The Kruchowski decision is available online at 09/ htm.

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1 September 23, 2005 To: From: Re: EEAC Members Jeffrey A. Norris President Troubling Decision by Tenth Circuit in Kruchowski v. Weyerhaeuser Casts Doubt on Enforceability of Many ADEA Releases Obtained in Conjunction With Group Exit Incentive Plans A federal appeals court has put a startling new spin on two of the informational requirements an employer must satisfy under the Older Workers Benefit Protection Act (OWBPA) when seeking valid releases of claims in connection with a group termination program. Indeed, the ruling casts doubt on the enforceability of many, if not most, of the releases that companies throughout the country have obtained in the course of reducing and restructuring their workforces. The decision by the U.S. Court of Appeals for the Tenth Circuit in Kruchowski v. Weyerhaeuser Co., No (September 13, 2005) is particularly troubling because of the court s interpretation of OWBPA s requirement that an employer must inform individuals who are asked to sign releases in connection with a group termination program as to any eligibility factors for such program. The decision erroneously equates eligibility factors for these purposes with the selection criteria the employer uses in deciding which individuals will be terminated under the program. Also of concern is the court s conclusion that releases are invalid if the scope of the unit the employer uses in compiling the informational lists of job titles and ages required by OWBPA does not coincide precisely with the decisional unit the employer has described in its notices to terminated employees, implying that even a slight discrepancy between the description of the decisional unit set forth in the OWBPA notices and the actual unit from which the employer makes its selections will invalidate any releases obtained pursuant to the notices. The Kruchowski decision is available online at 09/ htm.

2 -2- OWBPA s Requirements for Valid Releases OWBPA was enacted in 1990 as an amendment to the Age Discrimination in Employment Act (ADEA). Title II of OWBPA sets forth certain requirements that must be satisfied in order for a release of claims under the ADEA to be valid and enforceable. Among these are requirements that: the release must be in writing; it must refer specifically to claims arising under the ADEA; it must not purport to waive claims that may arise after it is signed; it must be given in exchange for consideration to which the employee would not otherwise be entitled; the employee must be advised in writing to consult an attorney prior to signing; and the employee must be given a specified period of time to consider the release before signing and to revoke it after signing. Additional Requirements Applicable to Group Exit Incentive Programs In addition to the requirements listed above, if an ADEA release is sought in connection with an exit incentive program or termination program offered to a group of employees, it also must meet certain other requirements spelled out in OWBPA and implementing regulations issued by the Equal Employment Opportunity Commission (EEOC). 1 Specifically, subsection (f)(1)(h) of OWBPA says that, in the context of a group program, the employer must inform each individual who is asked to sign a release as to (i) any class, unit, or group of individuals covered by such program, any eligibility factors for such program, and any time limits applicable to such program, and (ii) the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible for the program. These notifications must be provided in writing in a manner calculated to be understood by the average individual eligible to participate. The purpose is to enable individuals faced with 1 OWBPA s Title II provisions are codified at 29 U.S.C. 626(f). The regulations are published at 29 C.F.R (f).

3 -3- deciding whether to sign releases in the context of a group termination program to assess the possibility of age discrimination in the employer s selections under the program. EEOC s OWBPA regulations define the scope of these informational requirements as the decisional unit from which the employer selected the individuals whose employment would be terminated and those who would be retained. The decisional unit is determined on a case-bycase basis depending on the employer s organizational structure. As a general rule, it is no broader than a particular facility, but in appropriate cases some subgroup of a facility s workforce may be the decisional unit, while in other situations, the decisional unit may comprise more than one facility. Kruchowski Facts and Lower Court Ruling In implementing a reduction in force (RIF) for the salaried workforce at its containerboard mill in Valliant, Oklahoma, Weyerhaeuser sent each of 31 salaried employees a Group Termination Notice. The notice identified the decisional unit for the RIF as all salaried employees of the company employed at the mill. Attached to the notice were two lists showing, by job titles and ages (but not names), those employees who had been selected for termination and those who had not been selected for termination. The company then sent each terminated employee a release of claims, a calculation of severance pay, and a copy of its salaried severance pay plan summary. Ted Kruchowski and some 15 other salaried employees signed the releases in exchange for the severance benefits, but then proceeded to sue Weyerhaeuser in federal district court, alleging age discrimination in violation of the ADEA. The district court granted summary judgment in Weyerhaeuser s favor, finding that the plaintiffs claims were barred because they had knowingly and voluntarily signed releases. Tenth Circuit: Releases Invalid On plaintiffs appeal to the Tenth Circuit, 2 a three-judge panel reversed, finding that the releases were invalid because the company s informational notices failed to satisfy either of the OWBPA group termination requirements quoted above relating to eligibility factors, as required under subsection (f)(1)(h)(i), or the decisional unit, as required under subsection (f)(1)(h)(ii). Court Erroneously Equates Eligibility Factors With RIF Selection Criteria With regard to eligibility factors, the court acknowledged that Weyerhaeuser s notice delineated the eligible pool for its group termination program as the salaried employees of the 2 The Tenth Circuit hears appeals from federal trial courts in Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming.

4 -4- mill, but the court said that was not sufficient. It said eligibility factors as used in subsection (H)(i) refer to the factors the employer used in determining which of the salaried employees of the mill would be selected for the RIF and which would not. We have already heard from a number of EEAC-member representatives and counsel expressing surprise at this interpretation and pointing out that few, if any, employers have ever spelled out RIF selection criteria in OWBPA notices. Documents in the case indicate that the company said it based its RIF selections on an analysis of the leadership abilities, technical skills, and behavior of each employee and whether the employee s skills matched the company s business needs. These RIF selection criteria, the court said, were the eligibility factors the company was required to list in its OWBPA notices. Since the company had failed to do so, the court said the releases were invalid. We believe the court was wrong in equating the eligibility factors for a group program with the selection criteria the employer used to decide which members of the eligible group would be terminated. Indeed, the court s interpretation appears to contradict language of OWBPA and its regulations. Both the statute and the regulations say that an employer must disclose the eligibility factors for [the] program, not the criteria used for making selections from among the group that is eligible for the program. EEOC s OWBPA regulations give an example of a way in which an employer can provide the required information in a context almost identical to that of this case. In the example, an employer has decided that it must terminate 10 percent of the employees in its Construction Division and is seeking releases from the terminated employees. The regulation states that the employer may provide the required information through a notice worded as follows: (A) The decisional unit is the Construction Division. (B) All persons in the Construction Division are eligible for the program. All persons who are being terminated in our November RIF are selected for the program. (C) All persons who are being offered consideration under a waiver agreement must sign the agreement and return it to the Personnel Office within 45 days after receiving the waiver. Once the signed waiver is returned to the Personnel Office, the employee has 7 days to revoke the waiver agreement. (D) The following is a listing of the ages and job titles of persons in the Construction Division who were and were not selected for termination and the offer of consideration for signing a waiver: [A sample list follows]. 3 3 See 29 C.F.R (f)(4)(vii).

5 -5- This appears to be precisely the format Weyerhaeuser followed in its informational notices. There is no mention anywhere in OWBPA or the EEOC regulations of a requirement that an employer must notify employees of the criteria it intends to use in selecting employees for termination. On the contrary, the foregoing example clearly indicates that the term eligibility factors does not refer to performance factors, job skills, length of service, or other criteria used to select among the employees in the eligible group. Court Insists on Precise Identification of Decisional Unit The Tenth Circuit also found the releases in the Weyerhaeuser case to be invalid because the decisional unit the company used in compiling the lists of job titles and ages that it appended to its Group Termination Notice was not the same as the decisional unit the company had identified in the Notice itself. That is, while the Notice described the decisional unit as all salaried employees at the Valliant Containerboard Mill, the actual lists were based on a unit comprising only those salaried employees at the Mill who reported to the Mill manager. The effect of this discrepancy, the court said, was to exclude 15 individuals, or about 10 percent of the salaried employees at the mill, from the lists of job titles and ages the company provided. The court does not appear to be saying that the informational lists the company provided were incomplete in relation to the decisional unit the company actually used in making its selections. Indeed, the court s opinion cites provisions of the OWBPA regulations that make clear that, when an employer limits its selections for a termination program to employees reporting to a particular manager, then the decisional unit is limited to employees reporting to that manager. 4 Thus, it seems clear that the true decisional unit in this case was a unit limited to salaried employees of the mill who reported to the mill manager precisely the group that the company used in compiling the lists it appended to its informational notices. Rather, the court s concern seems to be only that the decisional unit the company actually used did not coincide precisely with the decisional unit it described in the text of its Notice. In explaining why it thought this technical discrepancy mattered, the three-judge panel declares woodenly that: The statute requires that terminated employees be informed of the decisional unit at the time they consider whether to waive any ADEA claims. Defendant failed to provide the correct, mandated information when it informed plaintiffs that the decisional unit included all salaried employees of the Mill. Because the information defendant provided did not meet the strict and unqualified requirement of the OWBPA, the Release is ineffective as a matter of law. 4 See 29 C.F.R (f)(3)(iii)(D) and (iv)(d).

6 -6- In other words, the court takes the rigid position that, if an employer s OWBPA notices do not set forth a precisely accurate description of the decisional unit on which the employer actually based a RIF, then any releases obtained pursuant to those notices are invalid, even though the employer has provided complete lists of the job titles and ages of all persons in the actual decisional unit. This highly technical interpretation by the court sets a standard of precision that could invite challenges to many releases, particularly ones obtained in the context of large, complex corporate RIFs and reorganizations. Significance We believe the Kruchowski decision is clearly wrong in holding that OWBPA notices must include a recitation of the selection criteria an employer used in deciding which of the eligible employees would be terminated and which would be retained. The potential significance of this error is hard to overstate, because as we understand, few if any employers have ever included such factors in OWBPA notices. We also believe that the court s rigid insistence that OWBPA notices must set forth a complete and precise description of the decisional unit was unjustified in this case, especially when one considers that the employer provided complete informational lists covering all of the employees in the decisional unit it actually used. This hyper-technical view of the requirement to inform employees as to the precise contours of the decisional unit has potentially broad significance, particularly because many corporate reorganizations and restructurings involve decisional units that are far more complicated, and therefore may be more difficult to describe with complete precision, than the unit involved in this case. Weyerhaeuser s attorneys have told EEAC that they intend to file a petition asking the Tenth Circuit to reconsider its decision. EEAC plans to file a friend-of-the-court brief supporting that request. Questions concerning this memorandum should be directed to Ann Reesman or Bob Williams at