The Older Workers Benefit Protection Act :Case Study

When companies need to layoff employees, especially those over 40, there’s a specific federal law called the Older Workers Benefits Protection Act (OWBPA) that sets the rules.

When companies need to layoff employees, especially those over 40, there’s a specific federal law called the OWBPA that sets the rules. Following these rules costs money upfront but protects the company from massive legal fees and lawsuits down the road. This case study shows a Florida company that failed to abide by the law and its requirements.

Part 1: The Law in a Nutshell

The Older Workers Benefit Protection Act (OWBPA) is law designed to protect the rights of older workers (those 40 and older) in two ways:

A. It ensures they receive equal employee benefits.

B. It sets strict standards for waiving their rights under the ADEA, especially during layoffs or terminations.

A. Protection of Employee Benefits

The OWBPA prohibits employers from denying benefits to older employees. It recognizes that providing the same benefits to older workers can be more expensive (e.g. life insurance, health insurance). Therefore, it allows employers to reduce benefits based on age only if the cost of providing the reduced benefit is the same as the cost of providing the full benefit to a younger worker.

Example: If it costs a company $500 per month to provide a health insurance plan for a 30-year-old employee, it might cost $800 for a 60-year-old. The OWBPA allows the company to provide a less expensive plan to the 60-year-old or require them to pay the $300 difference, as long as the employer's cost is equal.

B. Standards for Valid Waivers of Age Discrimination in Employment Act (ADEA) Rights

This is the most well-known and frequently litigated part of the OWBPA. It sets the legal requirements for an employee (age 40 or older) to knowingly and voluntarily waive their rights to sue for age discrimination. This almost always comes up during severance agreements or early retirement incentive programs.

For a waiver to be legally enforceable, it must meet all eight of the following criteria:

1. The waiver must be written in a way that can be easily understood by the average individual.

2. It must specifically refer to rights or claims arising under the The Age Discrimination in Employment Act (ADEA.)

3. It must advise the individual in writing to consult with an attorney before signing the waiver.

4. It must provide the employee with at least 21 days to consider the agreement. (This period is longer for group layoffs—see below).

5. It must give the employee at least 7 days to revoke (cancel) the agreement after signing it. The agreement does not become effective or enforceable until after this 7-day period has passed.

6. The waiver must be in exchange for something of value (e.g., severance pay, additional benefits) to which the employee was not already entitled.

7. The waiver cannot cover rights or claims that may arise after the date the waiver is executed.

8. Group Termination Requirements (The "5-Day Rule” ): If the waiver is requested in connection with an exit incentive or other termination program offered to a group or class of employees, the employer must provide additional information:

The employee must be given 45 days (not 21) to consider the agreement.

The employer must provide a written disclosure that includes:

The class, unit, or group of individuals covered by the program.

The eligibility factors for the program.

The time limits applicable to the program.

The job titles and ages of all individuals eligible or selected.

The ages of all individuals in the same job classification or organizational unit who are not eligible or selected.

Why the OWBPA is So Important?

• The strict requirements (21/45 days, 7-day revocation, attorney consultation) prevent employers from pressuring older workers into quickly signing away their rights.

• By requiring specific information about the group of employees being let go, the law allows an employee to assess whether age may have been a factor in their selection. If they see that most of the terminated employees are over 40 while the retained ones are younger, they can make an informed choice about whether to sign the waiver or sue for discrimination.

• It gives employers a clear checklist to follow to ensure their severance agreements are legally binding and enforceable.
  
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  Part 2: A Real-World Mistake (The Teva Pharmaceuticals Case)
  
  The Situation: Teva Pharmaceuticals, as part of their nationwide downsizing efforts, laid off 79 employees in Florida, United Stats. They offered them severance pay in return for signing an agreement promising not to sue the company.
  
  The Fatal Mistake: The law required Teva to show the Florida employees data about who was laid off and who was kept specifically in Florida. Instead, Teva gave them a huge report with data of employees who were being laid off nationwide. This made it impossible for an employee to figure out if they were singled out in Florida because of their age.
  
  The Consequence: The employees sued, arguing the waiver agreements were invalid. The court sided with them, and the judge threw out the agreements Teva had expected would be upheld.
  
  The Cost to Teva:

  • The severance pay they had already given those employees was essentially wasted, as it failed to prevent a lawsuit.

  • Teva then had to spend a fortune on lawyers to defend against the age discrimination lawsuit, since the waiver was deemed invalid.

  • Teva ultimately settled the case for a confidential amount, a price tag that far exceeded the cost of conducting the layoffs properly from the outset.

    Key Takeaways

• Full OWBPA compliance saves resources: It protects employers from costly lawsuits, saving significant time, effort, and money.

• Severance is a fixed cost: Providing severance in exchange for an ADEA waiver is a known, upfront expense.

• Noncompliance is a major risk: Invalid waivers expose the company to expensive and unpredictable litigation.

• Compliance ensures enforceability: A fully compliant waiver is "bulletproof" and will almost certainly be upheld in court.
  

  OWBPA compliance is more than a legal requirement; it's a sound financial strategy. Severance is a fixed, predictable cost. Non-compliance, however, leads to unpredictable and potentially catastrophic legal expenses that can multiply the cost of severance many times over. For any reduction in force, getting it right the first time is the ultimate risk management.

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