A recent district court opinion in Romero v. Allstate Insurance Company, et al., 2016 WL 2619853 (E.D. Pa. May 4, 2016), underscores that there is not a “one-size-fits-all” approach for employers seeking “knowing and voluntary” waivers of employee claims under the Age Discrimination in Employment Act of 1967 (ADEA), as required by the Older Workers Benefit Protection Act of 1990 (OWBPA). Employers must carefully consider the terms of severance agreements and the circumstances surrounding the procurement of ADEA waivers because, as Romero illustrates, the failure to give employees a meaningful choice could limit the enforceability of a release.
Romero focused on Allstate’s move to change the statuses of its insurance agents from employees to independent contractors. As a result of this status change, Allstate terminated the employment contracts of more than 6,200 insurance agents. For the impacted agents, Allstate offered four severance options. Three of the four severance options (the “waiver options”) required agents to sign releases of claims, including releases of ADEA claims, in exchange for significant compensation and/or other business-related benefits. A fourth option (the “base option”) did not require agents to sign releases of claims, but it provided only 13 weeks of severance pay and subjected the agents to additional noncompete and nonsolicitation obligations. Ultimately, over 400 former Allstate agents filed a lawsuit alleging, among other things, that Allstate had unlawfully discriminated against them in violation of the ADEA and other federal statutes. Allstate argued that the agents had signed valid, OWBPA-compliant ADEA waivers and that the agents’ claims, therefore, were barred.
The court empaneled a jury to determine whether the releases signed by the first 10 plaintiffs to file suit against Allstate were valid. In so doing, the key question for the jury was whether the waivers met the OWBPA’s “knowing and voluntary” requirement. (29 U.S.C. § 626) The jury found that 8 of the 10 releases flunked the “knowing and voluntary” standard, rendering those waivers unenforceable as to the agents’ age claims and permitting those claims to move forward.
At issue in this opinion was whether the district court should overturn the jury’s verdict finding that the eight waivers were not knowing and voluntary.
The “Totality of Circumstances” Test
The Romero court announced that the statutory requirements enumerated in the OWBPA and necessary for a valid waiver of claims (29 U.S.C. § 626) may not, by themselves, be enough to establish a plaintiff’s knowledge and the voluntariness of a waiver. ADEA waivers, the court found, may still be invalidated—even when they satisfy the “requisite baseline elements established by Congress in [the] OWBPA.” This is because the OWBPA’s requirements “establish[ ] a floor, not a ceiling,” as the Romero court wrote, quoting a Third Circuit case. The Romero court continued: “Once a court determines a release satisfies the minimum statutory factors, the court must engage in a second and separate analysis of the ‘totality of the circumstances’ to determine if the release [of age discrimination claims] is knowing and voluntary.”
In considering the “totality of circumstances,” the Romero court considered the following non-exhaustive list of factors:
(1) the clarity and specificity of the release language; (2) the plaintiff’s education and business experience; (3) the amount of time the plaintiff had for deliberation about the release before signing it; (4) whether plaintiff knew or should have known his rights upon execution of the release; (5) whether plaintiff was encouraged to seek, or in fact received benefit of counsel; (6) whether there was an opportunity for negotiation of the terms of the agreement; and (7) whether the consideration given in exchange for the waiver and accepted by the employee exceeds the benefits to which the employee was already entitled by contract or law.
Allstate urged that the agents’ waivers were knowing and voluntary because Allstate’s waivers met both the OWBPA’s statutory factors and the above-enumerated seven judicially created factors.
But the Romero court rejected what it termed Allstate’s “inflexible reading of the seven factors without examining the purpose underlying their inclusion or the nuances in their interpretation.” The court further noted that “any attempt to establish a checklist of all applicable factors or insist on rigid adherence to such a list is foreclosed by the very nature of the inquiry.” Rather, the court stated, the essential question when deciding whether releases are knowing and voluntary “is a pragmatic one: whether in the totality of the circumstances, the individual’s waiver of his right can be characterized as ‘knowing and voluntary.’” Stated another way, according to the Romero court, the “totality of the circumstances” test is not to be rigidly applied; no one factor is more important than another and all circumstances may be considered in determining whether a particular employee’s release satisfies the OWBPA’s knowing and voluntary standard.
In the Romero court’s words, the “question of whether a Plaintiff knowingly and voluntarily signed the Release involved a far more complex balancing of factors than simply ticking off boxes in a formulaic analysis.”
The “Totality of Circumstances” Test Applied to Romero’s Facts
After explaining the “totality of circumstances” analysis, the Romero court addressed why the jury could have reasonably concluded that the agents had not knowingly and voluntarily waived their ADEA claims.
First, the court found that although Allstate had given the agents time to consider the release and consult with their attorneys, the value of that time was circumscribed by Allstate’s refusal to negotiate on the terms of the waiver. In other words, according to the court, because Allstate provided the release on a take-it-or-leave-it basis with nonnegotiable terms, the time for consideration was rendered “effectively meaningless.”
On a related note, the court reasoned that the waivers were not voluntary because the severance options offered in conjunction with the releases (the three waiver options and the one base option) created a “Hobson’s choice” by forcing the agents to sign waivers to ensure financial security or refuse to sign waivers, accept the base option, and face potential “financial ruin.” The court reached this conclusion based in part on the following facts surrounding the releases:
- The agents testified that they would have “lost their jobs, books of business and agencies if they did not sign the Release.”
- The agents had personal money tied up in their agencies with no ability to recover those costs unless the agents took one of the three waiver options, accepted considerable compensation and other benefits and, in turn, signed the ADEA waiver.
- The agents offered evidence that if they chose the base option, which did not require them to sign a waiver of ADEA claims, they would have been required to sign additional noncompetes and confidentiality agreements, which would have been in place for approximately twenty-six weeks after signing. The court reasoned that “[t]he jury could conclude Allstate’s imposing stringent non-compete restrictions on non-signing employees for approximately twenty-six weeks, while remunerating them for only thirteen weeks of pay, constituted another form of unfair economic pressure to dissuade them from not signing the Release.”
The court further held that various other misrepresentations—intentional or not—allegedly made by Allstate not only affected the “voluntary” component of the analysis, but also may have “deprived Plaintiffs of a knowing decision and exacerbated the already-existing financial pressures to sign the Release.” For instance, according to four of the agents, Allstate represented that the base option prevented them from contacting their former customers for “any commercial reason, even for businesses entirely unrelated to Allstate’s business.” Further, Allstate allegedly made other misrepresentations to the agents regarding Allstate’s business model that could have materially influenced the agents’ decision about which of the four severance options to accept.
Crucially, as relates to Allstate’s alleged misrepresentations, the Romero court rejected Allstate’s argument that an employee must have relied upon the misrepresentation for it to have caused the waiver to fail the “knowing and voluntary” standard. In other words, according to the court, if an employer misrepresents or omits material information associated with an ADEA waiver, the waiver may be invalidated as not knowing and voluntary even if the employee did not rely on that material misrepresentation or omission when signing the waiver. (The court seemed to agree with the agent-plaintiffs that a “material” misrepresentation or omission is one in which a reasonable person in the plaintiffs’ position would have considered to be important in making his or her decision.)
Based on the above analysis, the Romero court rejected Allstate’s key arguments, denied its post-trial motions, and allowed the agents’ age discrimination claims against Allstate to move forward.
The Takeaway for Employers
There are three key takeaways from the Romero case.
First, employers should anticipate that more than the bare minimum is required when complying with the OWBPA’s waiver requirements. As the Romero court noted, the analysis of an ADEA waiver under the OWBPA requires more than “ticking off boxes”—all circumstances matter. And looming over all of the Romero court’s analysis is an imperative that employers look to the specific circumstances of the employees and the employer when considering how to craft OWBPA-compliant ADEA waivers. This includes considering whether or not an employer exerts direct or indirect pressure on employees to procure waivers. For instance, if an employee faces consequences or penalties—direct or indirect—by not signing a waiver, the waiver may be deemed invalid for lack of voluntariness.
Second, and as an outgrowth of the first point, employers may do well to look carefully at whether severance options penalize employees or otherwise impair their ability to make a choice without incurring significant penalties. To be clear, Romero does not stand for the proposition that offering compensation in exchange for signing a waiver will render a release invalid; offering consideration in exchange for a release is required under the OWBPA. Rather, this case emphasizes that a meaningful choice to sign or not sign a waiver is essential and employees should not be forced to either sign a waiver or run the risk of financial ruin. In Romero, for example, the agents may have been subjected to additional noncompete restrictions because they chose not to sign a waiver of ADEA claims. Moreover, certain agents allegedly faced “financial ruin” if they chose the base option with no waiver, as they had significant personal resources tied up in their businesses and could not recoup certain losses associated with electing that option. There is a difference between receiving compensation for signing an ADEA waiver and facing significant financial and/or professional penalties for not signing a waiver. As Romero highlights, certain circumstances may give employees no true option but to take compensation and sign a waiver. Thus, in crafting severance options, an employer should consider whether its severance proposal might create a Hobson’s choice for the former employee.
Third, and finally, a material misrepresentation or omission associated with the terms and conditions of a layoff may render a waiver unenforceable under the OWBPA even where employees did not rely on a given statement in deciding whether to sign a release. Thus, employers should give careful thought to how they communicate the severance options and the circumstances surrounding a termination or layoff. According to the Romero court, misinformation that might influence a reasonable employee’s decision to sign a release—even if the employee does not actually rely on the misinformation—may be enough to invalidate a waiver.
In sum, Romero stands for the proposition that employers must provide employees subject to layoff or termination with a meaningful choice about whether to sign an OWBPA-compliant ADEA waiver. As Romero amply illustrates, a failure to do so could cause the resulting waiver to be unenforceable.