The law has to define certain terms and categories of people in order to make legal concepts predictable so people and happy birthdaycompanies can adjust their actions accordingly.  However, after turning 40 years old this month, the definition of “old” hits home with me.  According to the law, I’m old.  Moving on quickly, this Friday’s Five focuses on age related issues:

1. People 40 years old and older are in a protected category

Both Federal law, Age Discrimination Employment Act (ADEA) 29 USC section 621, et sec. and California state law, Cal. Gov. Code Section 12926(b), protect employees who are 40 years old or older.

2. Even if worker over 40 is terminated and replaced by another worker who is over 40, there could still be an age claim if the difference in age is “substantial”

The United States Supreme Court held in O’Connor v. Consolidated Coin Caterers Corp. that the ADEA prohibits discrimination because of an employee’s age, not class membership.  Therefore, if one employee who is over 40 is terminated and replaced by another employee who is also over 40, the terminated employee may still assert an age claim if they can prove that the determining factor was age.  However, if the person was replaced by another who is close in age, this would cut against any argument that the reason for the termination was based on age.

3. When employers can use age as a factor in an employment decision: the bona fide occupational qualification (BFOQ)

To establish a BFOQ, the employer must prove

First, the employer must demonstrate that the occupational qualification is ‘reasonably necessary to the normal operation of [the] particular business.’ Secondly, the employer must show that the categorical exclusion based on [the] protected class characteristic is justified, i.e., that ‘all or substantially all’ of the persons with the subject class characteristic fail to satisfy the occupational qualification.

Johnson Controls, Inc. v. Fair Employment & Housing Com., See 2 Cal. Code Regs section 7286.7(f).  This is a narrow defense for employers, and they still also must prove that the nature of the operation of the business could not be rearranged in order to reduce the BFOQ impact.

4. Layoffs based on high salary could possibly constitute age discrimination

If salary is used as the basis for conducting terminations or layoffs, this could constitute age discrimination if older employees as a group are adversely impacted because of this factor.  Cal. Gov. Code section 12941.

5. Release of age claims require additional steps – approach with caution

The Older Workers Benefit Protection Act (OWBPA) provides additional rights to workers.  The OWBPA prohibits any waiver of a right under the ADEA, unless certain requirements are met.  Some of these requirements include that the employee is advised to consult with an attorney, the waiver is easily understood, the individual is given at least 21 days to consider the agreement; and the individual is given at least 7 days following the execution of the agreement to revoke the agreement. The 21 day consideration period can be waived by the employee, but the seven day revocation period after the agreement is signed cannot be waived by the employee. Therefore, it is important to consider potentially not paying any money until after the seven day revocation period expires. If the employer is offering the release to a group or class of employees a longer consideration period and other requirements apply. It is highly recommended that employers receive the assistance of counsel to ensure that employees 40 years old or older effectively waive any rights under the OWBPA. For more information, the EEOCs’ website provides a good explanation and some examples.

Happy Friday.

Severance pay is not required under California law. However, employers who have potential disputes with employees that are leaving employment should consider whether offering severance pay in exchange for a signed severance agreement containing a release of claims against the company may be useful in avoiding costly litigation. Here are answers to five common questions about severance:

1. Are employees entitled to severance pay?
No. If an employee is an at-will employee, and either the employer or the employee decides to end the employment relationship, the employer is not required to provide any type of severance to the employee.

2. If severance pay is not required, why would employers offer it?
There are a number of reasons that employers offer severance pay. If the employer’s business has slowed down and it needs to layoff employees, but the employer wants to cushion the effect of the layoff, severance can be offered. Also, if the employer believes that there is a potential dispute between it and an employee, the employer may choose to pay some severance in exchange of a release of claims by the employee in order to avoid any potential litigation.  If done properly, an employee’s acceptance of a severance agreement would effectively waive any and all claims that he or she may have against the company.  If there is any potential for a dispute about any issues that arose during employment, entering into a severance agreement could be an effective way to avoid costly and time consuming litigation. 

3. Does the employer have to pay the employee for a release of claims?
If the employer asks the employee to release all claims the employee may have against the company, generally there needs to be some consideration provided to the employee for the release of his or her rights. Consideration is a legal term, and very generally means something of value that each side agrees to exchange (this is a very oversimplified definition). In severance agreements, the consideration is usually, but is not required to be, some form of payment by the employer that is not already legally obligated to be made in exchange for the release of claims (i.e., an agreement not to sue) by the employee.

4. What terms are generally included in a severance agreement?
Here is a list of common terms included in severance agreements:

  • A general release with a Civil Code section 1542 waiver releasing all known and unknown claims.
  • Confidentiality
  • No admission of liability
  • No present or future employment
  • Non-disparagement clause which can also set forth what job reference, if any, will be given to any prospective employers
  • Return of company property and non-solicitation of customers clause

5. Are there any special considerations for employees 40 years old or older that need to be included in a release?
Yes. The Older Workers Benefit Protection Act (OWBPA) protects individuals 40 years old or older. The OWBPA provides that in order to release a claim for age discrimination must meet certain requirements. Some of these requirements include that the employee is advised to consult with an attorney, the waiver is easily understood, the individual is given at least 21 days to consider the agreement; and the individual is given at least 7 days following the execution of the agreement to revoke the agreement. The 21 day consideration period can be waived by the employee, but the seven day revocation period after the agreement is signed cannot be waived by the employee. Therefore, it is important to consider potentially not paying any money until after the seven day revocation period expires. If the employer is offering the release to a group or class of employees a longer consideration period and other requirements apply. It is highly recommended that employers receive the assistance of counsel to ensure that employees 40 years old or older effectively waive any rights under the OWBPA. For more information, the EEOCs’ website provides a good explanation and some examples.