77438 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations

1 136 Cong. Rec. 27,061 (1990), reprinted in 1

Staff of Senate Comm. on Labor and Human

Resources, 102d Cong., Legislative History of the

Older Workers Benefit Protection Act (S. 1511 and

Related Bills), at 23 (1991).

2S. Rep. No. 101–263, at 31 (1990, reprinted in

1 Staff of Senate Comm. on Labor and Human

Resources, 102d Cong., Legislative History of the

Older Workers Benefit Protection Act (S. 1511 and

Related Bills), at 350 (1991) [hereinafter S. Rep. No.

101–263].

3 Id. at 31–32.

4These requirements also apply to a waiver in

settlement of an ADEA charge filed with the EEOC.

29 U.S.C. 626(f)(2).

5S. Rep. No. 101–263, supra note 2, at 31. See

also 29 CFR 1625.22(a)(3) (‘‘Other facts and

circumstances may bear on the question of whether

the waiver is knowing and voluntary, as, for

example, if there is a material mistake, omission, or

misstatement in the information furnished by the

employer to an employee in connection with the

waiver.’’). Accord Bennett v. Coors Brewing Co., 189

F.3d 1221, 1228–29 (10th Cir. 1999); EEOC v.

Johnson & Higgins, 5 F. Supp. 2d 181, 186 (S.D.N.Y.

1998).

6S. Rep. No. 101–263, supra note 2, at 32. For the

analysis of ‘‘knowing and voluntary,’’ the Senate

Committee gave its approval to the ‘‘totality of

circumstances’’ analysis used to uphold an ADEA

waiver in Cirillo v. Arco Chemical Co., 862 F.2d

448 (3d Cir. 1988), but disapproved of ‘‘the

approach adopted in Lancaster v. Buerkle Buick

Honda Co., 809 F.2d 539 (8th Cir.), cert. denied, 482

U.S. 928 (1987),’’ which applied ordinary contract

principles.

7S. Rep. No. 101–263, supra note 2, at 35 (‘‘A

waiver of rights or release of claims is generally

available as an affirmative defense.’’)

8See also 136 Cong. Rec. 27,062 (1990) (Final

Statement of Floor Managers) reprinted in 1 Staff of

Senate Comm. on Labor and Human Resources,

102d Cong., Legislative History of the Older

Workers Benefit Protection Act (S. 1511 and Related

Bills), at 26 (1991).

9S. Rep. No. 101–263, supra note 2, at 35.

Congress did not intend to force employers to

‘‘ ‘prove a negative’ where no evidence of fraud,

duress, or coercion exists.’’ Id.

10 Id.

EQUAL EMPLOYMENT OPPORTUNITY

COMMISSION

29 CFR Part 1625

RIN 3046–AA68

Waivers of Rights and Claims: Tender

Back of Consideration

AGENCY: Equal Employment

Opportunity Commission.

ACTION: Final rule.

SUMMARY: The Equal Employment

Opportunity Commission (EEOC or

Commission) is publishing this final

regulation stating that, under the Older

Workers Benefit Protection Act of 1990,

employees cannot be required to tender

back the consideration received under a

waiver agreement before being

permitted to challenge the waiver

agreement in court, and addressing

related issues. The regulation protects

older workers’ rights under the Older

Workers Benefit Protection Act.

DATES: Effective January 10, 2001.

FOR FURTHER INFORMATION CONTACT:

Carol R. Miaskoff, Assistant Legal

Counsel, or Corbett L. Anderson,

Attorney-Advisor, 202–663–4689

(voice), 202–663–7026 (TDD).

SUPPLEMENTARY INFORMATION:

I. Background

A. The Older Workers Benefit Protection

Act of 1990

In Title II of the Older Workers

Benefit Protection Act of 1990 (Title II

or OWBPA), Congress added section 7(f)

to the Age Discrimination in

Employment Act of 1967, 29 U.S.C.

626(f) (ADEA), to set out requirements

for ADEA waivers that would ensure

that ‘‘older workers [are] not coerced or

manipulated into waiving their rights

under the ADEA.’’ 1 Congress decided

not to require supervision of ADEA

waivers by the Equal Employment

Opportunity Commission (EEOC or

Commission), but emphasized ‘‘that the

requirements of [T]itle II [are to] be

strictly interpreted to protect those

individuals covered by the Act.’’ 2

In the OWBPA, Congress proclaimed

that ‘‘[a]n individual may not waive any

right or claim * * * unless the waiver

is knowing and voluntary.’’ 29 U.S.C.

626(f)(1). An ADEA waiver is valid only

‘‘if certain threshold requirements [are

met and the waiver is] otherwise shown

to be knowing and voluntary.’’ 3 The

OWBPA states that the waiver

agreement must be ‘‘written in a manner

calculated to be understood [by the

employee], or by the average individual

eligible to participate’’; must

specifically reference ADEA rights or

claims; and must advise employees to

consult an attorney before signing the

agreement. ADEA waivers also must be

in exchange for extra consideration, and

must not waive rights or claims that

arise after the agreement is executed.4

Finally, the OWBPA directs employers

to give employees specified periods of

time to consider waivers and to revoke

them. Id. section 626(f)(1)(A)–(G). When

employers offer waivers in connection

with an exit incentive or other group

employment termination program, they

must give employees certain

information about the termination

program itself, as well as lists of the job

titles and ages of individuals eligible or

selected for the program and the ages of

those not eligible or selected but who

were in the same job classification or

organizational unit. Id. section

626(f)(1)(H). See also 29 CFR Part

1625.22.

In addition, an ADEA waiver is

‘‘knowing and voluntary’’ only if the

employee accepts it ‘‘in the absence of

fraud, duress, coercion, or mistake of

material fact.’’ 5 According to the

OWBPA legislative history, courts

evaluating the validity of an ADEA

waiver should analyze this aspect of the

‘‘knowing and voluntary’’ question

under the ‘‘totality of the circumstances

approach.’’ Congress rejected traditional

contract principles as the basis for

determining if an ADEA waiver is

knowing and voluntary.6

Congress also provided that a court of

competent jurisdiction would resolve

‘‘any dispute’’ that may arise over

whether a waiver agreement was

entered in compliance with the

statutory requirements. 29 U.S.C.

626(f)(3). Congress intended that a valid

OWBPA waiver would act as an

affirmative defense.7 The statute directs

that the employer has the burden of

proving that an ADEA waiver complies

with the enumerated OWBPA

requirements, assuming that the

employer is the party asserting the

validity of the waiver. Id.8 Moreover,

legislative history reveals that ‘‘once

that occurs, the employee may produce

additional evidence to suggest that the

waiver was not ‘knowing and

voluntary,’’—i.e., that the waiver is not

valid due to one or more of the nonenumerated elements of the ‘‘knowing

and voluntary’’ standard, such as fraud,

duress, coercion or mistake of material

fact.9 In such a circumstance, the

employer then must prove, with respect

to the issues raised by the employee,

that the waiver was both knowing and

voluntary.10

B. The Negotiated Rule on Waivers of

Rights and Claims Under the ADEA

In 1998, the EEOC published a final

regulation on Title II of the ADEA, the

product of a negotiated rulemaking

under the procedures in the Negotiated

Rulemaking Act, 5 U.S.C. 561 et seq.

The final rule set forth the EEOC’s

interpretation of the standards in

section 7(f) of the ADEA, covering the

following subjects, among others: the

wording of waiver agreements, waivers

of future rights, consideration, time

periods, informational requirements,

waivers settling charges and lawsuits,

the burden of proof, and the EEOC’s

enforcement powers. See 29 CFR

1625.22.

Some commenters on the negotiated

rule had urged the Commission to

address the question of whether

employees can be required to tender

back the consideration received under a

waiver agreement before challenging the

waiver agreement in court. However,

about four months prior to publication

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations 77439

11However, with regard to the administrative

process, section (i)(3) of the negotiated rule

provides that a waiver agreement cannot impose

‘‘any condition precedent, any penalty, or any other

limitation adversely affecting’’ an individual’s right

to file a charge or complaint with the EEOC or assist

the EEOC in an investigation. As noted in the

preamble to the final negotiated rule, this provision

forbids a requirement in a waiver agreement that an

individual tender back the consideration before

filing a charge or complaint of discrimination with

the EEOC or assisting the EEOC in an investigation.

63 FR 30627 (1998).

12See American Ass’n of Retired Persons v.

EEOC, 823 F.2d 600, 604 (D.C. Cir. 1987) (‘‘It would

be very difficult to find more permissive statutory

language [than in 29 U.S.C. 628].’’).

13See Pauly v. BethEnergy Mines, Inc., 501 U.S.

680, 696 (1991) (‘‘When Congress, through express

delegation or the introduction of an interpretive gap

in the statutory structure, has delegated

policymaking authority to an administrative agency,

the extent of judicial review of the agency’s policy

determinations is limited.’’).

14 In procuring Ms. Oubre’s ADEA waiver,

Entergy Operations, Inc., did not comply with

OWBPA in at least three aspects: (1) it did not give

her enough time to consider the waiver; (2) it did

not give her seven days after she signed the waiver

to change her mind; and (3) the text of the waiver

did not specifically refer to ADEA claims. Oubre,

522 U.S. at 424–25 (majority opinion).

15Oubre, 522 U.S. at 427 (majority opinion).

16 Id.

17 Id. at 428.

18 Id. at 433 (Breyer, J., and O’Connor, J.,

concurring).

of the final negotiated rule, the Supreme

Court decided the issue of tender back

in Oubre v. Entergy Operations, Inc.,

522 U.S. 422 (1998). The Supreme Court

held that a release that does not comply

with the OWBPA requirements cannot

bar an employee’s ADEA claims, even if

the employee did not tender back the

consideration. The Commission

decided, in light of Oubre, to address

tender back and related issues in a

subsequent guidance rather than in the

negotiated rule.11 The legislative rule

published today fulfills that goal.

C. The EEOC’s Rulemaking Authority

Under the ADEA

Congress granted the EEOC authority

under the ADEA to issue legislative

rules that it considers ‘‘necessary or

appropriate’’ in enforcing the Act. 29

U.S.C. 628.12 ADEA legislative

regulations are properly used to resolve

statutory ambiguities or omissions,

through policies that are consistent with

the purposes of the Act.13 If the ADEA

does not directly address a particular

matter, the EEOC may adopt any rule

that is ‘‘permissible’’ under the Act.

Chevron v. Natural Resources Defense

Council, 467 U.S. 837 (1984). A

legislative rule is permissible if it is a

reasonable exercise of an agency’s

rulemaking authority. Id. at 844, 845,

865, 866; Sanchez v. Pacific Powder

Co., 147 F.3d 1097, 1100 (9th Cir. 1998);

Doe v. Dekalb County Sch. Dist., 145

F.3d 1441, 1448 (11th Cir. 1998). A

legislative rule is not permissible if it is

‘‘arbitrary, capricious, or manifestly

contrary to the statute.’’ Chevron, 467

U.S. at 843; Arnold v. United Parcel

Serv., Inc., 136 F.3d 854, 864 n.8 (1st

Cir. 1998). Legislative rules have the

effect of law and are binding on the

general public, subject to limited review

by the courts. United States v. Storer

Broadcasting Co., 351 U.S. 192 (1956)

(legislative rule has force and effect of

law).

D. The Decision in Oubre v. Entergy

Operations, Inc.

In Oubre v. Entergy Operations, Inc.,

522 U.S. 422 (1998), the Supreme Court

addressed the question of whether the

OWBPA’s statutory waiver scheme

permits an employer to rely on contract

theories of ratification and tender back

to defend an ADEA waiver that does not

comply with the OWBPA. The waiver in

Oubre did not comply with three of the

OWBPA’s threshold requirements,14 but

the employer argued that it nonetheless

was enforceable based on contract

principles of ratification and tender

back. The employer maintained that Ms.

Oubre ratified the defective waiver

because she did not return the money

paid by the employer after discovering

the waiver’s deficiencies. Oubre, 522

U.S. at 425.

Rejecting this argument, the Supreme

Court held that Ms. Oubre’s waiver

could not be given effect because it did

not comply with the OWBPA,

notwithstanding contract theories of

ratification and tender back. The Court

reasoned that the validity of an ADEA

waiver should be determined solely

with reference to the statutory scheme,

because ‘‘[t]he OWBPA sets up its own

regime for assessing the effect of ADEA

waivers, separate and apart from

contract law.’’ Oubre, 522 U.S. at 427.

The Court explained:

Congress imposed specific duties on

employers who seek releases of certain

claims created by statute. Congress

delineated these duties with precision and

without qualification: An employee ‘‘may not

waive’’ an ADEA claim unless the employer

complies with the statute. Courts cannot with

ease presume ratification of that which

Congress forbids.

The Court also explained that reliance

on these contract principles would

‘‘frustrate [the OWBPA’s] practical

operation as well as its formal

command.’’ 15 Many discharged

employees would lack the resources to

return funds received for the waiver, as

a condition of ADEA litigation. The

Court expressed concern that ‘‘[t]hese

realities might tempt employers to risk

noncompliance with the OWBPA’s

waiver provisions * * *. We ought not

to open the door to an evasion of the

statute by this device.’’ 16

Finally, the Court observed that, in

the future, lower courts may need to

inquire ‘‘whether the employer has

claims for restitution, recoupment, or

setoff against the employee’’ for return

of the consideration paid in exchange

for the invalid waiver. The Court

expressly stated that it ‘‘need not decide

those issues here, however.’’ 17 In his

concurrence, Justice Breyer raised the

possibility of employers seeking

restitution after suit commenced.18

II. Review and Discussion of Public

Comments

A. Introduction and General Comments

The Commission received 27

comments in response to this Notice of

Proposed Rulemaking (NPRM or

Rulemaking), which was published in

the Federal Register on April 23, 1999.

64 FR 19952. Of these comments, 19

were from representatives of employers

and eight were from representatives of

employees or older persons. Before

reviewing and discussing the public

comments on specific sections of the

NPRM, the Commission addresses some

general comments received from

representatives of employers.

First, employer representatives

questioned the Commission’s authority

to promulgate this regulation, arguing

that the EEOC cannot regulate the

contents of an ADEA waiver agreement

if the agreement was entered into in a

‘‘knowing and voluntary’’ fashion under

the OWBPA. As explained in detail

below, however, the Commission is

regulating the content of waivers only to

the extent necessary to fully effectuate

the OWBPA’s ‘‘knowing and voluntary’’

standard.

Employer commenters also asserted

that the Commission does not have the

authority to regulate covenants not to

sue. These comments led the

Commission to refine its reasoning

related to covenants not to sue. For the

reasons set forth below, the Commission

has the authority to regulate covenants

not to sue because they operate as

waivers in the ADEA context. Thus, as

a logical outgrowth of the proposed rule

and the comments on it, the

Commission has drafted the final rule to

reflect a unified approach to waivers

and covenants not to sue, as well as

tender back and damages.

Furthermore, an employer

representative contended that the

proposed regulation would not be

77440 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations

19See Dr. E. Patrick McDermott, Dr. Ruth Obar &

Dr. Anita Jose, An Evaluation of the Equal

Employment Opportunity Commission Mediation

Program (Sept. 20, 2000) http://www.eeoc.gov/

mediate/report/.

20Oubre, 522 U.S. at 430–31 (Breyer, J., and

O’Connor, J., concurring) (‘‘As a conceptuall matter,

a ‘tender back’ requirement would imply that the

worker had ratified her promise by keeping her

employer’s payment.’’).

21Oubre, 522 U.S. at 427 (majority opinion). See

also id. at 430–31 (Breyer, J., and O’Connor, J.,

concurring).

22 In enacting the OWBPA, Congress was

especially concerned about protecting older

employees included in group terminations. See S.

Rep. No. 101–263, supra note 2, at 32 (‘‘[E]mployees

affected by these programs have little or no basis

to suspect that action is being taken based on their

individual characteristics. Indeed, the employer

generally advises them that the termination is not

a function of their individual status. Under these

circumstances, the need for adequate information

* * * before waivers are signed is especially

acute.’’).

23 Id. at 31–32 (‘‘The unsupervised waiver must

be knowing and voluntary. At a minimum, the

waiving party must have genuinely intended to

release ADEA claims and must have understood

that he was accomplishing this goal. The individual

also must have acted in the absence of fraud,

duress, coercion, or mistake of material fact.’’). See

also id. at 35.

24The Commission agrees with the conclusion

reached on this point by the court in Bennett v.

Coors Brewing Co., 189 F.3d 1221, 1229 (10th Cir.

1999), in which the releases at issue complied with

the express statutory requirements of the OWBPA,

but the court nevertheless held that ‘‘the appellants’

failure to tender back their severance benefits * * *

ha[d] no effect on their ability to challenge the

waivers of their ADEA claims under the OWBPA’’

because of fraud, duress or other reasons. But see

Reid v. IBM Corp., 95 Civ. 1755 (MBM), 1997 WL

357969 (S.D.N.Y. June 26, 1997) (holding that the

principles of ratification and tender back would

entitled to judicial deference because it

interprets the Supreme Court’s decision

in Oubre rather than the OWBPA itself.

However, these rules do not solely

interpret the decision in Oubre. The

EEOC is construing the OWBPA through

this regulation, and the regulation

promulgated herein is fully supported

by a reasoned interpretation of the

requirements of the OWBPA. Obviously,

the Commission is required to take the

Supreme Court’s decision in Oubre into

account in promulgating the regulations.

Finally, several management

representatives commented that this

regulation may undermine the

Commission’s support of voluntary

resolution of cases through mediation.

Specifically, they contended that this

regulation may discourage employers

from participating in EEOC mediations

because waivers entered into in

conjunction with ADEA mediation

settlements will be perceived as

vulnerable to challenge. The

Commission, however, is satisfied that

this regulation will not weaken its

mediation program.

According to a recent independent

and comprehensive survey of employers

and charging parties who have

participated in the EEOC’s National

Mediation Program, the overwhelming

majority of participants find it to be

highly effective, express strong

satisfaction with the process, and are

willing to participate again if party to a

discrimination charge.19 These survey

results reflect that, among other things,

EEOC mediation is fully voluntary and

is a process in which the basic interests

of both parties are addressed. A

mediation settlement is only achieved

when the parties have addressed all of

their interests and identified a mutually

satisfactory solution, including

agreement to any waiver provision. This

is entirely distinct from the situation

where an employer conditions

severance, early retirement, or other

benefits offered in connection with a

layoff or reduction-in-force on the

signing of a waiver.

B. Comments on Proposed 29 CFR

1625.23(a): Tender Back

Paragraph (a) of this rule, as proposed

and published for comment in the

Federal Register, stated:

An individual alleging that a waiver

agreement was not knowing and voluntary

under the ADEA is not required to tender

back the consideration given for that

agreement before filing either a lawsuit or a

charge of discrimination with EEOC or any

state or local fair employment practices

agency. Retention of consideration does not

foreclose a challenge to any waiver

agreement; nor does the retention constitute

the ratification of any waiver. A clause

requiring tender back is invalid under the

ADEA.

Comments on this provision were not

numerous. One employer representative

stated that the provision, while perhaps

unnecessary in light of the Supreme

Court’s holding in Oubre, was mostly

‘‘unobjectionable.’’ A few employer

representatives objected vigorously to

aspects of the proposal, as discussed

below. Employee representatives did

not comment.

1. The ‘‘No Tender Back’’ Rule Applies

to All Waiver Challenges

The basic rationale for paragraph (a) of

this regulation is that the OWBPA

forecloses the employer defenses of

tender back and ratification 20 because

these defenses would effectively result

in enforcement of noncompliant

OWBPA waivers despite Congress’

admonition that ‘‘[a]n individual may

not waive’’ an ADEA right or claim

unless the waiver is knowing and

voluntary.21 Paragraph (a) of the

proposed regulation stated that

‘‘[r]etention of consideration does not

foreclose a challenge to any waiver

agreement; nor does the retention

constitute the ratification of any

waiver.’’ Three management

representatives asserted that the ‘‘no

tender back’’ rule should apply only if

the waiver obviously fails to comply

with OWBPA’s enumerated statutory

requirements (for example, if the waiver

does not refer to the ADEA, or it does

not advise legal consultation). Under

this approach, it would follow that

tender back could be required if an

individual challenged a waiver on the

basis of fraud, duress, or other

circumstances beyond the document

itself.

The Commission considered these

comments but concluded, for the

following reasons, that the ‘‘no tender

back’’ rule must apply regardless of a

waiver’s facial OWBPA compliance.

First, the validity of a waiver agreement

is not always apparent from its face,

even with regard to the enumerated

OWBPA requirements. For example,

assessing the validity of a waiver in

connection with an exit incentive or a

group termination program subject to

the OWBPA’s informational

requirements generally requires an

examination of the unique facts of a

particular workforce reduction or

termination. If the commenters’

suggested approach were adopted, the

tender back requirement could operate

to allow employers to enforce group

waivers that did not, in fact, comply

with the informational requirements.

Such a result would undermine

enforcement of one of the OWBPA’s

critical components.22

Second, the commenters’ suggestion

would open the door to enforcement of

OWBPA waivers that did not comply

with the statute because they were

tainted by fraud or duress. The

Commission does not agree with the

view that the OWBPA omits these

common law prohibitions and,

therefore, that any such challenge

remains subject to ratification and

tender back, even in the aftermath of

Oubre. To the contrary, Congress

contemplated that the OWBPA’s

standard for ‘‘knowing and voluntary’’

would incorporate both the enumerated

statutory requirements and the

requirement that the waivers be adopted

‘‘in the absence of fraud, duress,

coercion, or mistake of material fact.’’ 23

If the ‘‘no tender back’’ rule is necessary

to effectuate the OWBPA’s enumerated

requirements, then it also must be

applicable to enforce the fundamental

requirement that OWBPA waivers be

free of fraud, duress, coercion, or

mistake of material fact.24

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations 77441

apply where a waiver met the minimum

requirements of the OWBPA even if not knowing

and voluntary for some other reason, such as fraud

or duress). For the reasons discussed herein, the

Commission believes that Reid, which predates the

Supreme Court’s decision in Oubre, was decided

incorrectly.

25However, the rule on tender back clauses has

been removed from paragraph (a) and incorporated

into paragraph (b).

26See Oubre, 522 U.S. at 427 (majority opinion).

27This commenter made the same observation

regarding the Commission’s use of the phrase ‘‘not

permitted’’ in paragraph (b) of the NPRM as to

covenants not to sue, and the discussion above also

applies to covenant not to see. One employee

representative argued however, that inclusion of a

convenant not to sue should create a rebuttable

presumption in related litigation that the waiver

was not knowing and voluntary.

28 29 U.S.C. 626(f)(1)(A).

29Note that paragraph (a) of the final rule uses the

phrase ‘‘waiver agreement, covenant not to sue, or

other equivalent arrangement’’ where appropriate to

reflect the Commission’s unified approach to

waivers and covenants not to sue. Section C of the

Preamble discusses covenants not to sue.

2. Tender Back Clauses

One employer representative

recommended that the Commission

permit negotiation of tender back

clauses as part of waiver agreements.

The Commission does not adopt this

recommendation, and the final rule

retains the prohibition against tender

back clauses.25 Allowing a tender back

clause would undermine the OWBPA,

as interpreted in Oubre. The basic

rationale for this regulation is that the

OWBPA abrogates the common law

doctrines of tender back and ratification

because their operation opens the door

to enforcement of noncompliant

OWBPA waivers.26 Prohibiting tender

back by operation of law, but allowing

it by operation of contract, would

unacceptably undermine the statute and

elevate form over substance.

One employer representative

commented that the Commission’s use

of the word ‘‘invalid’’ in the NPRM as

to tender back clauses ‘‘leaves open the

question of whether * * * the inclusion

of such provisions might somehow

invalidate the ADEA waiver itself.’’ 27

This employer representative

maintained that inclusion of a tender

back clause should not invalidate a

waiver that otherwise was ‘‘knowing

and voluntary’’ under the OWBPA. The

final regulation does not address the

question of severability because the

NPRM did not present the issue, and the

record on it is very limited. The

Commission believes, however, that

contrary to the position advanced by the

employer, there is a strong argument

that inclusion of an invalid provision in

an ADEA waiver agreement—such as a

tender back clause or a damages

provision—should invalidate the entire

waiver. Under this point of view,

inclusion of such provisions in a waiver

would make the agreement misleading

in a material sense and thus violate the

OWBPA’s requirement that waivers be

calculated to be understandable by the

individual or by the average individual

eligible to participate.28

3. Tender Back and State or Local Fair

Employment Practices Agencies

Two management commenters

objected to the wording of paragraph (a)

where it stated that if an individual

alleges that a waiver is not knowing and

voluntary, tender back is not required

prior to ‘‘filing either a lawsuit or a

charge of discrimination with * * * any

state or local fair employment practices

agency.’’ These commenters contended

that the Commission lacks authority to

specify the conditions required to file a

complaint with state or local agencies.

To clarify this regulation, the

Commission incorporates the following

language in the sentence referring to

state and local agencies:

* * * or any state or local fair employment

agency acting as an EEOC referral agency for

purposes filing the charge with EEOC.

4. Final Regulatory Language for

Paragraph (a)

Accordingly, paragraph (a) of the final

rule will state: 29

An individual alleging that a waiver

agreement, covenant not to sue, or other

equivalent arrangement was not knowing and

voluntary under the ADEA is not required to

tender back the consideration given for that

agreement before filing either a lawsuit or a

charge of discrimination with EEOC or any

state or local fair employment practices

agency acting as an EEOC referral agency for

purposes of filing the charge with EEOC.

Retention of consideration does not foreclose

a challenge to any waiver agreement,

covenant not to sue, or other equivalent

arrangement; nor does the retention

constitute the ratification of any waiver

agreement, covenant not to sue, or other

equivalent arrangement.

C. Comments on 29 CFR 1625.23(b):

Covenants Not To Sue

Paragraph (b) of the proposed

regulation, as published for comment in

the Federal Register, stated:

A covenant not to challenge a waiver

agreement, or any other arrangement that

imposes any condition precedent, any

penalty, or any other limitation adversely

affecting any individual’s right to challenge

a waiver agreement, is invalid under the

ADEA, whether the covenant or other

arrangement is part of the agreement or is

contained in a separate document. A

provision allowing an employer to recover

costs, attorneys’ fees, and/or damages for the

breach of any covenant or other arrangement

is not permitted.

1. Summary of Employee Comments

Employee representatives stated that

the use of covenants not to sue clearly

offends Congress’ intent to allow

individuals to test ADEA waivers in

court. One employee representative

maintained that the Commission needs

to implement more powerful

disincentives for using covenants not to

sue than simply stating that they are

invalid under the OWBPA. According to

this commenter, an employer that uses

a covenant not to sue should be subject

to: A rebuttable presumption in related

litigation that the waiver was not

knowing and voluntary; an automatic

finding of a willful ADEA violation; and

a finding of retaliation if the employer

seeks to recoup past benefits or abrogate

future benefits. The Commission has

considered these comments but believes

that the final rule reflects the

commenters’ concerns without unduly

altering the legislative balance crafted

by Congress.

2. Summary of Employer Comments

A number of management

representatives acknowledged that a

covenant not to sue that is part of a

waiver agreement is enforceable only if

the overall waiver agreement is knowing

and voluntary under the OWBPA. As a

corollary to this proposition, several

commenters agreed with the employer

representative who stated that ‘‘[i]f the

employee successfully invalidates the

release because it does not comply with

OWBPA, an employer’s breach of

contract claim is worthless.’’

Some representatives of employers

asserted that the Commission does not

have the authority to regulate covenants

not to sue. Employers also contended

that the OWBPA does not affect the

ability of the employer and employee to

enter into a covenant not to sue, under

which the employer is entitled to

damages and/or attorneys’ fees if the

employee goes to court and the

covenant is upheld. Commenters on

behalf of employers asserted that a

contrary result would encourage

litigation and discourage employers

from offering attractive severance

packages in exchange for waivers.

According to these commenters, the

chilling effect of the damages provisions

commonly included in such covenants

is necessary to retain the OWBPA’s

balance between employer and

employee interests.

One employer representative argued

against paragraph (b) of the proposed

rule because, in the commenter’s view,

‘‘a prevailing defendant is already

77442 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations

30See Turlington v. Atlanta Gas Light Co., 135

F.3d 1428, 1437 (11th Cir.) (citing cases, and

reasoning that because the ADEA borrows the

attorneys’ fee provision of the Fair Labor Standards

Act, which speaks only in terms of attorneys’ fees

for plaintiffs, ‘‘a district court may award attorneys’

fees to a prevailing ADEA defendant only upon a

finding that the plaintiff litigated in bad faith’’), cert

denied, 119 S. Ct. 405 (1998); Cesaro v. Thompson

Publishing Group, 20 F. Supp. 2d 725, 726–27

(D.N.J. 1998) (same).

31Cf. Christiansburg Garment Co. v. EEOC, 434

U.S. 412, 421 (1978) (under Title VII a prevailing

defendant can get attorneys’ fees ‘‘upon a finding

that the plaintiff’s action was frivolous,

unreasonable, or without foundation, even though

not brought in subjective bad faith’’) (emphasis

added).

32Oubre, 522 U.S. at 427 (majority opinion).

33 Id.

34Cf. Oubre, 522 U.S. at 431 (Breyer, J., and

O’Connor, J., concurring) (‘‘Courts must avoid

allowing a recovery that has the effect of

substantially enforcing the contract that has been

declared unenforceable, since to do so would defeat

the policy that lead to the rule in the first place.’’

(quoting d. Dobbs, Law of Remedies 982 (1973))).

35See S. Rep. No. 101–263, supra note 2, at 31–

32.

36See 29 U.S.C. 626(f)(3). See also supra notes 7–

9.

entitled as a matter of right to receive

full reimbursement for all of its taxable

costs (see 28 U.S.C. 1920), and may also

be awarded its counsel fees if * * * the

employee’s claim ‘was frivolous,

unreasonable or groundless.’

Christiansburg Garment Co. v. EEOC,

434 U.S. 412 (1978).’’ Other commenters

made similar arguments. Finally, an

employer representative contended that,

even if the Commission ultimately

concludes that the use of covenants not

to sue is inconsistent with the OWBPA,

the Commission should provide that

only the covenant, rather than the entire

waiver agreement, is unenforceable.

3. Discussion

The NPRM addressed the legality of

covenants not to sue and stated that

such covenants were invalid due to the

chilling effect on valid ADEA claims of

damages and/or attorneys’ fees

provisions as well as the language of the

covenants themselves. Because the

chilling effect of damages or attorneys’

fees could give life to waiver agreements

that violate the OWBPA, the final rule

continues to prohibit the use of

provisions allowing the recovery of

damages and/or attorneys’ fees simply

because suit has been filed. Based on

further analysis in light of the

comments, however, the final rule

recognizes that an ADEA promise not to

sue, by itself, is the functional

equivalent of a waiver and therefore

subject to the OWBPA requirements and

restrictions. Thus, a covenant not to sue

that comports with the requirements of

the OWBPA will provide the employer

with a defense against the employee’s

ADEA claim of age discrimination, and

will entitle the employer to a dismissal

of the employee’s suit after the covenant

has been upheld. In addition, attorneys’

fees and costs will continue to be

available under established principles.

The final rule prohibits additional

damages and/or attorneys fees because

they would violate the statute. The final

rule adopts a unified standard for

waivers and covenants not to sue (and

any other equivalent arrangements),

pursuant to the Commission’s authority

to enforce the OWBPA.

(a) Attorneys’ Fees and Damages

(i) Attorneys’ Fees and Costs Will

Continue to be Available to Employers

Under Established Principles

As noted above, a few management

commenters contended that the

prohibition against covenants not to sue

in paragraph (b) of the NPRM was

inconsistent with the established law

which permits the award of attorneys’

fees and costs to prevailing employers

in certain circumstances. One

commenter took the position that

prevailing employers are entitled to

attorneys’ fees if the employee’s claim

was ‘‘frivolous, unreasonable or

groundless,’’ and to costs as a matter of

right.

The courts have held that attorneys’

fees are available for ADEA defendants

where the plaintiff litigated in ‘‘bad

faith.’’ 30 The ‘‘frivolousness’’ standard

suggested by one commenter is the Title

VII standard and does not apply to the

ADEA.31 In any event, the Commission

does not intend to displace the

established principles governing

attorneys’ fees under the ADEA. An

employer would be entitled to attorneys’

fees if the employee’s suit were brought

in bad faith.

The Commission agrees with the

commenters’ point on the issue of costs

and therefore has deleted references to

costs from the final rule where

appropriate. As with attorneys’ fees, the

Commission does not intend to disturb

established law with respect to costs.

However, employers may not recover

costs beyond those available under

established law in ADEA cases.

In order to clarify these matters, the

Commission has added a sentence to

paragraph (b) stating that the rule is

‘‘not intended to preclude employers

from recovering attorneys’’ fees or costs

specifically authorized under federal

law.’’

(ii) The Chilling Effect Conflicts with

the OWBPA

The Commission remains concerned

about the chilling effect that the

potential for attorneys’ fees (other than

those currently available) and damages

would have on good faith OWBPA

challenges. Several commenters in fact

agreed that the possibility of such

remedies exerts a chilling effect on

ADEA litigation, although employee and

employer representatives disagreed

about the propriety of that chilling

effect. In the Commission’s view, the

financial risk of pursuing an ADEA

claim in the face of such remedies

would, as a practical matter, discourage

individuals from pursuing even cases

about which they were fairly optimistic.

Because the chilling effect of these

penalties could give life to waiver

agreements that were not compliant

with the OWBPA, and thereby

undermine enforcement of the statute,

the Commission’s final rule forbids any

provision that threatens to impose any

condition precedent, penalty, or other

limitation that would adversely affect an

individual who exercises his or her right

to challenge an agreement covered by

the OWBPA.

The Commission’s conclusion that the

chilling effect of damages or attorneys’

fees is at odds with the OWBPA is

supported by the Supreme Court’s

reasoning in Oubre. The Supreme Court

in Oubre recognized the effect that

financial pressure may have on an

individual’s willingness to bring a case.

In the context of tender back, the Court

reasoned that many individuals will

‘‘lack the means to tender [the] return’’

of funds received in exchange for the

waiver and, therefore, will refrain from

bringing cases they otherwise might

pursue.32 Employers’ perceptions that

individuals will be deterred from

seeking judicial assessment of ADEA

waivers, in turn, may ‘‘open the door to

an evasion of the statute.’’ 33 The same

unacceptable consequences that led the

Supreme Court to reject a tender back

requirement in Oubre would result if

employee litigants faced the prospect of

damages and/or attorney fees for breach

of covenants not to sue.34

The chilling effect of damages or

attorneys’ fees also disturbs the balance

between litigation and voluntary

resolution that Congress crafted in the

OWBPA. Congress was concerned about

protecting employee rights, particularly

in the group termination context, as it

allowed unsupervised ADEA waivers.35

In the OWBPA, Congress allowed

employers to offer OWBPA-compliant

waivers without EEOC supervision, but

at the same time vested in ‘‘a court of

competent jurisdiction’’ the authority to

resolve ‘‘any dispute that may arise’’

over the validity of the waiver.36

Permitting employers to chill employees

from testing unsupervised ADEA

waivers, by threatening to impose

damages or attorneys’ fees, would

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations 77443

37Hodge v. New York College of Podiatric

Medicine, 157 F.3d 164, 168 (2d Cir. 1998)

(citations omitted). See 29 U.S.C. 626(d).

38S. Rep. No. 101–263, supra note 2, at 31 (stating

the OWBPA ‘‘provides for the first time by statute

that waivers not supervised by the EEOC may be

valid and enforceable’’).

39 29 U.S.C. 626(f)(1).

40See J.D. Calamari, The Law of Contracts § 21.11

(4th ed. 1998) (‘‘[i]f the promise is one never to sue,

it operates as a discharge just as does a release’’)

(citing 5A Corbin on Contracts § 1251 (1964)); 66

Am Jur. 2d Release § 2 (1973).

41See Oubre, 522 U.S. at 433 (Breyer, J., and

O’Connor, J., concurring) (writing interchangeably

about waivers and promises not to sue); Klee v.

Lehigh Valley Hosp., No. 97–4642, 1998 WL

995850, at *4 (E.D. Pa. Nov. 5, 1998) (treating

covenant not to sue as falling under the OWBPA:

‘‘We also note that the covenant not to sue in the

severance agreement is valid because it comports

with the requirements elucidated by the statute for

a knowing and voluntary waiver of the right to sue

under the ADEA.’’), aff’d on other grounds, 203

F.3d 817 (3d Cir. 1999).

42Cf. H.R. Rep. No. 101–664, at 86 (1990),

reprinted in 1 Staff of Senate Comm. on Labor and

Human Resources, 102d Cong., Legislative History

of the Older Workers Benefit Protection Act (S.

1511 and Related Bills), at 293 (1991) [hereinafter

H.R. Rep. No. 101–664]; S. Rep. No. 101–263, supra

note 2, at 60 (‘‘Employees are typically offered a

substantial cash bonus to retire early in exchange

for signing a waiver or release agreeing not to sue

the company later for age discrimination.’’).

43 ‘‘The difference [between a release and a

covenant not to sue] is primarily in the effect as to

third parties * * *.’’ 66 Am Jur. 2d Release § 2

(1973). ‘‘A general release of one among several

joint tortfeasors operates to release from liability all

of them. In contrast, a covenant not to sue will only

release the one to whom it is given.’’ Frey v.

Independence Fire & Cas. Co., 698 P.2d 17, 21

(Okla. 1985).

44Oubre, 522 U.S. at 427 (majority opinion).

45 29 U.S.C. 626(f)(3).

impede access to judicial review and

thus undermine this legislative balance.

Representatives of employers stated

that a final regulation prohibiting

damages and attorneys’ fees would send

a signal to employees that they could

bring ADEA challenges ‘‘with

impunity.’’ In the Commission’s view,

the suggestion that such a regulation

will result in a flood of litigation is not

persuasive. The Commission notes that

no facts have been offered in support of

such a suggestion. Employees executing

waivers, covenants, or equivalent

arrangements will understand the

consequence of the agreement—that

their pursuit of ADEA discrimination

claims in litigation will fail if they

knowingly and voluntarily entered into

their agreements. While the possibility

of frivolous lawsuits always exists, the

Commission believes that a knowing

and voluntary process helps ensure that

an employee who has signed a waiver

will not view a later lawsuit as fruitful.

(iii) The Chilling Effect of Damages

Provisions Cannot Be Limited to

Situations Where the Underlying Waiver

Is Valid.

Some employer representatives

contended that damages provisions at

least should be enforceable when they

are included in waiver agreements that

are found to be knowing and voluntary

under the OWBPA. In this

circumstance, they reasoned, OWBPA

compliance would not be undermined if

litigation were chilled. The Commission

does not agree that the chilling effect

can be limited so neatly.

These commenters assume that the

validity of ADEA waivers is easily

discernable from the face of the

agreement. However, as discussed above

with respect to tender back, compliance

with the OWBPA may not be apparent

from the face of the document if the

statute’s informational requirements are

applicable, or if the individual alleges

that the waiver is not knowing and

voluntary on the basis of fraud, duress,

coercion, or mistake of material fact. See

supra at II.B. Additionally, as another

management commenter acknowledged,

even individuals who are fairly certain

that an ADEA waiver is unenforceable

may choose not to bring suit simply

because they are unwilling to risk

liability for damages or the employer’s

attorneys’ fees.

Two management commenters

asserted that the Commission’s own

administrative investigation of ADEA

charges guarantees that the Commission

will advise individuals of the validity of

their OWBPA waivers before filing suit.

The nature of the ADEA’s enforcement

mechanism, however, belies this

reasoning. ADEA charging parties need

not receive a ‘‘right to sue’’ letter before

going to court. They ‘‘need only wait 60

days after filing the EEOC charge. Thus,

the ADEA plaintiff can sue in court even

if the EEOC has not yet completed its

investigation * * *.’’ 37 Moreover, were

the Commission to assign staff attorneys

to assess the legal sufficiency of all

waivers presented in ADEA charges, as

one commenter suggested, the waivers

would then be supervised by the EEOC.

However, Congress rejected proposals

that EEOC supervise waivers.38 In any

event, such administrative assessment

would not be determinative because

ADEA litigation in court is de novo. Cf.

29 U.S.C. 626(c)(1).

(b) ADEA Covenants Not To Sue Are

Equivalents of ADEA Waivers and

Therefore Subject to EEOC Regulation.

Absent imposition of attorneys’ fees

and/or damages for breach, ADEA

covenants not to sue are the functional

equivalent of waivers. The Commission

interprets the OWBPA proscription that

‘‘[a]n individual may not waive any

right or claim unless the waiver is

knowing and voluntary’’ 39 to govern

covenants not to sue just as it does

waivers. The Commission finds support

for its unified approach in traditional

contract principles,40 the decision in

Oubre and in other case law,41 and in

discussion in the OWBPA legislative

history.42 Common law distinctions

between waivers and covenants not to

sue 43 are insufficient to exclude ADEA

covenants from the OWBPA

requirements. Reading the statute to

include covenants not to sue best

respects the OWBPA’s ‘‘practical

operation as well as its formal

command.’’ 44 Accordingly, a covenant

not to sue under the ADEA is subject to

the OWBPA, as interpreted in this

regulation, whether the covenant is

included in a waiver agreement, is in a

second document, or is standing alone.

Under this analysis, an OWBPAcompliant covenant not to sue can be

asserted as a defense to defeat an ADEA

claim, and thus will entitle the

employer to a dismissal of the

employee’s suit after the covenant has

been upheld. (An accompanying

provision for damages is not

enforceable. See supra discussion at

II.C.3.a)).

However, a point of caution is

warranted with respect to such

covenants. Although ADEA covenants

not to sue (absent damages) operate as

the functional equivalent of waivers,

they carry a higher risk of violating the

OWBPA by virtue of their wording. An

employee could read ‘‘covenant not to

sue’’ or ‘‘promise not to sue’’ as giving

up not only the right to challenge a past

employment consequence as an ADEA

violation, but also the right to challenge

in court the knowing and voluntary

nature of his or her waiver agreement.

The chance of misunderstanding is

heightened if the covenant not to sue is

added to an agreement that already

includes an ADEA waiver clause. The

covenant in such a case would have no

legal effect separate from the waiver

clause. Nonetheless, its language would

appear to bar an individual’s access to

court.

Employers therefore must take

precautions in drafting covenants not to

sue so that employees understand that

the covenants do not affect their right to

test the knowing and voluntary nature

of the agreements in court under the

OWBPA. By investing ‘‘court[s] of

competent jurisdiction’’ with the

authority to resolve ‘‘any dispute that

may arise over * * * the validity of a

waiver,’’ 45 Congress manifested in the

plain language of the statute its

intention to permit an employee who

signed an ADEA waiver, to sue his or

her employer upon the belief that the

waiver did not comply with the

77444 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations

46 64 FR at 19957.

OWBPA. Thus, any provision in a

waiver agreement that would cause an

employee to believe that he or she could

not seek a judicial determination of the

validity of the waiver misrepresents the

rights and obligations of the parties to

the agreement. Such a misrepresentation

conflicts with the OWBPA requirement

that a valid waiver agreement must be

‘‘written in a manner calculated to be

understood’’ by the employee ‘‘or by the

average individual eligible to

participate.’’ 29 U.S.C. 626(f)(1)(A).

(c) Discussion of Additional

Management Recommendations.

Management representatives also

commented that the proposed

regulation’s reference to ‘‘other

arrangements’’ could be read to prohibit

an employer from enforcing covenants

not to sue that were negotiated as part

of noncompetition or trade secret

clauses. The Commission did not intend

its regulation to extend beyond the

ADEA in this fashion. Accordingly, the

Commission has revised the regulation

to refer specifically to an ADEA waiver

agreement, covenant not to sue, or other

equivalent arrangement.

In addition, while the Commission

takes no position on non-ADEA

provisions such as non-disparagement

and confidentiality clauses, it notes that

settlement agreements sometimes

contain such clauses along with

liquidated damages provisions for

breach. A reasonable employee must be

able to determine that any liquidated

damages provisions for breach of nonADEA clauses have no effect on the

employee’s ability to bring an ADEA

charge or lawsuit challenging the

waiver.

4. Final Regulatory Language for

Paragraph (b)

Accordingly, paragraph (b) of the final

rule will state:

No ADEA waiver agreement, covenant not

to sue, or other equivalent arrangement may

impose any condition precedent, any

penalty, or any other limitation adversely

affecting any individual’s right to challenge

the agreement. This prohibition includes, but

is not limited to, provisions requiring

employees to tender back consideration

received, and provisions allowing employers

to recover attorneys’ fees and/or damages

because of the filing of an ADEA suit. This

rule is not intended to preclude employers

from recovering attorneys’ fees or costs

specifically authorized under federal law.

D. Comments on 29 CFR 1625.23(c):

Restitution, Recoupment, or Setoff

Paragraph (c) of the proposed

regulation stated that if an employee

successfully challenged a waiver and

prevailed on the merits of an ADEA

claim,

courts have the discretion to determine

whether an employer is entitled to

restitution, recoupment, or setoff (hereinafter,

‘‘reduction’’) against the employee’s damages

award. These amounts never can exceed the

lesser of the consideration the employee

received for signing the waiver agreement or

the amount recovered by the employee.

The remainder of this proposed

regulation included, among other

provisions, ‘‘[a] nonexhaustive list of

the factors that may be relevant to

determine whether, or in what amount,

a reduction should be granted.’’

1. Summary of Employee Comments

Employee representatives endorsed

the position that only setoff or

recoupment should be allowed, and

only to the extent that the employee

wins damages based on a finding of

employment discrimination. These

commenters contended that employees

would be chilled from bringing

meritorious waiver challenges and age

discrimination cases by the possibility

of being required to return a severance

payment under any other

circumstances. They contended that this

chilling effect also would discourage

individuals from pursuing injunctive

relief in the absence of significant

damages. Even if damages were

awarded, however, employee

representatives favored denying

recoupment or setoff when the

consideration for the release was paid

by a party other than the employer. For

example, they stated that employers

should not be allowed to recoup their

consideration when it had been paid by

a bona fide employee pension or welfare

benefit plan under ERISA in the form of

enhanced benefits. One employee

representative also asserted that a

reduction should not be permitted if the

employer had willfully violated the

ADEA. Finally, this commenter urged

the Commission to delete employers’

financial condition as a factor for courts

to consider in determining whether

recoupment was appropriate.

2. Summary of Employer Comments

Commenters representing employers

criticized the Commission’s proposal

that restitution, recoupment, or setoff be

permitted only to the extent that the

employee is ultimately awarded

damages for employment

discrimination. Employers emphasized

that the Supreme Court in Oubre did not

decide the question of restitution,

recoupment, or setoff, and that Justice

Breyer explored the possibility of

restitution in his concurrence.

Employers contended that restitution

should not be limited to the lesser of the

consideration or the plaintiff’s recovery.

They reasoned that restitution in excess

of the plaintiff’s recovery is ‘‘a reflection

of the plaintiff’s overcompensation for

the satisfaction of potential claims,’’

rather than a tender back penalty. Some

employers expressed concern about the

situation of the employer whose waiver

is invalid but who prevails on the

underlying age claim; under the

Commission’s proposed rule, this

employer would not be entitled to

restitution.

Employers also asserted that setoff

should not be discretionary if damages

are awarded, because existing law

entitles them to a reduction of back pay

awards by the amount of severance pay.

Most employer representatives

criticized the factors proposed by the

Commission for courts to use when

deciding whether to grant a reduction,

or how much to grant. They contended

that some of the equitable factors

proposed by the Commission would

result in ADEA plaintiffs receiving

double recovery because the court

already would have addressed the same

considerations in awarding damages.

Employers also criticized the

Commission’s proposal that courts

could equitably apportion the amount

paid for the waiver among the rights

waived, to calculate the proper

reduction in ADEA damages. Employers

emphasized that they pay one amount to

a departing employee in exchange for a

waiver of all his or her rights under the

pertinent laws, and in their view, this

amount cannot be apportioned.

3. Discussion

The Commission has considered the

comments submitted and, for the

reasons set forth below, has not changed

its position that restitution, recoupment,

or setoff must be limited to the lesser of

the amount of the award to the

prevailing ADEA plaintiff, or the

amount of consideration the employee

received for the waiver. The

Commission, however, has decided to

delete from the final regulation the list

of factors ‘‘that may be relevant to

determine whether, or in what amount,

a reduction should be granted.’’ 46

The Commission’s rule on restitution,

recoupment, and setoff, is based on the

same statutory interpretation as the rule

prohibiting employers from obtaining

damages or attorneys’ fees for breach of

a covenant not to sue or another

agreement covered by the OWBPA.

Restitution can be tantamount to tender

back if it is awarded in the absence of

plaintiff’s damages or in excess of those

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations 77445

47As stated in note 3 of the NPRM, recoupment

and setoff, by definition, serve to limit the

defendant’s recovery to no more than the amount

of plaintiff’s damages. Black’s Law Dictionary 1275,

1372 (6th ed. 1990).

48These individuals would include those who

contemplate seeking primarily injunctive relief, for

example, reinstatement in their former position.

49Cf. H.R. Rep. No. 101–664, supra note 42 at 90–

91 (stating that legislation on ADEA waivers could

impose, among others, the requirement that, ‘‘[i]f

the waiver is set aside for any reason, any damages

received through a discrimination action shall be

offset by the consideration received for the waiver’’)

(emphasis supplied).

50Oubre, 522 U.S. at 428 (majority); id. at 433

(Breyer, J., and O’Connor, J., concurring).

51See id. at 427 (‘‘The OWBPA sets up its own

regime for assessing the effect of ADEA waivers,

separate and apart from contract law.’’). Cf. supra

note 6, discussing legislative history showing that

Congress rejected the use of contract law principles

for analyzing OWBPA waivers.

The Commission is not persuaded that an

employer who prevails on the merits of the ADEA

discrimination claim, but who nonetheless used an

invalid OWBPA waiver, should receive restitution

of the amount paid for the waiver. The basic

principle is that restitution generally is unavailable

if the agreement is unenforceable on grounds of

public policy, ‘‘unless denial of restitution would

cause disproportionate forfeiture.’’ Restatement

(Second) of Contracts § 197 (1981). As one

employee representative observed, the denial of

restitution would not cause a disproportionate

forfeiture if the employer materially violated the

OWBPA waiver provisions.

52See Doyne v. Union Elec. Co., 953 F.2d 447,

451 (8th Cir. 1992) (‘‘The magistrate judge held that

Doyne’s back and front pay awards should be

reduced by the amount of pension benefits he has

received and will receive * * *. We are persuaded

by the arguments of Doyne and the Equal

Employment Opportunity Commission, amicus

curiae, that the pension payments are from a

collateral source and should not have been

deducted.’’) EEOC v. O’Grady, 857 F.2d 383, 391

(7th Cir. 1988) (district court’s refusal to offset

pension benefits against a back pay award was not

an abuse of discretion).

damages.47 If the prospect of making

tender back before litigation would

deter those who lack funds from

pursuing good faith cases, then the

prospect of making the same payment at

the conclusion of litigation also would

have a chilling effect. To state the

obvious, plaintiffs do not know before

bringing a case whether, or to what

extent, they will obtain damages.

Accordingly, if restitution were not

limited in the way set out in paragraph

(c), employees deciding whether to

bring suit would confront the possibility

of not winning damages (or winning

negligible damages) but still being

compelled to return their full severance

pay.48 For those individuals who have

used the severance pay for living

expenses and lack the means to return

it now or in the future, the prospect of

restitution would present a large

financial risk that would discourage

them from moving forward. Even

though this potential financial cost of

bringing suit would not impose the

same immediate and certain obstacle as

a tender-back requirement, it

nonetheless could be significant,

especially for those older workers with

limited or declining earning potential.

As a result, older workers could be

deterred from bringing age

discrimination claims even though their

waivers, if so challenged, might not be

knowing and voluntary under the

OWBPA. The Commission cannot allow

this result consistent with its mandate

to enforce the OWBPA.49

This position is consistent with the

Supreme Court’s interpretation of the

OWBPA in Oubre. The majority and

Justice Breyer spoke of employer claims

and requests for restitution,

recoupment, or setoff against the former

employee.50 The Commission is not

barring claims for restitution,

recoupment, or setoff. The Court in

Oubre, however, did not rule on the

availability of restitution, recoupment,

or setoff. Therefore, Oubre does not

preclude all limits on the extent to

which these remedies may be available.

In the Commission’s view, the limits

contained in this regulation are

appropriate because they will reinforce

compliance with the OWBPA waiver

provisions. Importantly, they also are

consistent with the Court’s reasoning in

Oubre that common law contract

principles cannot be allowed to interfere

with enforcement of the statute.51

The Commission, however, has

deleted the list of factors for deciding

whether, and to what extent, to award

restitution, recoupment, or setoff. These

factors were not central to the

Commission’s interpretation of the

statute. Additionally, many of the

employer comments regarding the

factors were persuasive. For example,

the Commission agrees that it typically

would be difficult to equitably

apportion a waiver payment among all

the different claims waived. The

Commission also understands

employers’ concerns about the proposed

factors addressing the nature and

severity of the underlying employment

discrimination. Finally, the Commission

understands employee representatives’

comments favoring the deletion of the

factor addressing the employer’s

financial condition.

Because the Commission is deleting

this list of factors, it would be

inappropriate to add new factors as

suggested by employee representatives.

The Commission, therefore, cannot

incorporate two employee

representatives’ recommendation to

direct courts to consider whether a

release payment was provided directly

by the employer or by an ERISA pension

fund. While the Commission agrees that

this may be an important

consideration,52 the Commission

believes its significance is properly

resolved by the courts.

4. Final Regulatory Language for

Paragraph (c)

Accordingly, the paragraph (c) of the

final rule will state:

Restitution, Recoupment, or Setoff

(1) Where an employee successfully

challenges a waiver agreement, covenant not

to sue, or other equivalent arrangement, and

prevails on the merits of an ADEA claim,

courts have the discretion to determine

whether an employer is entitled to

restitution, recoupment or setoff (hereinafter,

‘‘reduction’’) against the employee’s

monetary award. A reduction never can

exceed the amount recovered by the

employee, or the consideration the employee

received for signing the waiver agreement,

covenant not to sue, or other equivalent

arrangement, whichever is less.

(2) In a case involving more than one

plaintiff, any reduction must be applied on

a plaintiff-by-plaintiff basis. No individual’s

award can be reduced based on the

consideration received by any other person.

E. Comments on 29 CFR 1625.23(d):

Abrogation

Paragraph (d) of the proposed

regulation stated that:

No employer may unilaterally abrogate its

duties under a waiver agreement to any

signatory, even if one or more of the

signatories to the agreement or EEOC

successfully challenges the validity of that

agreement under the ADEA.

The Commission received several

comments from representatives of

employers about this provision. One

commenter stated that this proposed

rule could be interpreted as prohibiting

abrogation in circumstances in which

there has not been an ADEA challenge.

By its terms, the proposed language only

pertains to the ADEA, and therefore no

change is warranted.

Another commenter stated that an

employer and employee should be

allowed to include as part of a waiver

agreement a provision stating that if the

ADEA waiver is defective under the

OWBPA, the employer will correct the

defect and the employee will be

required to execute the corrected waiver

rather than file suit in court. The

Commission is not persuaded by this

comment. Congress could not have

intended, in commanding that

employees ‘‘may not waive’’ an ADEA

claim unless the waiver satisfies the

OWBPA, to allow employees’ OWBPA

rights to be subject to a promise which

itself does not comply with the OWBPA.

Accordingly, a promise to correct a

defective waiver has no effect on the

77446 Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations

53See Butcher v. Gerber Prods. Co., 8 F. Supp. 2d

307, 315–17 (S.D.N.Y. 1998) (interpreting Justice

Breyer’s concurrence in Oubre, and deciding that an

invalid release could not permit the employer to

use ‘‘self help’’ by withholding severance benefits

from an employee who filed an ADEA claim).

54The Commission thus does not agree with the

Butcher court’s suggestion that if a waiver is held

valid, the employer is entitled to terminate

severance benefits because the employee breached

the release agreement by filign suit. Id. at 313.

55The size standard used by the Small Business

Administration varies by industry; however, the

SBA uses the ‘‘fewer than 500 employees’’ cut off

when making an across-the-board classification.

56The Commission used figures for the years

1992 through 1996, the most recent years for which

statistics are available from the Small Business

Administration. Although the number of small

entities generally does not vary greatly from year to

year, it rose slightly each year during that period,

from 508,000 in 1992 to 552,000 in 1996. If that

upward trend has continued, then the average

number of small entities during the period of 1995

to 1999 would be somewhat higher.

employee’s ability to pursue an ADEA

claim.

Another commenter argued for a rule

stating that when an employer learns

that a release is invalid under OWBPA,

the employer may stop making

payments due under the release, cure

the defect, and offer the employee a new

release in exchange for new

consideration. According to this

commenter, the employee in that

situation would be free to sign the new

release or pursue an ADEA claim. The

Commission does not agree that an

employer may cancel its obligation to

the employee as soon as it learns that a

waiver does not comply with the

OWBPA.53 The Commission agrees,

however, that the employer in this

circumstance may present the employee

with a new ADEA waiver,

independently valid under each of

OWBPA’s requirements, which the

employee is free to accept or reject.

One commenter interpreted the

language that no employer may

‘‘unilaterally’’ abrogate to mean that an

employer may abrogate its duties with

respect to an individual who has

challenged the waiver as not knowing

and voluntary, reasoning that the

employee’s action would make the

abrogation bilateral. The Commission

does not intend this interpretation. An

employee does not abrogate a waiver

agreement, covenant not to sue, or other

equivalent arrangement by exercising

the guaranteed OWBPA right to have the

agreement’s validity determined by a

court.54 As stated above, an OWBPA

waiver gives the employer an

affirmative defense, not a guarantee of

freedom from litigation. To avoid any

further misinterpretation, the

Commission has removed the word

‘‘unilaterally’’ from the final rule.

The Commission has adopted the

following final rule on abrogation in

paragraph (d):

No employer may abrogate its duties to any

signatory under a waiver agreement,

covenant not to sue, or other equivalent

arrangement, even if one or more of the

signatories or the EEOC successfully

challenges the validity of that agreement

under the ADEA.

This rule applies to the Commission’s

administrative process as well as

litigation.

Executive Order 12866, Regulatory

Planning and Review

Pursuant to section 6(a)(3)(B) of

Executive Order 12866, this final rule

has been reviewed by the Office of

Management and Budget. Under section

3(f)(1) of Executive Order 12866, EEOC

has determined that the regulation is

significant, but will not have an annual

effect on the economy of $100 million

or more or adversely affect in a material

way the economy, a sector of the

economy, productivity, competition,

jobs, the environment, public health or

safety, or State or local or tribal

governments or communities. Therefore,

a detailed cost-benefit assessment of the

regulation is not required.

Paperwork Reduction Act

EEOC certifies that the rule does not

require the collection of information by

EEOC or any other agency of the United

States Government. The rule does not

require any employer or other person or

entity to collect, report, or distribute any

information.

Regulatory Flexibility Act

In the NPRM, the Commission

certified that the proposed regulation

will not have a significant economic

impact on a substantial number of small

entities. The Commission reached this

conclusion because the regulation does

not impose a burden that is not imposed

by the OWBPA. One management

representative commented that the

Commission did not provide a factual

basis for the certification, pursuant to 5

U.S.C. 605(b).

The Commission has reconsidered the

issue of certification. It continues to

believe that its initial analysis is correct.

It also concludes that, even assuming

that the regulation imposes additional

burdens on small entities, it would not

have a significant economic effect on a

substantial number of small entities.

Between 1995 and 1999, a total of 98

charges involving waivers under the

ADEA were filed against ADEA-covered

small entities (those with between 20

and 499 employees) 55 with the EEOC

and with state and local fair

employment practices agencies,

combined. This results in an average of

only about 20 charges per year against

small entities. An ADEA lawsuit cannot

be filed without first filing an ADEA

charge with the EEOC.

According to statistics published by

the Small Business Administration,

Office of Advocacy, there are about

530,000 ADEA-covered small entities.56

Thus, on average each year, there is only

one ADEA charge filed against a small

entity challenging a waiver for every

26,500 ADEA-covered small entities. No

evidence has been presented to the

Commission supporting the conclusion

that there would be an increase in

charges against small entities. Even if,

after this regulation takes effect, there is

a discernable percentage increase in

ADEA charges involving waivers filed

against small entities, the total number

of such charges will remain

insignificant because the current

number of charges is so small. Based on

the foregoing, the Commission

concludes that the rule will not have a

significant economic impact on a

substantial number of small entities.

List of Subjects in 29 CFR Part 1625

Advertising, Age, Employee benefit

plans, Equal employment opportunity,

Retirement.

Dated: December 5, 2000.

Ida L. Castro,

Chairwoman.

For the reasons set forth in the

preamble, the Equal Employment

Opportunity Commission amends 29

CFR part 1625 as follows:

PART 1625—AGE DISCRIMINATION IN

EMPLOYMENT ACT

1. The authority citation for part 1625

continues to read as follows:

Authority: 81 Stat. 602; 29 U.S.C. 621; 5

U.S.C. 301; Secretary’s Order No. 10–68;

Secretary’s Order No. 11–68; sec. 12, 29

U.S.C. 631; Pub. L. 99–592, 100 Stat. 3342;

sec. 2, Reorg. Plan No. 1 of 1978, 43 FR

19807.

2. Section 1625.23 is added to Subpart

B—Substantive Regulations, to read as

follows:

§ 1625.23 Waivers of rights and claims:

Tender back of consideration.

(a) An individual alleging that a

waiver agreement, covenant not to sue,

or other equivalent arrangement was not

knowing and voluntary under the ADEA

is not required to tender back the

consideration given for that agreement

before filing either a lawsuit or a charge

of discrimination with EEOC or any

state or local fair employment practices

Federal Register / Vol. 65, No. 238 / Monday, December 11, 2000 / Rules and Regulations 77447

agency acting as an EEOC referral

agency for purposes of filing the charge

with EEOC. Retention of consideration

does not foreclose a challenge to any

waiver agreement, covenant not to sue,

or other equivalent arrangement; nor

does the retention constitute the

ratification of any waiver agreement,

covenant not to sue, or other equivalent

arrangement.

(b) No ADEA waiver agreement,

covenant not to sue, or other equivalent

arrangement may impose any condition

precedent, any penalty, or any other

limitation adversely affecting any

individual’s right to challenge the

agreement. This prohibition includes,

but is not limited to, provisions

requiring employees to tender back

consideration received, and provisions

allowing employers to recover attorneys’

fees and/or damages because of the

filing of an ADEA suit. This rule is not

intended to preclude employers from

recovering attorneys’ fees or costs

specifically authorized under federal

law.

(c) Restitution, recoupment, or setoff.

(1) Where an employee successfully

challenges a waiver agreement,

covenant not to sue, or other equivalent

arrangement, and prevails on the merits

of an ADEA claim, courts have the

discretion to determine whether an

employer is entitled to restitution,

recoupment or setoff (hereinafter,

‘‘reduction’’) against the employee’s

monetary award. A reduction never can

exceed the amount recovered by the

employee, or the consideration the

employee received for signing the

waiver agreement, covenant not to sue,

or other equivalent arrangement,

whichever is less.

(2) In a case involving more than one

plaintiff, any reduction must be applied

on a plaintiff-by-plaintiff basis. No

individual’s award can be reduced

based on the consideration received by

any other person.

(d) No employer may abrogate its

duties to any signatory under a waiver

agreement, covenant not to sue, or other

equivalent arrangement, even if one or

more of the signatories or the EEOC

successfully challenges the validity of

that agreement under the ADEA.

[FR Doc. 00–31367 Filed 12–8–00; 8:45 am]

BILLING CODE 6570–01–P