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 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 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:
The waiver must be written in a way that can be easily understood by the average individual.
It must specifically refer to rights or claims arising under the The Age Discrimination in Employment Act (ADEA.)
It must advise the individual in writing to consult with an attorney before signing the waiver.
It must provide the employee with at least 21 days to consider the agreement. (This period is longer for group layoffs—see below).
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.
The waiver must be in exchange for something of value (e.g., severance pay, additional benefits) to which the employee was not already entitled.
The waiver cannot cover rights or claims that may arise after the date the waiver is executed.
8. Group Termination Requirements (The "45-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 a 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 of employee that was being layedoff 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 waivers were invalid. The court agreed with the employees. The judge threw out the agreements Teva thought would protect it.
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 since the waiver was invalid.
The case was eventually settled for a confidential sum, which certainly cost Teva much more than just doing the layoffs correctly the first time.
Key Takeaways
Fully comply with the OWBPA and its criteria saves employers time, effort and money.
Initial cost of providing a severance in exchange for employees waiving their rights under the ADEA would be a fixed cost to the employer.
Noncompliance or invalid waivers exposes employers to costly lawsuits.
Fully compliant to the OWBPA makes waivers "bulletproof" and will likely be enforced.
Complying with the OWBPA isn't just about following the law—it's a smart financial decision. The cost of proper severance packages is a predictable business expense. The cost of non-compliance is a unpredictable legal disaster that can dwarf the cost of the severance many times over. Investing in getting it right the first time is the best risk management strategy a company can employ during a reduction in force.
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