Give them something to go on: strategies for employee waivers.

If you're concerned about being sued by a dismissed employee, one solution is to obtain a waiver, release, or covenant not to sue. All of these terms refer to the same idea: The employee promises not to sue the association in return for some benefit. For simplicity, we'll refer only to waivers.

The Older Workers Benefit Protection Act (OWBPA) of 1990 made obtaining waivers significantly more difficult. (For an analysis of OWBPA, see "Legal," February 1991.) Although OWBPA applies only to waivers of age discrimination claims, a comprehensive waiver should include age discrimination claims.

Title II of OWBPA amends the federal Age Discrimination in Employment Act (ADEA). It says that to be legal, any waiver of ADEA claims must be "knowing and voluntary." To be knowing and voluntary, in turn, the waiver must satisfy seven conditions:

1. The waiver must be part of a written agreement between the individual and the employer. The agreement must be understandable to the individual.

2. The waiver must specifically refer to age discrimination claims.

3. The agreement may not waive future rights.

4. In exchange for a waiver, the individual must be given something of value above and beyond what he or she is already entitled to.

5. The individual must be advised in writing to see a lawyer before signing the agreement.

6. The individual must be given at least 21 days to consider the agreement (45 days if the agreement is part of an early retirement offer for a group of employees).

7. After signing, the individual must still be given another seven days to reconsider, and the agreement cannot be effective before that time.

The burden of proof is on the association to prove that it complied with all these terms. Some of these conditions require a word of explanation.

Understandable language. Waivers must be in plain English. Consider the possible result of a boilerplate release clause that speaks of a person and his or her "heirs, assigns, and successors," who "waives, releases, and covenants not to sue" the association and its "agents, servants, representatives, past, present, or future directors and employees" on "all suits, pleadings, claims, causes of actions, judgments, and/or proceedings of any and all natures whatsoever, howsoever denominated, and wheresoever brought." Instead of making the agreement airtight, this language might actually void it because the average person found it incomprehensible.

Whether the agreement is understandable depends on who reads it. To an attorney, human resources person, or manager used to dealing with contracts, whereas and wherefore may be perfectly understandable. For others, the language may have to be simpler. Or, if the association insists on using formal language, you may have to explain it to the employee.

The courts or the Equal Employment Opportunity Commission might also require translations of agreements for those whose native language is not English.

Future waivers. The third requirement means that a person cannot waive claims that haven't happened yet. For example, assume that unbeknownst to the employee, he or she has a claim for overtime compensation. Once he or she signs the waiver, that claim is extinguished. But a week after signing the waiver, the person falls on the sidewalk in front of the association's office. He or she may still sue the association for negligence, because this claim arose after the release was signed.

Additional consideration. For a waiver to be valid, you must give the employee something more than what he or she is already entitled to. Threatening to withhold the final paycheck, severance pay, or vested pension benefits unless the employee signs a waiver will void the waiver.

On the other hand, if something is genuinely in dispute, agreeing to settle it can serve as the additional consideration. Suppose the employee believes he or she is entitled to overtime pay for 300 hours, but the association believes he or she is exempt and entitled to no overtime. If the association compromises by agreeing to pay for some number of hours, this agreement to waive a potential claim can serve as the additional consideration. Another typical example is the association's promise not to contest an employee's application for unemployment compensation.

The safest course is to give the employee something that he or she indisputably is not entitled to, such as extra severance pay, placement help, or a more favorable recommendation. There are no laws telling an employer what form or what amount additional consideration must take and courts usually will not inquire into its adequacy.

The most typical consideration for a waiver is extra cash, paid in a lump sum and without deductions. Other examples are paying part or all of attorneys' fees; letting the employee use the office to look for work; continuing health benefits beyond what the Consolidated Omnibus Budget Reconciliation Act of 1984 (COBRA) requires; letting the employee keep something like a company car; and giving the employee a waiver, such as agreeing not to sue to recover payments made for unauthorized expenses.

Waiting period. This requirement could prove troublesome even for employees because it delays any lump sum payments for at least 28 days. Say both parties recognize the relationship has not worked out. The employee is perfectly happy to take an extra four months severance pay and sign a waiver right then and there; the association is willing to cut a check for the entire amount as soon as the agreement is signed. Both parties also agree that it would be better if the employee left immediately.

Nevertheless, the employee has to wait four weeks for the check because OWBPA mandates the waiting period and the parties themselves cannot waive it. Counsel probably would not advise the association to pay until it has an enforceable settlement agreement.

What are the alternatives? In light of OWBPA, associations have three. First, they can avoid OWBPA by not demanding waivers of age discrimination claims. This is what Congress would like to see happen. Rather than abolish waivers, it made them cumbersome to obtain, hoping that employers would voluntarily abandon them. This might be an acceptable solution if the employer is willing to take the risk of potential exposure to an ADEA claim, or if the employee is 26 years old and not covered by ADEA.

The second alternative is to make sure all waiver agreements satisfy OWBPA conditions, even if age discrimination claims are subsidiary to claims such as sex discrimination or wrongful discharge. The third is to bifurcate waiver agreements, having one agreement for age discrimination claims alone and a second for all other agreements.

Although waiver of claims may be the most important element of the severance agreement, it will not be the only clause. Typically, settlement agreements also contain the following provisions:

* Neither party admits to any wrongdoing.

* Both parties promise to keep the agreement confidential.

* The association also releases whatever claims it may have against the individual.

* What type of reference the association will give the person and to whom inquiries should be directed.

* Neither party will disparage or defame the other.

* The mechanics for paying any severance such as one lump sum, periodic payments, deductions for taxes, or no deductions for taxes.

* Automatic voiding of the agreement if either party breaches it.

George D. Webster is general counsel to ASAE and a partner in Webster, Chamberlain & Bean, a Washington, D.C., law firm.