INTRODUCTION :: Suppose you own a company and you decide to terminate an employee. Other employees have unsuccessfully sued your company for federal employment discrimination, and you want to avoid another discrimination lawsuit and its legal costs. So you offer a generous severance package to this employee, provided that he signs a severance agreement which contains a waiver of all legal claims related to his employment with (or termination from) your company. Both the agreement and waiver are crystal-clear.
You do not require the employee to sign the agreement “on the spot.” Instead, you afford him a twenty-one day period in which to review the agreement. In addition, the agreement advises the employee to consult with legal counsel before he signs it, but he chooses not to consult an attorney regarding the agreement or its waiver of employment claims. The employee then signs the agreement on the last day of the review period and returns it to you. Per the agreement, your company then pays all of the severance compensation to the employee.
Now, suppose this employee immediately sues your company under various federal employment law theories, such as employment discrimination in violation of Title VII of the Civil Rights Act of 1964 (Title VII) or the Americans with Disabilities Act of 1990 (ADA). In response to your company’s waiver defense, could the employee successfully argue that the waiver was not “knowing and voluntary” because he (1) did not actually consult with an attorney prior to signing the severance agreement, (2) did not actually read or consider the agreement, and (3) lacked sufficient business experience, sophistication, and education?
Nine federal circuits-the First, Second, Third, Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh-now use a “totality of circumstances” test (totality test) to determine if a waiver of most federal employment claims was “knowing and voluntary.” This test contains no per se requirements for a knowing and voluntary waiver; instead, it includes six or more factors (depending upon the circuit) that a court must weigh to make that determination.
Some of the totality test’s factors are solely within the control of the employer and do not depend upon, or vary with, the employee. These “Employer-Controlled Factors” include the following: using clear, understandable waiver language; providing valuable consideration to the employee in exchange for the waiver; affording the employee adequate time in which to review and consider the waiver; and advising the employee to consult with an attorney prior to signing the waiver.
In contrast, many of the test’s factors-in some circuits, over half-depend solely upon the employee and are outside of an employer’s control. These “Employee-Dependent Factors” include the following: the employee’s education, background, and business experience; whether the employee actually consulted with an attorney before signing the waiver; the role that an employee played in deciding the terms of the agreement; whether the employee actually knew or should have known of his or her employment rights at the time of signing the waiver; and whether the employee actually read and considered the waiver before signing it.
Part II of this Article discusses the genesis and evolution of the totality test by reviewing the seminal cases in which nine of the federal circuits adopted the test during only a seven year period.
Part III discusses the Older Workers Benefit Protection Act of 1990 (OWBPA), which in part enumerates the requirements that employers must meet before an employee can knowingly and voluntarily waive a federal age discrimination claim under the Age Discrimination in Employment Act of 1967 (ADEA). While the OWBPA technically deals only with waivers of ADEA claims, it is important in any discussion of the totality test because its waiver requirements were, in part, Congress’s response to the inadequacies of that test.
Part IV presents the totality test’s two shortcomings: (1) its use of a pool of waiver factors, rather than per se waiver requirements and (2) its inclusion of Employee-Dependent Factors over which an employer has no control. This Part also discusses the four problematic consequences that result from these two features. First, the totality test penalizes good-faith employers-such as your company in the above example-who have taken the steps within their control to ensure a valid waiver because they are nonetheless compelled to defend a waiver challenge that is based on employee-dependent variables. Second, the test provides employees with inadequate waiver protection from bad-faith employers because it fails to impose any specific waiver-related requirements on those employers. Third, the totality test perpetuates waiver-related litigation that clogs judicial dockets because its Employee-Dependent Factors inject uncertainty into the validity of almost every waiver. Fourth, the test leads cost-conscious employers to reduce the amount of employee severance benefits because those employers offset benefits by their anticipated legal expenses in connection with waiver-related litigation. Part IV concludes by explaining how the totality test is inconsistent with the Congressional waiver philosophy of the OWBPA, which uses only employer- controlled requirements.
Part V of this Article proposes and then defends a new test-the Waiver Certainty Test-for determining whether a waiver of non-ADEA federal employment claims is knowing and voluntary. This new test imposes four employer-controlled requirements for a valid waiver: (1) it must contain clear, unambiguous waiver language; (2) it must be supported by valid consideration; (3) the employer must afford the employee up to twenty-one days to review the waiver before signature; and (4) the employer must advise the employee in writing to consult with legal counsel before signing the waiver. Part V explains how the Waiver Certainty Test fixes the totality test’s two shortcomings, dovetails with the Congressional waiver approach embodied in the OWBPA, and avoids the totality test’s four problematic consequences.