[Federal Register Volume 65, Number 238 (Monday, December 11, 2000)]
[Rules and Regulations]
[Pages 77438-77447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31367]



[[Page 77437]]

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Part III





Equal Employment Opportunity Commission





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29 CFR Part 1625



Waivers of Rights and Claims; Tender Back of Consideration; Final Rule

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

[[Page 77438]]


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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.

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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\
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    \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).
    \2\ S. 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].
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    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.
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    \3\ Id. at 31-32.
    \4\ These requirements also apply to a waiver in settlement of 
an ADEA charge filed with the EEOC. 29 U.S.C. 626(f)(2).
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    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\
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    \5\ S. 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).
    \6\ S. 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.
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    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 non-
enumerated 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\
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    \7\ S. Rep. No. 101-263, supra note 2, at 35 (``A waiver of 
rights or release of claims is generally available as an affirmative 
defense.'')
    \8\ See 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).
    \9\ S. 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.
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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

[[Page 77439]]

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.
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    \11\ However, 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).
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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).
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    \12\ See 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].'').
    \13\ See 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.'').
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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.
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    \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).
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    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\
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    \15\ Oubre, 522 U.S. at 427 (majority opinion).
    \16\ Id.
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    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\
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    \17\ Id. at 428.
    \18\ Id. at 433 (Breyer, J., and O'Connor, J., concurring).
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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

[[Page 77440]]

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.
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    \19\ See 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/.
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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.
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    \20\ Oubre, 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.'').
    \21\ Oubre, 522 U.S. at 427 (majority opinion). See also id. at 
430-31 (Breyer, J., and O'Connor, J., concurring).
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    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\
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    \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.'').
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    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\
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    \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.
    \24\ The 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 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.

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[[Page 77441]]

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.
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    \25\ However, the rule on tender back clauses has been removed 
from paragraph (a) and incorporated into paragraph (b).
    \26\ See Oubre, 522 U.S. at 427 (majority opinion).
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    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\
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    \27\ This 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).
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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\

    \29\ Note 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.

    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

[[Page 77442]]

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.
---------------------------------------------------------------------------

    \30\ See 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).
    \31\ Cf. 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \32\ Oubre, 522 U.S. at 427 (majority opinion).
    \33\ Id.
    \34\ Cf. 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))).
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    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

[[Page 77443]]

impede access to judicial review and thus undermine this legislative 
balance.
---------------------------------------------------------------------------

    \35\ See S. Rep. No. 101-263, supra note 2, at 31-32.
    \36\ See 29 U.S.C. 626(f)(3). See also supra notes 7-9.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \37\ Hodge v. New York College of Podiatric Medicine, 157 F.3d 
164, 168 (2d Cir. 1998) (citations omitted). See 29 U.S.C. 626(d).
    \38\ S. 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'').
---------------------------------------------------------------------------

    (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 OWBPA-compliant 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)).
---------------------------------------------------------------------------

    \39\ 29 U.S.C. 626(f)(1).
    \40\ See J.D. Calamari, The Law of Contracts Sec. 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 
Sec. 1251 (1964)); 66 Am Jur. 2d Release Sec. 2 (1973).
    \41\ See 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).
    \42\ Cf. 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 Sec. 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).
    \44\ Oubre, 522 U.S. at 427 (majority opinion).
---------------------------------------------------------------------------

    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

[[Page 77444]]

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).
---------------------------------------------------------------------------

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

    (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 non-ADEA 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\
---------------------------------------------------------------------------

    \46\ 64 FR at 19957.
---------------------------------------------------------------------------

    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

[[Page 77445]]

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.
---------------------------------------------------------------------------

    \47\ As 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \48\ These individuals would include those who contemplate 
seeking primarily injunctive relief, for example, reinstatement in 
their former position.
    \49\ Cf. 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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \50\ Oubre, 522 U.S. at 428 (majority); id. at 433 (Breyer, J., 
and O'Connor, J., concurring).
    \51\ See 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 
Sec. 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \52\ See 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).
---------------------------------------------------------------------------

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

[[Page 77446]]

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.
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    \53\ See 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).
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    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.
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    \54\ The 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.
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    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.
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    \55\ The 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.
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    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.
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    \56\ The 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.
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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:


Sec. 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

[[Page 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