covered establishment." Compare, 29 U.S.C. Section 2101(a)(2) with Labor Code Section 1400(f). A "covered establishment" is defined under Labor Code Section 1400(a) as any industrial or commercial facility or part thereof that employs, or has employed within the preceding 12 months, 75 or more persons. There is no other statutory discussion of what constitutes this "covered establishment", and there are no implementing regulations further expanding upon the

2 While a “mass layoff” must affect 50 or more employees to trigger the notice requirements, the California law does not establish how many employees must be affected by a relocation or termination of operations to activate the notice requirements.

12 of 20 pa-1357113

meaning of these terms. So, only this 75-person numerical calculation is used for the otherwise undefined "industrial or commercial facility" to determine if Cal-WARN applies. The California law then defines as a "mass layoff" (requiring 60-days notice to employees) a separation of 50 or more employees from their positions at a "covered establishment" during any 30-day period. See Labor Code Section 1400(c) and (d). Effectively, this provision lowers the bar of coverage from the federal requirements. This is because the federal WARN Act defines a "mass layoff" as a reduction in force at a single site of employment where at least 33% of the workforce and at least 50 employees (or alternatively at least 500 employees) are laid off for a period of six months or more. See 29 U.S.C. Section 2101(a)(3). Cal-WARN does not include this 33% requirement or any express reference to the "single site of employment" issue under WARN. In other words, as long as 50 employees at any such "industrial or commercial facility" constituting a "covered establishment" with 75 or more persons are laid off, Cal-WARN's notice provisions will apply. What this leaves open, of course, is exactly what constitutes an "industrial or commercial facility" constituting a "covered establishment" for these computational purposes . As is self-evident, this determination can be especially difficult to make in the myriad of different operational circumstances and related facilities which Kaiser has. Since all of these terms in Cal-WARN are otherwise undefined, an alternative often used as a guideline to address these issues is to look at the same federal WARN guidelines for a "single site" of employment that Cal-WARN does not expressly include in its terms. Not only is reference to the federal WARN Act often generally used to help apply Cal-WARN due to both laws' similar purpose, these "single site" terms involve the same overall concept as the "covered establishment" terms to address which employees should be grouped together for these statutory termination advance notice purposes. Further, Labor Code section 1400(e) also uses the terms "covered establishment" in dealing with relocation in a way that suggests the drafters of Cal-WARN were referring to a "single site" type of approach when using these terms. Thus, even though the "single site" terms are not mentioned in Cal-WARN, what the federal law's "single site" concept involves directly overlaps with the "covered establishment" issue. As a result, using the same guidelines that a company otherwise would use for the "single site" determinations under the federal WARN Act is generally considered to be a very helpful guide to determining what is a "covered establishment" under Cal-WARN. Because the WARN Act itself does not define a "single site of employment," this then generally refers to "single site" determinations under applicable DOL regulations and case law. While there is no bright-line rule, the determination of whether two or more buildings constitute a single site of employment generally turns on building proximity and operation integration. This same general standard would then be the most applicable overall guide for what is a "covered establishment" under Cal-WARN.

Applying these "single site" standards under WARN to the "covered establishment" determination under Cal-WARN, contiguous facilities or those in close geographic proximity would generally be both "single sites" of employment as well as a "covered establishment". Conversely, geographically separate facilities would generally be considered

13 of 20 pa-1357113

as separate sites as well as ones which do not constitute a single "covered establishment". However, these general approaches may not apply, and the result can be changed, when other operational, managerial and labor variables are taken into account .

In looking at any specific building, the first and most obvious step is to determine whether other buildings are connected or contiguous. When looking at such a connected or contiguous group of buildings, the most significant factors to examine for any specific employee segment from any of these buildings is whether any such employee segment has completely separate management or substantially different products or services. If so, they effectively may amount to a separate work force, and that would be a basis for determining that they are not a part of a "single site" of employment or the same "covered establishment". Generally, the remaining employees in this connected or contiguous group of buildings would then be part of the same "single site" of employment or "covered establishment".

If there also are other buildings are in reasonably close geographic proximity to each such site, these buildings may also be able to be aggregated with the connected or contiguous group to form a "single site" of employment or the same "covered establishment". The main factors to analyze for this purpose are whether these geographically close buildings are used for the same purpose, and whether they share the same staff and equipment. This would include looking at issues such as whether the employees regularly are rotated among buildings, whether they have the same managerial and department structure and whether they share other equipment and services such as support or other operational staff. Other relevant factors also may include, for example, whether the buildings share parking lots or cafeterias, the amount of daily interaction between employees in the different buildings, whether the buildings have a centralized phone or other communication system, whether the buildings have shared human resources or other centralized payroll functions, and whether any other factors exist such that you should not treat each building separately. As a general rule, the greater the sharing of management, employees and equipment, the more likely a geographically close building would be deemed, along with other connected or contiguous buildings, to be part of a "single site" or the same "covered establishment".

Obviously, these "covered establishment" and "single site" determinations are very fact-specific, and other unique circumstances may arise which the foregoing discussion does not directly contemplate. Nonetheless, using these general guidelines discussed above would be an effective way to address most if not virtually all of the issues which should be involved in making these determinations.

One other point is worth noting about the differences between the federal and Cal-WARN arising from Cal-WARN's focus on the 'covered establishment" issue. Besides lowering the threshold for coverage to 75 employees at a "covered establishment" (WARN only applies to companies with 100 or more employees), Cal-WARN does not include the important federal distinction which allows employers to exclude part-time employees and new hires in determining coverage. See 29 U.S.C. Section 2101(a)(1) and (8). The state law defines "employee" as a person employed by an employer for at least 6 of the 12 months preceding the date on which notice is required, and there is no reference to the number of hours worked per week. Labor Code Section 1400(h). As a result, it generally is recommended that part-time employees be

14 of 20 pa-1357113

included in computing whether the 75 employee minimum at a "covered establishment" is met. The net effect thus is that it is likely that more employees will be covered by the California statute 's notice requirements for companies with multiple facilities in California.

If the employer takes action which triggers the notice requirements, the employer must provide such notice to its affected employees, the EDD, the local workforce investment board and the top elected official in each city and county in which the termination, mass layoff or relocation takes place. The law does not actually set forth the elements required for the notice, but instead indicates only that the employer “shall include in its notice the elements required by the federal Worker Adjustment and Retraining Notification Act.”

Failure to give the proper notice under this law can also result in a civil penalty of up to $500, imposed on the employer for each day it is in violation of the act.3 Moreover, an affected employee may bring a civil action for a violation of this act and may recover damages including back pay and the value of benefits the employee was entitled to receive, including the cost of any medical expenses incurred by the employee that would have been covered under the employee’s benefit plan, for a period not to exceed 60 days. A prevailing employee in a civil action may also be awarded reasonable attorneys’ fees.

IV. NEW YORK MINI-WARN ACT (N.Y. LABOR LAW SEC. 860 ET SEQ.)

New York passed its own mini-WARN Act in August 2008, which became effective on February 1, 2009. New York’s law differs from the federal WARN and many other state law mini-WARN Acts in some significant ways.

Like its federal and other state counterparts, N.Y. WARN attempts to provide some protection to employees and their communities by requiring notice be given to employees, their representatives and government agencies. However, the law is often unclear about when notice is required.

N.Y. WARN4 requires businesses5 with at least 50 employees (excluding part-time employees6) or 50 or more employees who work in the aggregate at least 2000 hours per week to provide

3 The employer will not be subjected to this civil penalty if, within three weeks of the mass layoff, relocation or termination, it pays all affected employees for the damages incurred as a result of its failure to warn, including backpay, the value of benefits lost and any medical expenses incurred that would have been covered by the employees’ medical benefits. 4 N.Y. Lab. Law §§ 860 to 860-I. 5 NY WARN does not apply to “Federal or state government or any of their political subdivisions, including any unit of local government or any school district.” N.Y. Lab. Law § 860-a(3).

15 of 20 pa-1357113

written notice 90 calendar days (as opposed to 60 under the federal or California WARN Acts) before taking any of the following actions: (1) a “mass layoff,” (2) a “relocation” or (3) an “employment loss.” By comparison, The federal WARN notice requirements are triggered by mass layoffs and plant closings and California WARN notice requirements are triggered by mass layoff, relocation or termination.7

Although N.Y. WARN likely intends employers to provide notice in the event of a plant closing, plant closing is not explicitly listed as notice-triggering event notice in § 860-b(2). However, a plant closing could be considered an “employment loss” which requires notice under N.Y. WARN. It seems likely that “plant closing” and not “employment loss” was intended to be one of the triggers, although this remains to be clarified.

1. What Qualifies as a “Mass Layoff,” “Relocation,” an “Employment Loss” and a “Plant Closing” under N.Y. WARN?

“Mass layoff” is defined as a reduction in force that is not the result of a plant closing and results in an employment loss at a single site of employment during any 30-day period for: (i) at least 33% of full-time employees and at least 25 full-time employees; or (ii) at least 250 full-time employees.

“Relocation” is defined as the removal of all or substantially all of the industrial or commercial operations of an employer to a different location 50 or more miles away.

“Employment loss” is defined as (a) an employment termination (excluding termination for cause, voluntary departure, or retirement); (b) a mass layoff of more than 6 months; or (c) a more than 50% reduction in work hours during each month of a consecutive 6-month period.

“Plant closing” is defined as the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss of at least 25 full-time employees within any 30-day period.

2. Employment Loss: Similarities to Federal and California WARN

The concept of “employment loss” not only appears inappropriate as a trigger, but its definition is confusing, referring internally to mass layoffs, which in turn are defined with reference to employment loss. It is more likely that the drafters intended to mimic the definition found in federal regulations which include a “layoff exceeding 6 months.”8 In addition, literal interpretation of the definition of “employment loss” would require employers to provide notice if only one employee was terminated. As a result, the implementing regulations just issued in 6 A “part-time employee” is one who is employed for an average of less than 20 hours per week or one who has been employed for less than 6 of the 12 months preceding the date on which notice is required. NY. Lab. Law § 860-a. 7 29 USC § 2102(a); Cal. Lab. Code § 1401. California defines “termination” for the purpose of California WARN as “the cessation of all or substantially all of the industrial or commercial operations in a covered establishment.” Cal. Lab. Code § 1400(g). 8 20 C.F.R. § 639.3(f).

16 of 20 pa-1357113

New York this August make clear that what is at issue is not this single employee termination, but instead the law is only triggered in the vent of a “mass layoff, plant closing, relocation, or a covered reduction in work hours…” See New York Regulations Sec. 921-2.1(a).

Further, N.Y. WARN states that a mass layoff period of fewer than six months that is extended to more than 6 months is an “employment loss” unless caused by business circumstances not reasonably foreseeable. The federal WARN has a similar provision for layoffs extended to more than 6 months. Both require that notice be given when it becomes reasonably foreseeable that an extension is possible and both specify that no “employment loss” has occurred where, before a plant closing or mass layoff due to relocation or consolidation of part or all of the employer’s business, the employer offers to transfer the employee to a different site within a reasonable commuting distance with no more than a 6-month break in employment. The recently-issued New York Regulations make clear that what was intended was to same approach as federal WARN and provide that layoffs (not mass layoffs) of less than 6 months extended to more than 6 months are an employment loss. See New York Regulations Sec. 921-6.1-6.4. In any event, California takes a different approach. Rather than defining “employment loss” or what is not an employment loss, California WARN builds the definition into the definitions for “layoff” and “mass layoff;” no exception is provided for unforeseeable circumstances.

As under the federal WARN, two or more employment losses occurring within a 90-day period will be counted as one event unless the employer can prove that they are the result of separate and distinct actions and causes and not an attempt to evade N.Y. WARN requirements.9 Therefore, an employer conducting a layoff that is not large enough to trigger N.Y. WARN should nonetheless comply with the Act’s notification requirement if the company contemplates enough additional layoffs will occur within the 90-day timeframe sufficient to bring the total within the scope of N.Y. WARN.

3. Relocations

The relocation concept in N.Y. WARN is significant. Relocation is not a trigger under The federal WARN. California WARN requires notice for relocation, but the relocation must be to a location 100 or more miles from the site as opposed to 50 or more under N.Y. WARN.

4. Exceptions to Notice Requirements

Under N.Y. WARN, notice is not required if a mass layoff, relocation or employment loss is necessitated by a physical calamity or an act of terrorism or war. While there is no such exemption in the federal WARN, California WARN provides a notice exemption for physical calamity and acts of war.10

9 California again takes a different approach. California WARN makes no mention of a period for consideration, simply requiring notice to be provided in the following cases: (a) mass layoffs of 50 or more employees at an establishment with at least 75 employees or (b) a termination where all or substantially all of the commercial operations at the site are shut down. Cal. Lab. Code § 1400. 10 Cal. Lab. Code § 1401(c).

17 of 20 pa-1357113

Similar to the federal WARN, N.Y. WARN exempts employers from providing notice for plant closings11 where: (1) when required, the employer was actively seeking capital or business and if obtained would have enabled the postponement or avoidance of the plant closing and the employer believed notice would have precluded it from obtaining the capital or business; (2) need for notice was not reasonably foreseeable when it was required; or (3) the closing is the result of a natural disaster.12 Additionally, N.Y. WARN provides exceptions where the plant was a temporary facility and the project was completed and the employees were hired with the understanding that their employment was limited to that project; or the closing or mass layoff constitutes a strike or lockout not intended to evade N.Y. WARN requirements.13 If unable to provide 90 days of notice, the employer must give notice as soon as practicable and the notice must include a brief statement of the basis for reducing the notification period.

5. Notice

Unlike the federal WARN notice requirement, which allows notification of the employees’ representatives instead of affected employees, N.Y. WARN requires employers provide written notice both to affected employees and their representatives as well as the New York State Department of Labor and the local workforce investment boards. The federal WARN requirements on notice content are incorporated into both N.Y. WARN and California WARN by reference. Employers may provide notice by mailing it to the employee’s last known address by either first class mail or certified mail or including it in an employee’s paycheck. Neither California WARN nor The federal WARN offer examples of sufficient methods of notice communication, although regulations issued pursuant to The federal WARN allow that first class mail, personal delivery with optional signed receipt and notice insert in pay envelopes (for affected employees) are all viable options.14

6. Penalties

Penalties imposed under N.Y. WARN are similar to those available under the federal WARN and California WARN. If an employer fails to provide proper notice, affected employees may bring a civil suit for violation of N.Y. WARN and may recover backpay and the value of benefits for the period for which notice was not given, up to a maximum of 60 days or half the number of days that the employee was employed by the employer, whichever period is smaller. Payments for violations under all three WARN Acts are not to be considered remuneration and may not result in denial or reduction of any unemployment benefit. A prevailing employee in a civil action may also be awarded reasonable attorneys’ fees.

As under the federal WARN and California WARN, an employer also may be subject to a civil penalty of up to $500 for each day of a violation unless the employer pays the amounts for which it is liable within 3 weeks of the date the employer orders the mass layoff, relocation or employment loss. Total penalties under N.Y. WARN, however, are capped at the level the

11 NY WARN only lists these as exceptions for plant closings although at least one of the exceptions – the one for strikes and lockouts – is also intended to apply to mass layoffs. NY Lab. Law § 860-c(1). 12 N.Y. Lab. Law § 860-c. California WARN only provides the first of these exceptions. See Cal. Lab. Code § 1402.5(A). Exceptions 1 and 2 also apply under Federal WARN. See 29 USC § 2102(b). 13 N.Y. Lab Law § 860-c. 14 29 C.F.R. § 639.8.

18 of 20 pa-1357113

federal penalties would reach for the same violation. The Commissioner can reduce the violation if the employer’s action or omission was made in good faith and is instructed to consider the employer’s size; hardship imposed on employees by violations; employer’s efforts to mitigate; and the reasons employer believed failure to notice was not a violation.

Neither the Commissioner nor any court is authorized under N.Y. WARN to enjoin a plant closing, relocation or mass layoff.

N.Y. WARN provides additional offsets to liability, not available in either The federal or California WARN. Employer liability can be reduced by the following:

any wages, except vacation pay accrued before the employer’s violation, paid to the employee during the period of violation;

any voluntary and unconditional payments not made to satisfy any legal obligation made by the employer;

any payments by the employer to a third party trustee such as premiums to benefit or pension plans on behalf of the employee for the violation period;

any liability paid by the employer under any applicable The federal law governing notification of mass layoffs, plant closings or relocations;

in an administrative proceeding by the Commissioner, any liability paid by the employer as the result of a private action under this article prior to the commissioner’s decision; and

in any private action under this article, any liability paid by the employer in an administrative proceeding by the commissioner prior to adjudication of the private action.

Employers concerned about having affected employees work during the 90-day notice period due to concerns about workplace morale or the potential for misconduct by disgruntled employees, may want to consider providing pay in lieu of notice.

V. Side-by-Side Comparison of Federal, California and New York WARN Laws

The chart below summarizes key aspects of the WARN Acts for how the N.Y., California and The federal WARN Acts compares to each other.

Federal WARN California WARN N.Y. WARN

Required Notice Period

60 days 60 days 90 days

Minimum Number of Employees to Apply

100 full-time 75 50 full-time

19 of 20 pa-1357113

Minimum Number of Employees for Mass Layoff Notice

50 full-time, if 33% of workforce at a single site

or

500

50 regardless of site size

25 full-time, if 33% of workforce at a single site

or

250

Minimum Number of Employees for Plant Closing Notice

50 during any 30-day period

No minimum number

25 during any 30-day period

Notification for Relocation

No Yes, if the site is 100 or more miles away

Yes, if the site is 50 or more miles away

Parties to Notify employee representative or (if unrepresented) the affected employees

state or entity designated by the state to carry out rapid response under the WARN Act

chief elected official of the unit of local government where closing or layoff occurs

affected employees

Employment Development Department

local workforce investment boards

chief elected official of each city and county government within which the termination, relocation or mass layoff occurs

affected employees and their representatives

New York Department of Labor

local workforce investment boards

VI. Summary Recommendations

In brief summary, the longer notification period mandated by some new state laws, and particularly the N.Y. WARN Act, emphasizes the importance of planning workforce reductions. As with any reduction in force, management and human resources should take into consideration these and other laws, including the Older Worker Benefit Protection Act (“OWBPA”), the

20 of 20 pa-1357113

Employee Retirement Income Security Act of 1974 (“ERISA”), the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and any other states’ Mini-WARN Acts that may apply. Without doing so, otherwise carefully planned layoffs and reductions-in-force may face increasing legal liabilities for violation of any or all of these many legal requirements.

The U.S. Equal Employment Opportunity Commission

UNDERSTANDING WAIVERS OF DISCRIMINATION CLAIMSIN EMPLOYEE SEVERANCE AGREEMENTS

Table of Contents

I. INTRODUCTION

II. SEVERANCE AGREEMENTS AND RELEASE OF CLAIMS

III. VALIDITY OF WAIVERS – IN GENERAL

IV. WAIVERS OF ADEA CLAIMS

V. CONCLUSION

APPENDIX A

APPENDIX B

INTRODUCTIONI.

Employee reductions and terminations have been an unfortunate result of the current economicdownturn. Even in good economic times, however, businesses of every size carefully assess theiroperational structures and may sometimes decide to reduce their workforce. Often, employersterminate older employees who are eligible for retirement, or nearly so, because they generally havebeen with the company the longest and are paid the highest salaries. Other employers evaluateindividual employees on criteria such as performance or experience, or decide to lay off all employeesin a particular position, division, or department.[1] An employer’s decision to terminate or lay offcertain employees, while retaining others, may lead discharged workers to believe that they werediscriminated against based on their age, race, sex, national origin, religion, or disability.

To minimize the risk of potential litigation, many employers offer departing employees money orbenefits in exchange for a release (or “waiver”) of liability for all claims connected with theemployment relationship, including discrimination claims under the civil rights laws enforced by theEqual Employment Opportunity Commission (EEOC) -- the Age Discrimination in Employment Act(ADEA), Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA).[2] While it iscommon for senior-level executives to negotiate severance provisions when initially hired, otheremployees typically are offered severance agreements and asked to sign a waiver at the time oftermination. When presented with a severance agreement, many employees wonder: Is this legal?Should I sign it?

This document answers questions that you may have if you are offered a severance agreement inexchange for a waiver of your actual or potential discrimination claims. Part II provides basicinformation about severance agreements; Part III explains when a waiver is valid; and Part IVspecifically addresses waivers of age discrimination claims that must comply with provisions of theOlder Workers Benefit Protection Act (OWBPA). Finally, this document includes a checklist with tipson what you should do before signing a waiver in a severance agreement and a sample of anagreement offered to a group of employees giving them the opportunity to resign in exchange forseverance benefits.

SEVERANCE AGREEMENTS AND RELEASE OF CLAIMSII.

A severance agreement is a contract, or legal agreement, between an employer and an employee that

Understanding Waivers Of Discrimination Claims In Employee Severanc... http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html

1 of 13 8/31/2009 9:44 AM

specifies the terms of an employment termination, such as a layoff. Sometimes this agreement iscalled a “separation” or “termination” agreement or “separation agreement general release andcovenant not to sue.”[3] Like any contract, a severance agreement must be supported by“consideration.” Consideration is something of value to which a person is not already entitled that isgiven in exchange for an agreement to do, or refrain from doing, something.

The consideration offered for the waiver of the right to sue cannot simply be a pension benefit orpayment for earned vacation or sick leave to which the employee is already entitled but, rather, mustbe something of value in addition to any of the employee’s existing entitlements. An example ofconsideration would be a lump sum payment of a percentage of the employee’s annual salary orperiodic payments of the employee’s salary for a specified period of time after termination. Theemployee’s signature and retention of the consideration generally indicates acceptance of the terms ofthe agreement.

What does a severance agreement look like?1.

A severance agreement often is written like a contract or letter and generally includes a list ofnumbered paragraphs setting forth specific terms regarding the date of termination, severancepayments, benefits, references, return of company property, and release of claims against theemployer. If your employer decides to terminate you, it may give you a severance agreementsimilar to the one that follows:

Example 1: This letter sets forth our agreement with respect to all matters thatpertain to your employment and separation from employment by [yourorganization] (“the Company”).

Termination of Employment. You will cease to be employed by the Companyon X date.

1.

Severance Payments. The Company agrees to pay you X weeks of severancepay. The severance pay will be in addition to the payment of unused accruedvacation pay to which you are entitled. You may elect to receive thisseverance pay in the form of a lump sum payment, or spread it over anumber of weeks, less applicable deductions for taxes.

2.

***

General Release. You agree that the consideration set forth above, which is inaddition to anything of value to which you are or might otherwise be entitled,shall constitute a complete and final settlement of any and all causes ofactions or claims you have had, now have or may have up to the date of thisagreement including, without limitation, those arising out of or in connectionwith your employment and/or termination by the Company pursuant to anyfederal, state, or local employment laws, statutes, public policies, orders orregulations, including without limitation, the Age Discrimination inEmployment Act, Title VII of the Civil Rights Act, the Americans withDisabilities Act, and [certain state] laws.

7.

Agreements that specifically cover the release of age claims will also include additionalinformation intended to comply with OWBPA requirements. See Part IV.A, Question and Answer6.

Example 2: This agreement is intended to comply with the Older Workers BenefitProtection Act. You acknowledge and agree that you specifically are waiving rightsand claims under the Age Discrimination in Employment Act.

VALIDITY OF WAIVERS – IN GENERALIII.

Most employees who sign waivers in severance agreements never attempt to challenge them. Somedischarged employees, however, may feel that they have no choice but to sign the waiver, eventhough they suspect discrimination, or they may learn something after signing the waiver that leadsthem to believe they were discriminated against during employment or wrongfully terminated.


2 of 13 8/31/2009 9:44 AM

If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer willargue that the court should dismiss the case because the employee waived the right to sue, and theemployee will respond that the waiver should not bind her because it is legally invalid. Beforelooking at the employee’s discrimination claim, a court first will decide whether the waiver is valid. Ifa court concludes that the waiver is invalid, it will decide the employee’s discrimination claim, but itwill dismiss the claim if it finds that the waiver is valid.

A waiver in a severance agreement generally is valid when an employee knowingly and voluntarilyconsents to the waiver. The rules regarding whether a waiver is knowing and voluntary depend on thestatute under which suit has been, or may be, brought. The rules for waivers under the AgeDiscrimination in Employment Act are defined by statute – the Older Workers Benefit Protection Act(OWBPA).[4] Under other laws, such as Title VII, the rules are derived from case law. In addition tobeing knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort ofconsideration, such as additional compensation, in exchange for the employee’s waiver of the right tosue; (2) not require the employee to waive future rights; and (3) comply with applicable state andfederal laws.[5]

What determines whether a waiver of rights under Title VII, the ADA, or the EPA was “knowingand voluntary”?

2.

To determine whether an employee knowingly and voluntarily waived his discrimination claims,some courts rely on traditional contract principles and focus primarily on whether the languagein the waiver is clear.[6] Most courts, however, look beyond the contract language and considerall relevant factors – or the totality of the circumstances -- to determine whether the employeeknowingly and voluntarily waived the right to sue. [7] These courts consider the followingcircumstances and conditions under which the waiver was signed:

whether it was written in a manner that was clear and specific enough for the employee tounderstand based on his education and business experience;

whether it was induced by fraud, duress, undue influence, or other improper conduct bythe employer;

whether the employee had enough time to read and think about the advantages anddisadvantages of the agreement before signing it;

whether the employee consulted with an attorney or was encouraged or discouraged bythe employer from doing so;[8]

whether the employee had any input in negotiating the terms of the agreement; and

whether the employer offered the employee consideration (e.g., severance pay, additionalbenefits) that exceeded what the employee already was entitled to by law or contract andthe employee accepted the offered consideration.

Example 3: An employee who was laid off from her position at anautomobile assembly plant agreed to release her employer from all claims inexchange for a $100,000 severance payment. After signing the waiver andcashing the check, she filed a lawsuit alleging that she was harassed anddiscriminated against by her coworkers during her employment. A courtfound that the employee’s waiver was knowing and voluntary by looking atthe totality of circumstances surrounding its execution: the employeegraduated from college and completed paralegal classes that included acourse in contracts; she had no difficulty reading; the agreement was clearand unambiguous; she had ample time to consider whether to sign it; shewas represented by counsel; the cash payment provided by the employer wasfair consideration; and she did not offer to return the payment she receivedfor signing the waiver.[9]

Example 4: An employee was informed that his company was downsizingand that he had 30 days to elect voluntary or involuntary separation. Theemployee chose voluntary separation in exchange for severance pay andadditional retirement benefits and signed a waiver, which stated: “I . . .


3 of 13 8/31/2009 9:44 AM

hereby release and discharge [my employer] from any and all claims which Ihave or might have, arising out of or related to my employment orresignation or termination.” The employee later filed suit alleging that hewas terminated based on his race and national origin.

In finding that the employee’s waiver was not knowing and voluntary, a courtnoted that although the language of the agreement was “clear andunambiguous,” it failed to specifically mention the release of employmentdiscrimination claims. Because the employee was only high school educatedand unfamiliar with the law, his argument that he believed he only wasreleasing claims arising from his voluntary termination and the benefitspackage he accepted was “not an unreasonable conclusion.”[10]

May I still file a charge with the EEOC if I believe that I have been discriminated against based onmy age, race, sex, or disability, even if I signed a waiver releasing my employer from all claims?

3.

Yes. Although your severance agreement may use broad language to describe the claims thatyou are releasing (see Example 1), you can still file a charge with the EEOC if you believe youwere discriminated against during employment or wrongfully terminated.[11] In addition, noagreement between you and your employer can limit your right to testify, assist, or participatein an investigation, hearing, or proceeding conducted by the EEOC under the ADEA, Title VII,the ADA, or the EPA. Any provision in a waiver that attempts to waive these rights is invalidand unenforceable.[12]

If I file a charge with the EEOC after signing a waiver, will I have to return my severance pay?4.

No. Because provisions in severance agreements that attempt to prevent employees from filinga charge with the EEOC or participating in an EEOC investigation, hearing, or proceeding areunenforceable (see Question and Answer 3 above), you cannot be required to return yourseverance pay --or other consideration --before filing a charge.[13]

Will I have to return my severance pay if I file a discrimination suit in court after signing a waiver?5.

Under the ADEA, an employee is not required to return severance pay -- or other considerationreceived for signing the waiver -- before bringing an age discrimination claim.[14] Under TitleVII, the ADA, or the EPA, however, the law is less clear. Some courts conclude that the validityof the waiver cannot be challenged unless the employee returns the consideration, while othercourts apply the ADEA’s “no tender back” rule to claims brought under Title VII and otherdiscrimination statutes and allow employees to proceed with their claims without first returningthe consideration.[15]

Even if a court does not require you to return the consideration before proceeding with yourlawsuit, it may reduce the amount of any money you are awarded if your suit is successful bythe amount of consideration you received for signing the waiver. See Part IV.A. Question andAnswer 9.

WAIVERS OF ADEA CLAIMSIV.

General Requirements for Employees Age 40 and OverA.

In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act(OWBPA) to clarify the prohibitions against discrimination on the basis of age. OWBPAestablishes specific requirements for a “knowing and voluntary” release of ADEA claims toguarantee that an employee has every opportunity to make an informed choice whether or not tosign the waiver. There are additional disclosure requirements under the statute when waiversare requested from a group or class of employees. See “Additional Requirements for GroupLayoffs of Employees Age 40 and Over” at IV. B.

What makes a waiver of age claims knowing and voluntary?6.


4 of 13 8/31/2009 9:44 AM

OWBPA lists seven factors that must be satisfied for a waiver of age discrimination claims to beconsidered “knowing and voluntary.”[16] At a minimum:

A waiver must be written in a manner that can be clearly understood. EEOCregulations emphasize that waivers must be drafted in plain language geared to the levelof comprehension and education of the average individual(s) eligible to participate.Usually this requires the elimination of technical jargon and long, complex sentences. Inaddition, the waiver must not have the effect of misleading, misinforming, or failing toinform participants and must present any advantages or disadvantages without eitherexaggerating the benefits or minimizing the limitations.

Example 5: An employee, who had worked for his company for 28 years,was selected for an involuntary RIF and asked to sign a "General Release andCovenant Not to Sue” (severance agreement) in exchange for money. Theseverance agreement provided, among other things, that the employee“released” his employer “from all claims . . . of whatever kind,” includingclaims under the ADEA and any other federal, state, or local law dealing withdiscrimination in employment. The severance agreement also referenced“covenants not to sue” and stated that “[t]his covenant not to sue does notapply to actions based solely under the [ADEA].” After reading the severanceagreement, the employee asked his supervisor if the exception for ADEAclaims contained in the covenant not to sue meant he could sue the employerif his suit was limited to claims under the ADEA. His supervisor contacted theemployer’s legal department and then sent the employee an e-mail stating,"Regarding your question on the General Release and Covenant Not to Sue,the wording is as intended. . . . . The site attorney was not comfortableproviding an interpretation for you and suggested you consult with your ownattorney."

The employee signed the agreement, collected severance benefits, and thensued his employer for age discrimination under the ADEA. A court held thatthe severance agreement was not enforceable because it was not written in amanner calculated to be understood. [17]

A waiver must specifically refer to rights or claims arising under the ADEA. EEOC regulations specifically state that an OWBPA waiver must expressly spell out the AgeDiscrimination in Employment Act (ADEA) by name.

A waiver must advise the employee in writing to consult an attorney beforeaccepting the agreement.

Example 6: A release stating: “I have had reasonable and sufficient timeand opportunity to consult with an independent legal representative of myown choosing before signing this Complete Release of All Claims,” did notcomply with OWBPA’s requirement that an individual be advised to consultwith an attorney. Although the voluntary early retirement agreement advisedemployees to consult financial and tax advisors, to seek advice from localpersonnel representatives, and to attend retirement seminars, it said nothingabout seeking independent legal advice prior to making the election to retireand accepting the agreement.[18]

A waiver must provide the employee with at least 21 days to consider the offer. The regulations clarify that the 21-day consideration period runs from the date of theemployer’s final offer. If material changes to the final offer are made, the 21-day periodstarts over.[19]

A waiver must give an employee seven days to revoke his or her signature. Theseven-day revocation period cannot be changed or waived by either party for any reason.

A waiver must not include rights and claims that may arise after the date onwhich the waiver is executed. This provision bars waiving rights regarding new actsof discrimination that occur after the date of signing, such as a claim that an employerretaliated against a former employee who filed a charge with the EEOC by giving an


5 of 13 8/31/2009 9:44 AM

unfavorable reference to a prospective employer.

Example 7: An employee who received enhanced severance benefits inexchange for waiving her right to challenge her layoff later filed suit. Infinding the waiver valid, the court noted that because the waiver clearlystated that she was releasing any claims that she “may now have or havehad,” it did not require her to waive future claims hat may arise after thewaiver was signed.[20]

A waiver must be supported by consideration in addition to that to which theemployee already is entitled.

If a waiver of age claims fails to meet any of these seven requirements, it is invalid andunenforceable.[21] In addition, an employer cannot attempt to “cure” a defective waiver byissuing a subsequent letter containing OWBPA-required information that was omitted from theoriginal agreement.[22]

Are there other factors that may make a waiver of age claims invalid?7.

Yes. Even when a waiver complies with OWBPA’s requirements (see Question and Answer 6above), a waiver of age claims, like waivers of Title VII and other discrimination claims, will beinvalid and unenforceable if an employer used fraud, undue influence, or other improperconduct to coerce the employee to sign it, or if it contains a material mistake, omission, ormisstatement.

Example 8: An employee who was told that his termination resulted from“reorganization” signed a waiver in exchange for severance pay. After a youngerperson was hired to do his former job, he filed a lawsuit alleging agediscrimination. The company then changed its position and claimed that the realreason for the employee’s discharge was his poor performance. The employeeargued that his waiver was invalid due to fraud and that if he had known that hewas being terminated because of alleged poor performance, he would havesuspected age discrimination and would not have signed the waiver. The court heldthat fraud was a sufficient reason for finding the waiver invalid.[23]

Example 9: An employee was terminated and given ten weeks of severance pay inexchange for signing an agreement waiving all of her potential discriminationclaims. She later filed a lawsuit alleging that she was continuously passed over forpromotion based on her age and sex throughout her employment. In response tothe employer’s attempt to dismiss her suit, she alleged that the waiver was anultimatum which effectively gave her no choice since she was her grandchildren’sguardian and her family’s source of income. The court held that the employee’sfinancial problems and prospective loss of her job did not constitute “duress” forthe purpose of invalidating a waiver.[24]

If I am 40 years old or older, am I entitled to more severance pay or benefits than a youngeremployee?

8.

No. Although severance packages often are structured differently for different employeesdepending on position and tenure, an employer is not required to give you a greater amount ofconsideration than is given to a person under the age of 40 solely because you are protected bythe ADEA.[25]

Are there any circumstances where I may have to pay my employer back the money it gave mefor the waiver of my age claims?

9.

Yes. Your employer may offset money it paid you in exchange for waiving your rights if yousuccessfully challenge the waiver, prove age discrimination, and obtain a monetary award. However, your employer’s recovery may not exceed the amount it paid for the waiver or theamount of your award if it is less.[26]


6 of 13 8/31/2009 9:44 AM

Example 10: Your employer paid you $15,000 in exchange for a waiver of yourage discrimination claim. You sue and convince a court that your waiver was not“knowing and voluntary” under OWBPA and that you are entitled to $10,000 in backpay and liquidated damages based on age discrimination. A court could reduceyour award to zero because $10,000 is less than the $15,000 the employer alreadypaid you for the waiver.

Example 11: Same as Example 10, except that you are awarded $30,000 basedon age discrimination. A court could not reduce your award by more than $15,000,the amount you received in exchange for the waiver. This means that you wouldstill get $30,000 – the $15,000 your employer paid you for your waiver and anadditional $15,000 awarded by the court.

If I challenge an age discrimination waiver in court, may my employer renege on promises it madein the agreement?

10.

No. EEOC regulations state that an employer cannot “abrogate,” or avoid, its duties under anADEA waiver even if you challenge it. Because you have a right under OWBPA to have a courtdetermine a waiver’s validity, it is unlawful for your employer to stop making promisedseverance payments or to withhold any other benefits it agreed to provide.[27]

Example 12: A company eliminated almost all of its direct sales positions andoffered terminated employees six months of severance benefits in exchange forsigning a waiver. In response to the employees’ suit alleging age discrimination,the company indicated that it was suspending any further severance payments andwas discontinuing other benefits provided under the waiver agreement. A courtheld that the company could not cut off severance payments or demand repaymentof benefits because the employees filed suit challenging the validity of thewaiver.[28]

Additional Requirements for Group Layoffs of Employees Age 40 and OverB.

When employers decide to reduce their workforce by laying off or terminating a group ofemployees, they usually do so pursuant to two types of programs: “exit incentive programs” and“other employment termination programs.” When a waiver is offered to employees inconnection with one of these types of programs, an employer must provide enough informationabout the factors it used in making selections to allow employees who were laid off to determinewhether older employees were terminated while younger ones were retained.

What is an “exit incentive” or “other termination” program?11.

Typically, an “exit incentive program” is a voluntary program where an employer offers two ormore employees, such as older employees or those in specific organizational units or jobfunctions, additional consideration to persuade them to voluntarily resign and sign a waiver. An“other employment termination program” generally refers to a program where two or moreemployees are involuntarily terminated and are offered additional consideration in return fortheir decision to sign a waiver.[29]

Example 13: A bank must eliminate 20% of its 200 teller positions in a particulargeographic location and decides to retain only those employees who most recentlyreceived the highest performance ratings. The bank sends a letter to 50 tellers whowere rated “needs improvement” offering them six months pay if they voluntarilyagree to resign and sign a waiver. This is an “exit incentive program.”

Example 14: Same facts as in Example 13, but only 30 tellers voluntarily resign.The bank involuntarily lays off 10 tellers with severance pay in exchange for theirwaiver of age claims. This is an “other termination program.”

Whether a “program” exists depends on the facts and circumstances of each case; however, thegeneral rule is that a “program” exists if an employer offers additional consideration – or, anincentive to leave – in exchange for signing a waiver to more than one employee.[30] Bycontrast, if a large employer terminated five employees in different units for cause (e.g., poor


7 of 13 8/31/2009 9:44 AM

performance) over the course of several days or months, it is unlikely that a “program” exists. In both exit incentive and other termination programs, the employer determines the terms of theseverance agreement, which typically are non-negotiable. [31]

If I am in a group of employees who are being laid off and asked to sign a waiver, whatinformation does my employer have to give to me?

12.

Your waiver must meet the minimum OWBPA "knowing and voluntary" requirements (seeQuestion and Answer 6 above). In addition, your employer must give you - and all otheremployees who are being laid off with you - written notice of your layoff and at least 45 days toconsider the waiver before signing it. Specifically, the employer must inform you in writing of:

the "decisional unit" -- the class , unit, or group of employees from which theemployer chose the employees who were and who were not selected for the program

Example 15: If an employer decides it must eliminate 10 percent ofits workforce at a particular facility, then the entire facility is thedecisional unit, and the employer has to disclose the titles and ages ofall employees at the facility who were and who were not selected forthe layoff. If, however, the employer must eliminate 15 jobs and onlyconsiders employees in its accounting department (and notbookkeeping or sales) , then the accounting department is thedecisional unit, and the employer has to disclose the title and ages ofall employees in the accounting department whose positions were andwere not selected for elimination.

The particular circumstances of each termination program determine whether the decisional unitis the entire company, a division, a department, employees reporting to a particular manager, orworkers in a specific job classification.

eligibility factors for the program;[32]

the time limits applicable to the program;

the job titles and ages of all individuals who are eligible or who were selected forthe program (the use of age bands broader than one year, such as "age 40-50" does notsatisfy this requirement) and the ages of all individuals in the same jobclassifications or organizational unit who are not eligible or who were notselected.

See Appendix B for an example of an agreement issued to employees being laid off orterminated pursuant to a group exit incentive program.

CONCLUSIONV.

If your employer decides to terminate your job, you may be given a severance agreement that requiresyou to waive your right to sue for wrongful termination based on age, race, sex, disability, and othertypes of discrimination. Although most signed waivers are enforceable if they meet certain contractprinciples and statutory requirements, an employer cannot lawfully limit your right to testify, assist,or participate in an investigation, hearing, or proceeding conducted by the EEOC or prevent you fromfiling a charge of discrimination with the agency. An employer also cannot lawfully require you toreturn the money or benefits it gave you in exchange for waving your rights if you do file a charge. While this document is not intended to cover all of the issues that arise when your employer informsyou that you are being terminated or laid off, the following checklist may help you decide whether ornot to sign a waiver.

APPENDIX A

Employee Checklist: What to Do When Your Employer Offers You aSeverance Agreement:

Make sure that you understand the agreement


8 of 13 8/31/2009 9:44 AM

Read the agreement to see if it is clear and specific, or if it is confusing because it containsterms you do not understand.

If you are 40 or older, inform your employer that the law requires your agreement to be writtenin a manner that makes it easy to understand. Usually this means that your agreement shouldnot contain technical jargon or long, complex sentences.

Check for deadlines and act promptly

The moment you are given a severance agreement, check to see if your employer gave you adeadline for accepting, or declining, the agreement. If you are 40 years old or older, federal lawrequires the employer to give you at least 21 days to review the agreement and make up yourmind.

If your employer has not given you a reasonable amount of time, or rushes your decision, this isa red flag. An employer who is fair will understand that you cannot review or make decisionsabout an important document on a moment’s notice.

If you are being rushed, ask for more time. Put your request in writing. If you are 40 or olderand your employer is asking you for a decision in fewer than 21 days, remind the employer thatthe law requires you to be provided at least 21 days. (If you and at least one other person arebeing laid off in a reduction in force (RIF) at the same time, you must be given 45 days toconsider the agreement.)

Consider having an attorney review the severance agreement

Even if you are parting amicably with your employer, you may want to ask for advice aboutwhether you should sign it, whether the terms are reasonable, and whether you should ask youremployer to change any of the terms.

If you decide that you want an attorney to review the agreement, promptly make anappointment. Do not wait until the last day before the deadline to review the severanceagreement.

If you are at least 40 years old, the agreement must advise you to consult with an attorney.

Make sure you understand what you are giving up in exchange for severance pay orbenefits

The main benefit to signing an agreement is that you will receive a cash payment or benefits inexchange for signing away your right to bring certain legal claims against your employer.

Make sure that the agreement offers you something of value to which you are not alreadyentitled.

If you think you have been wrongfully terminated because of age, race, sex, religion, or someother discriminatory reason, you may want to think twice about signing. The benefits of signinga severance agreement should be carefully weighed against claims you might have against youremployer, the likelihood of winning a court case or settlement, and the probable costs.

Review the agreement to ensure that it does not ask you to release nonwaivable rights

Confirm that your employer is not asking you to waive your right to file a charge, testify, assist,or cooperate with the EEOC.

Make certain that the agreement is not asking you to waive rights or claims that may arise afterthe date you sign the waiver.

Make sure that your employer is not asking you to release your claims for unemploymentcompensation benefits, workers compensation benefits, claims under the Fair Labor StandardsAct, health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act(COBRA), or claims with regard to vested benefits under a retirement plan governed by theEmployee Retirement Income Security Act (ERISA).

APPENDIX B

Sample Waiver: Exit Incentive or Other Termination Programs


9 of 13 8/31/2009 9:44 AM

The following example illustrates one way in which the required OWBPA information could bepresented to employees and is not intended to suggest that employers must follow this format.Rather, each waiver agreement should be individualized based on an employer’s particularorganizational structure and the average comprehension and education of the employees in thedecisional unit subject to termination. For another example of how the required informationmight be presented, see 29 C.F.R. § 1625.22(f)(vii).

Dear [Employee]:

This letter, upon your signature, will constitute the agreement between you and [your employer](“theCompany”) on the terms of your separation from the Company (hereinafter the “Agreement”):

Your employment will terminate on X date. or1.

or

You have agreed to resign on X date. Your last day of work will be X date.

You have been paid your earned salary and accrued vacation pay through the effective date of yourtermination.

2.

***

Although you are not otherwise entitled to it, in consideration of your acceptance of this Agreement,the Company will pay you an extra ___ [week’s][month’s] salary at your current rate of $____ per[week][month], less customary payroll deductions to be paid upon the effective date of thisAgreement as defined in paragraph 11 below. You understand and agree that this payment includesextra payments given to you in exchange for your signature and release.

5.

You waive and release any and all claims you have or might have against the Company. . . .Theseclaims include, but are not limited to claims for discrimination arising under federal, state, and localstatutory or common law, such as Title VII of the Civil Rights Act, the Americans with Disabilities Act,the Age Discrimination in Employment Act, and [state law].

6.

***

The following information is required by OWBPA:11.

The class, unit, or group of individuals covered by the program includes all employees in the _____[plant, location, area, etc.] whose employment was terminated in the reduction in force during thefollowing period :_____). All employees in ___[plant, location, area, etc.] are eligible for theprogram.

The time limits applicable to such program are the employees in the ___ [plant, location, area, etc.]who are being offered consideration under a waiver agreement and asked to waive claims under theADEA and were given an opportunity to agree from ___to ___. They must sign the agreement andreturn it to the COMPANY within 45 days after receiving the waiver agreement. Once the signed waiveragreement is returned to the COMPANY, the employee has seven days to revoke the waiver agreement.

The following is a listing of the ages and job titles of employees who were and were not selected forlayoff [or termination] and offered consideration for signing the waiver. Except for those employeesselected for layoff [or termination], no other employee is eligible or offered consideration in exchangefor signing the waiver:

Job Title Age # Selected# Not

Selected

(1) 25 2 4

28 1 7

45 6 2

63 1

(2) 24 3 5


10 of 13 8/31/2009 9:44 AM

29 1 7

ENDNOTES

[1] When employers conduct a reduction in force (RIF), they often do so pursuant to “exit incentiveprograms.” For example, an employer may offer a one-time “buyout” to certain employees (e.g., “all hourlyemployees”) or an “early retirement” program to all employees who are already eligible for immediateretirement benefits to persuade them to voluntarily resign; or, it may carry out an involuntary RIF, where itlays off all employees in a particular position or division. See discussion in Part IV.B.

[2] The ADEA prohibits employment discrimination against persons 40 years of age or older; Title VIIprohibits employment discrimination based on race, color, religion, sex (including pregnancy), and nationalorigin; Title I of the ADA prohibits employment discrimination against an individual on the basis ofdisability; and the EPA prohibits sex-based wage discrimination between men and women in the sameestablishment who are performing under similar working conditions. See http://www.eeoc.gov/abouteeo/overview_laws.html.

[3] This document uses the term “severance agreement” to describe any termination agreement between anemployer and an employee, whether voluntary or involuntary, that requires the employee to waive the rightto sue for discrimination.

[4] Waivers of age claims are governed by OWBPA which provides a minimum set of conditions that have tobe met in order for the agreement to be considered knowing and voluntary. A waiver of an ADEA claim,therefore, is not valid unless it satisfies OWBPA's specific requirements and was not induced by theemployer’s improper conduct. See Part IV.A, Questions and Answers 6 and 7.

[5] State law typically governs questions regarding the proper construction of a severance agreement andthe validity of waivers. For example, under the Minnesota Age Discrimination Act, a release must give theemployee fifteen days after signing the agreement to change his mind and revoke his signature. UnderCalifornia law, a waiver cannot release unknown claims unless the waiver agreement contains certainlanguage specifically providing for such a waiver. Other states may impose additional requirements to obtainan effective waiver of certain state law claims. To determine whether a severance agreement is enforceablein the state in which you work, contact your state labor law department or consult with an attorney for legaladvice.

In addition to waiver issues, workforce reductions or other substantial business changes often triggeradditional legal obligations arising, for example, under the Worker Adjustment and Retraining NotificationAct (WARN), the National Labor Relations Act (NLRA), the Employee Retirement Income Security Act(ERISA), relevant benefit plans, and labor contracts.

[6] See e.g., Morrison v. Circuit City Stores, 317 F.3d 646 (6th Cir. 2003)(“[i]n reviewing whether a waiverof prospective claims was valid, we apply ordinary contract principles”); Warnebold v. Union Pac. R.R., 963F.2d 222 (8th Cir. 1992)(court applied “ordinary contract principles” in determining whether there was aknowing and voluntary waiver of claims).

[7] See e.g., Wastak v. Lehigh Health Network, 342 F.3d 281 (3d Cir. 2003)(courts must inquire into thetotality of circumstances “to determine whether the execution of a waiver was ‘knowing and voluntary’”);Smith v. Amedisys, Inc., 298 F.3d 434 (5th Cir. 2002)(“[i]n determining whether a release was knowingly and voluntarily executed, this court has adopted a ‘totality of the circumstances’ approach”). Even courtsthat apply ordinary contract principles generally consider the circumstances surrounding the execution of therelease, the clarity of the release, and whether the employee was represented by or discouraged fromconsulting an attorney. See e.g., Whitmire v. WAY_FM Group, Inc., 2008 WL 5158186 (M.D. Tenn. Dec. 8,2008)(in holding that a waiver was knowing and voluntary, a court noted that the employee was given atleast 21 days to consider the agreement, asked questions that resulted in a revised agreement, sought advicefrom an attorney but disregarded it and decided to sign the agreement, had seven days after she signed theagreement to revoke it and chose not to do so, and admitted she understood what she was signing).

[8] See e.g., Pilon v. University of Minn., 710 F.2d 466 (8th Cir. 1983)(where the employee was representedby counsel, the release language was clear, and there was no claim of fraud or duress, the release wasupheld). Waivers that are executed by employees who were not advised to seek legal advice are moreclosely scrutinized than agreements entered into by employees after consultation with an attorney.

[9] See Hampton v. Ford Motor Company, 561 F.3d 709 (7th Cir. 2009).


11 of 13 8/31/2009 9:44 AM

[10] See Torrez v. Public Service Company of New Mexico, Inc., 908 F.2d 687 (10th Cir. 1990); but seeCirillo v. Arco Chem. Co., 862 F.2d 448 (3d Cir. 1988)(employee’s waiver was knowing and voluntary wherehe was advised of equal employment laws, encouraged to consult employee relations representative, andrelease specifically mentioned Title VII).

[11] See EEOC’s website for information on “How to File a Charge of Discrimination” athttp://www.eeoc.gov/charge/overview_charge_filing.html.

[12] Agreements that prevent employees from cooperating with the EEOC interfere with enforcementactivities because they deprive the Commission of important testimony and evidence needed to determinewhether discrimination has occurred. EEOC guidance also states that obtaining a promise from an employeenot to file a charge or assist in Commission investigations constitutes unlawful retaliation in violation offederal employment rights statutes. See EEOC Enforcement Guidance on Non-Waivable Employee RightsUnder EEOC Enforced Statutes (April 1997); see also 29 C.F.R. § 1625.22(i)(2).

[13] Although your right to file a charge with the EEOC is protected, you can waive the right to recover fromyour employer either in your own lawsuit, or in any suit brought on your behalf by the Commission. SeeEEOC Enforcement Guidance on Non-Waivable Employee Rights Under EEOC Enforced Statutes.

[14] See Questions and Answers: Final Regulation on “Tender Back” and Related Issues Concerning ADEAWaivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html. Recognizing that older workersoften need their severance payments to live on and may, in fact, already have spent the payments on livingexpenses, EEOC regulations clarify that the contract principles of “tender back” (returning the considerationreceived for the waiver before challenging it in court) and “ratification” (approving or ratifying the waiver byretaining the consideration) do not apply to ADEA waivers. See also Oubre v. Entergy Operations, Inc., 522U.S. 422 (1998) (holding that because the release failed to comply with OWBPA, it could not bar theemployee’s ADEA claim even if the employee retained the monies she received in exchange for the release).

Employers also may not avoid the “no tender back rule” by using other means to limit an employee’s right tochallenge a waiver agreement or by penalizing an employee for challenging a waiver agreement. Forexample, an employer may not require an employee to agree to pay damages to the employer or pay theemployer’s attorney’s fees simply for filing an age suit. Employers, however, are not precluded fromrecovering attorneys’ fees or costs specifically authorized under federal law. 29 C.F.R. § 1625.23(b).

[15] See, e.g., Blackwell v. Cole Taylor Bank, 152 F. 3d 666 (7th Cir. 1998) (noting that employees bringingnon-age claims might still have to “tender back” their consideration) and Hampton v. Ford Motor Co.., 561F.3d 709 ( 7th Cir. 2009)(noting that because no exception to the “tender back” rule exists in this Title VIIcase, employee must return – or least offer to return—the consideration she received before challenging thevalidity of the waiver); but see Rangel v. El Paso Natural Gas Co., (holding that because the primary purposeof the ADEA and Title VII is to make it easier for an employee to challenge discrimination, employeesbringing claims under Title VII should not have to return their severance pay before filing suit).

[16] See EEOC regulations Waiver of Rights and Claims Under the Age Discrimination in Employment Act(ADEA). 29 C.F.R. Part 1625.

[17] See Thormforde v. International Business Machines Corp., 406 F.3d 500 (8th Cir. 1999); see alsoSyverson v. IBM, 472 F. 3d 1072 (9th Cir. 2007) (court adopted the reasoning in Thormforde when findingthe same waiver used under different circumstances invalid).

[18] See American Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111 (1st Cir. 1998) (to “advise” employeesto consult an attorney means affirmatively to “caution,” “warn,” or “recommend”).

[19] An agreement can be signed prior to the 21- (or 45- ) day time period as long as employee’s decision isknowing and voluntary and is not induced by the employer through fraud, misrepresentation, a threat towithdraw or alter the offer prior to the expiration of the 21- or 45-day time period, or by providing differentterms to employees who sign the release prior to the expiration of such time period. 29 C.F.R. 1625.22 (e)(6).

[20] See Budro v. BAE Sys. Info. And Elec. Sys. Integration, Inc., 2008 WL 1774961 (D.N.H. April 16,2008).

[21] Although a waiver that fails to meet OWBPA’s requirements is unenforceable, a number of courts haverefused to permit a suit based solely on an employer’s alleged violation of OWBPA requirements, holdingthat a failure to meet those requirements cannot create a separate cause of action under OWBPA and is not a


12 of 13 8/31/2009 9:44 AM

violation of the ADEA. See e.g., EEOC v. Sara Lee Corp., 883 F. Supp. 211 (N.D. Ill. 1995); Williams v.General Motors Corp., 901 F. Supp. 252 (E.D. Mich. 1995); but see Commonwealth of Massachusetts v. BullHN Information Sys. Inc., 16 F. Supp. 2d 90 (D. Mass. 1998)(holding that an invalid waiver can be anindependent cause of action under the ADEA); in a subsequent proceeding, Commonwealth of Massachusettsv. Bull HN Information Sys. Inc., 143 F. Supp. 2d 134 (D. Mass. 2001), the court clarified that althoughemployees can bring a suit challenging a violation of OWBPA requirements, they cannot recover damagesabsent proof of age discrimination.

[22] See Butcher v. Gerber Products Co., 8 F. Supp. 2d 307 (S.D.N.Y. 1998)(as a matter of law and publicpolicy, an employer is allowed only one chance to conform to the requirements of OWBPA and cannot “cure”a defective release by issuing a letter to employees containing OWBPA-required information that was omittedfrom their separation agreements and request that they either “reaffirm” their acceptance or “revoke” therelease).

[23] See Lauderdale v. Johnston Indus., Inc., 31 Fed. Appx. 940 (11th Cir. 2002).

[24] See Cassiday v. Greenhorne & Omara, Inc., 220 F.Supp. 2d 488 (D. Maryland 2002) (noting that theemployee did not allege that her “employer threatened or otherwise misled or duped her into signing; at alltimes, she remained free to reject the offer and pursue her legal remedies”).

[25] See 29 C.F.R § 1625.22 (d) (4). See also DiBiase v. SmithKline Beecham Corp., 48 F. 3d 719 (3d Cir.1995)(an employer may offer enhanced benefits to all terminated employees who agree to waive all claimsagainst the company, without providing extra consideration to employees protected by the ADEA).

[26] See Questions and Answers: Final Regulation on “Tender Back” and Related Issues Concerning ADEAWaivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html; 29 C.F.R. § 1625.23(c).

[27] See Questions and Answers: Final Regulation on “Tender Back” and Related Issues Concerning ADEAWaivers, available at www.eeoc.gov/policy/regs/tenderback-qanda.html; 29 C.F. R. § 1625.23(d).

[28] See Butcher v. Gerber Products Co., 8 F. Supp. 2d 307 (S.D.N.Y. 1998).

[29] 29 C.F.R. § 1625.22(f) (1) (iii) (A) (2005).

[30] Id.

[31] Id. at § 1625.22(f) (1) (iii) (B).

[32] An example in the regulations describes eligibility as: “All persons in the Construction Division areeligible for the program. All persons who are being terminated in our November RIF are selected for theprogram.” 29 C.F.F. § 1625.22(f)(4)(vii)(B). Some courts, however, interpret the term “eligibility factors” tomean the criteria, such as job performance, experience, or seniority, an employer relied on in deciding whoto terminate. See Pagilio v. Guidant Corp., 483F. Supp. 2d 847 (D. Minn. 2007)(the court held that arelease violated OWBPA by, among other things, failing to identify the general criteria by which employeeswere selected for termination); but see Kruchowski v. Weyerhaeuser Co., 423 F.3d 1139, amended by, 446F.3d 1090 (10th Cir. 2006)(the court invalidated a release of claims because it failed to identify selectioncriteria as “eligibility factors;” however, in a later, revised, opinion, the court omitted eligibility factors asone of the grounds for invalidating the release and held only that the employer violated OWBPA by failing toidentify the decisional unit).

This page was last modified on July 15, 2009.

Return to Home Page


13 of 13 8/31/2009 9:44 AM

© 2008 Fredrikson & Byron, P.A.

Reductions in Forceand Layoff Alternatives:

Minimizing Employer LiabilitySeptember 3, 2009

Strafford Publications, Inc.Karen G. Schanfield

Fredrikson & Byron, P.A.(612) 492-7357

kschanfieldfredlaw.com


2

Potential Legal Challenges• Discrimination claims under state and

federal laws

• Family and Medical Leave Act

• USERRA


3

Potential Legal Challenges• Retaliation Claims

– Discrimination laws: “reasonable factor other than age” and “business necessity”

– FMLA– National Labor Relations Act– State Whistleblower laws– Workers Compensation law– ERISA


4

Potential Legal Challenges

• WARN Act and state counterparts

• Collective Bargaining Agreements

• Individual Contracts and Policies

• Other State Laws


5

Careful Planning is the Key

Identify and articulate:• the business need• the decisional unit• the selection criteria


6

Careful Planning is the Key• Make sure the means and methods are

consistent and logical• Consider alternatives to layoff, including

internal placement• Evaluate adverse impact analysis


7

Careful Planning is the Key

• Prepare releases• Set a timetable• Determine support to be provided• Control the communications


8

Careful Planning is the Key• Communicate need and criteria to

managers• Train managers in selection process and

related concerns


9

The Business Need

• Document the “legitimate non-discriminatory reasons” for the reduction, consistent with other data, and include:– The reason that the reduction is needed– Supporting documentation of the need


10

The Business Need• The expected savings and/or efficiencies

• Tasks performed before and after the reduction

• Positions impacted

• Timing of notices and effective dates of termination


11

Decisional Unit

• Consider strategic reasons when identifying the decisional unit

• Identify business goals to be accomplished by decisional unit

• Identify skills and positions needed to accomplish the goals


12

Selection Criteria • Follow applicable collective bargaining

agreements, policies, and established practices

• Make sure that criteria match business goals

• Determine whether all decisional units will use the same criteria


13

Selection Criteria

• Review supporting documentation for each type of criteria

• Determine how criteria will be applied


14

Assess Legal Risk and Compliance Requirements

• WARN Act notices

• Privileged Adverse Impact analyses

• Leaves of absence

• Medical concerns

• Other protected activities


15

Assess Legal Risk and Compliance Requirements

• Tort claims

• Contract claims based on oral and written representations

• Collective bargaining requirements

• ERISA claims


16

Control the Communications

• Consistency• Timing• Media• Prepare managers


17

Practical Considerations

• Management training

• Timing and type of internal communications

• Notice to employees

• Dealing with co-employees


18

Practical Considerations

• Exit Interviews and releases

• Clients and business contacts

• Packets for employees

• Need for documentation is paramount


19

U.S. Department of Labor Employment Standards Administration Wage and Hour Division

Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues

The Department of Labor’s (DOL) Wage and Hour Division (WHD) is responsible for administering and enforcing some of our nation’s most comprehensive labor laws, including the minimum wage, overtime, recordkeeping, and youth employment provisions of the Fair Labor Standards Act (FLSA). The following information is intended to answer some of the most frequently asked questions that have arisen when private and public employers require employees to take furloughs and to take other reductions in pay and / or hours worked as businesses and State and local governments adjust to economic challenges. 1. If an employer is having trouble meeting payroll, do they need to pay non-exempt employees on the regular payday? In general, an employer must pay covered non-exempt employees the full minimum wage and any statutory overtime due on the regularly scheduled pay day for the workweek in question. Failure to do so constitutes a violation of the FLSA. When the correct amount of overtime compensation cannot be determined until sometime after the regular pay period, however, the requirements of the FLSA will be satisfied if the employer pays the excess overtime compensation as soon after the regular pay period as is practicable. 2. Is it legal for an employer to reduce the wages or number of hours of an hourly employee? The FLSA requires that all covered non-exempt employees receive at least the applicable Federal minimum wage for all hours worked. In a week in which employees work overtime, they must receive their regular rate of pay and overtime pay at a rate not less than one and one-half times the regular rate of pay for all overtime hours. The Act does not preclude an employer from lowering an employee’s hourly rate, provided the rate paid is at least the minimum wage, or from reducing the number of hours the employee is scheduled to work. 3. Does an employer need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to lack of work? The FLSA does not require employers to pay non-exempt employees for hours they did not work.

July 2009

http://www.dol.gov/

http://www.dol.gov/esa/whd

http://www.dol.gov/esa/whd/flsa/

4. In general, can an employer reduce an otherwise exempt employee’s salary due to a slowdown in business? Reductions in the predetermined salary of an employee who is exempt under Part 541 of the Department of Labor’s regulations will ordinarily cause a loss of the exemption. Such an employee must then be paid the minimum wage and overtime required by the FLSA, as discussed in FAQ #2 above. In some circumstances, however, a prospective reduction in salary may not cause a loss of the exemption. See FAQ #7 below. Section 13(a)(1) of the FLSA exempts from minimum wage and overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity” as defined in 29 C.F.R. 541. An employee qualifies for exemption if the duties and salary tests are met. See Fact Sheet #17A. FLSA section 13(a)(1) requires payment of at least $455 per week on a “salary” basis for those employed as exempt executive, administrative, or professional employees. See Fact Sheet #17G. A salary is a predetermined amount constituting all or part of the employee’s compensation, which is not subject to reduction because of variations in the quality or quantity of the work performed. An employer must pay an exempt employee the full predetermined salary amount “free and clear” for any week in which the employee performs any work without regard to the number of days or hours worked. However, there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. Deductions may not be made from the employee’s predetermined salary for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. Salary deductions are generally not permissible if the employee works less than a full day. Except for certain limited exceptions found in 29 C.F.R. 541.602(b)(1)-(7), salary deductions result in loss of the section 13(a)(1) exemption. Deductions from the pay of an employee of a public agency for absences due to a budget-required furlough disqualify the employee from being paid on a salary basis only in the workweek when the furlough occurs and for which the pay is accordingly reduced under 29 C.F.R. 541.710. See FAQ #9 below. Physicians, lawyers, outside salespersons, or teachers in bona fide educational institutions are not subject to any salary requirements. Deductions from the salary or pay of such employees will not result in loss of the exemption. 5. Can an employer reduce the leave of a salaried exempt employee?

2

An employer can substitute or reduce an exempt employee’s accrued leave (or run a negative leave balance) for the time an employee is absent from work, even if it is less than a full day and even if the absence is directed by the employer because of lack of work, without affecting the salary basis payment, provided that the employee still

http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_541/toc.htm

http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17a_overview.pdf

http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17g_salary.pdf

http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_541/29CFR541.602.htm



receives payment equal to the employee’s predetermined salary in any week in which any work is performed even if the employee has no leave remaining. 6. Can a salaried exempt employee volunteer to take time off of work due to lack of work? If the employer seeks volunteers to take time off due to insufficient work, and the exempt employee volunteers to take the day(s) off for personal reasons, other than sickness or disability, salary deductions may be made for one or more full days of missed work. The employee’s decision must be completely voluntary. 7. Can an employer make prospective reduction in pay for a salaried exempt employee due to the economic downturn? An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid regularly to a Part 541 exempt employee during a business or economic slowdown, provided the change is bona fide and not used as a device to evade the salary basis requirements. Such a predetermined regular salary reduction, not related to the quantity or quality of work performed, will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $455 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business constitute impermissible deductions from the predetermined salary and would result in loss of the exemption. The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect the long term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations. 8. Can an employee still be on-call or performing work at home during a furlough day? Whether on-call time is hours worked under the FLSA depends upon the particular circumstances. Generally, the facts may show that the employee was engaged to wait (which is work time) or the facts may show that the employee was waiting to be engaged (which is not work time). For example, a secretary who reads a book while waiting for dictation or a fireman who plays checkers while waiting for an alarm is working during such periods of inactivity. These employees have been "engaged to wait." An employee who is required to remain on call on the employer's premises is working while "on call." An employee who is allowed to leave a message where he/she can be reached is not working (in most cases) while on call. Additional constraints on the employee's freedom could require this time to be compensated.

3

Employees who perform part or all of their normal job duties during a furlough day are working while performing such duties.

9. Are the rules for paying furloughed employees different for State and local governments? For non-exempt public employees, see FAQ #2. For salaried exempt employees, in the case of public sector employees, a specific rule applies to furloughs as described in the following regulatory text, 29 C.F.R. 541.710:

Deductions from the pay of an employee of a public agency for absences due to a budget-required furlough shall not disqualify the employee from being paid on a salary basis except in the workweek in which the furlough occurs and for which the employee's pay is accordingly reduced.

10. Does it matter if the State or local government employee is considered an essential or critical employee for the purposes of a required furlough? The application of the FLSA is not affected by the classification of an employee as essential or critical for the purposes of a required furlough. 11. What remedies are available to correct violations of the FLSA when employees are not paid on a timely basis?

a. The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages or for interest on the back wages, or the Secretary of Labor may bring suit for an injunction against the failure to pay wages when due.

b. Employees who have filed complaints or provided information during an investigation are protected under the law. They may not be discriminated against or discharged for having done so. If they are, they may file a suit or the Secretary of Labor may file a suit on their behalf for relief, including reinstatement to their jobs and payment of wages lost plus monetary damages.

c. An employee may file suit to recover back wages, and an equal amount in liquidated damages, plus attorney’s fees and court costs. Please note that the U.S. Supreme Court has ruled that the Eleventh Amendment prohibits employees of State governments from filing such suits against their State employers for monetary relief in federal courts (under Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996)), and in State courts unless the State waives its sovereign immunity (under Alden v. Maine, 527 U.S. 706 (1999)).

d. Civil money penalties may be assessed for repeat and / or willful violations of the FLSA’s minimum wage or overtime requirements.

e. Employers willfully violating the law also may face criminal penalties, including fines and imprisonment.

4


ADDITIONAL INFORMATION The Wage and Hour Division is available to assist. For more information regarding the FLSA, visit the WHD Web site at www.wagehour.dol.gov or call our toll-free help line, available 8 a.m. to 8 p.m. eastern time, at 1-866-4US-WAGE (1-866-487-9243). This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

5

http://www.wagehour.dol.gov/

speaker handouts - media.straffordpub.com

Documents