Watch That Wording – Appellate Court Invalidates IBM's Standard Release

The Eighth Circuit has reinstated an age discrimination case filed against IBM by an engineer who was terminated as part of a reduction in force. Thomforde v. International Business Machines Corp., No. 04-1538 (8th Cir., May 3, 2005). The three-judge panel ruled that IBM violated the Older Workers Benefits Protection Act (OWBPA), which amended the federal Age Discrimination in Employment Act, by demanding the employee sign a waiver and release in connection with his termination. The release document included separate “covenant not to sue” provisions in addition to standard waiver and release language. Reversing the district court, the Eighth Circuit panel held that the language in the release did not clearly establish, as OWBPA requires, that the plaintiff was not relinquishing his right to bring a claim of age discrimination challenging the validity of the release. The court thus concluded that IBM violated OWBPA's requirement that a valid release of an age discrimination claim must be written “in a manner calculated to be understood by” the intended participants of the reduction in force program. See 29 U.S.C. § 626(f).

In reaching this conclusion, the court was influenced by evidence before the district court that an IBM lawyer had refused to provide the plaintiff, in response to his question, with an interpretation of the company's position as to the release. The court observed that, having decided to use “legal terms of art” in the release, IBM “had a duty to carefully explain the provisions” in the agreement. Because the release did not satisfy OWBPA's requirements, the court held that it was ineffective as a matter of law to waive the plaintiff's right to sue IBM for age discrimination.

Thomforde is a cautionary tale for employers in two respects. First, it reinforces the importance of taking a close look at waiver and release agreements. OWBPA's highly technical requirements make “covenant to sue” language inherently problematic. Second, the Eighth Circuit's opinion can be read to impose a new requirement on employers to undertake an affirmative obligation to explain the terms of a severance arrangement in which a release is requested.

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