The Law Giveth and the Law Taketh Away: Invalidating Claim Release Agreements in Age Discrimination Cases.
Bennett v. Coors Brewing Company, Case No. 97-119597-1221
Tenth Circuit Court of Appeals.
The Bennett case that is the subject of this article was decided by the Tenth Circuit Court of Appeals. The case is pertinent to Oklahoma employers because Oklahoma is within the jurisdiction of the Tenth Circuit. The position taken by the court in this case is illustrative of the position it is likely to take concerning similar matters in the future, and sets the standard to be followed by state and federal district courts concerning such matters. It is also important to note that while much of the court’s analysis is based upon Colorado state law regarding fraud, duress, and mistake, the law in Oklahoma concerning those issues is similar to the law in Colorado, and therefore, would likely lead to a similar result when applied to facts similar to those before the court in this case.
Employers have long sought an avenue by which they might lawfully obtain from their employees the waiver of certain discrimination claims created by federal law. As a consequence of this outcry, Congress made provision in the Older Workers Benefit Protection Act (OWBPA) for such releases of claims. In so doing, Congress erected certain requirements that must be followed in order to create a valid release. The Colorado case of Bennett et al. vs. Coors Brewing Company, which was decided by the United States Tenth Circuit Court of Appeals in late August 1999, brought before the court the question of whether a release that satisfies the requirements of the OWBPA may still be invalid and unenforceable. Consideration of the court’s opinion is instructive in identifying some circumstances that may cause an otherwise valid release to be invalid, unenforceable, and therefore, ineffective to protect the employer from age discrimination claims of its former employees.
In the summer of 1993, Coors Brewing announced plans to reduce its work force by 500 employees. To avoid involuntary lay-offs, Coors developed two voluntary early retirement plans and offered them to eligible employees. Among the eligible employees were Warder Bennett and six of his co-workers in Coors’ security department. After offering the early retirement plans to its employees, Coors took great pains to explain the terms of the plans through various presentations and informational packets which were provided to the eligible employees.
During Coors’ efforts to educate its employees regarding the specifics of the plans, and before the deadline for opting in or out of the plans expired, it became widely known among the employees that one option being considered by Coors to effect the downsizing was the outsourcing of the security department. It was also understood that should outsourcing of the security department take place, all 28 positions in that department would be eliminated. Shortly thereafter, rumors flourished that the decision to outsource the security department had already been made. Consequently, in an effort to squelch these rumors, Coors published bulletins denying the decision had already been made, but acknowledging that such an option was being considered. Coors later became more specific regarding its plans for the security department, indicating its intent to eliminate 9.36 full time positions in that department. Coors also told its employees it would not outsource security at that time, but would revisit the option again in six months. With that information, Bennett and at least six of his co-workers chose to terminate their employment with Coors by accepting one of the two voluntary early retirement plans.
In order to receive the benefits provided by the plans, Mr. Bennett and his co-workers signed a “Legal Release and Agreement Not to Sue” document prepared by Coors The Release provided, among other things, that:
You agree fully and forever to release all of your legal rights and claims against Coors, whether or not presently known to you, including future legal rights and claims, if based on acts or omissions occurring before you deliver this signed Agreement to the Benefits Department, in any way relating to your employment with Coors, including your separation from employment . . . .
You agree that the legal rights and claims that you are giving up include, but are not limited to, all state and federal statutes which protect you from discrimination and employment on the basis of sex, race, national origin, religion, disability and age, such as the Age Discrimination in Employment Act of 1987, . . . as well as all common-law rights and claims, such as breach of contract, express or implied, tort, whether negligent or intentional, wrongful discharge and to any claim for fraud, omission or misrepresentation concerning the [Early Retirement Window or Enhanced Severance Program].
You agree that, if you bring any kind of legal claim against Coors that you have given up by signing this Agreement, then you will violating this Agreement and you must pay all legal fees, other costs and expenses incurred by Coors in defending against your claim.
In addition, the Release advised the employees to consult a lawyer before signing the Release, gave them 45 days to consider whether to sign the Release, and set a seven day period within which employees could revoke their acceptance after accepting the plan.
By November 5, 1993, employment of the Mr. Bennett and six of his co-workers had been officially terminated under the early retirement plans. Five days after the official termination date, Coors published notices, both internally and in the Denver Post, advertising job openings in the security department. Shortly after posting these notices, Coors hired several replacements for the security department. Based on these replacement hirings, Bennett and five of his co-workers filed charges of age discrimination with the Equal Employment Opportunity Commission, and sued Coors in Colorado federal district court for age discrimination under the federal Age Discrimination in Employment Act (ADEA), and wrongful discharge, outrageous conduct, negligent misrepresentation, and fraud, under Colorado state law.
In the lawsuit, Plaintiffs alleged all the foregoing facts and that by the end of February 1994, Coors had hired twelve replacement personnel in the security department, eleven under the age of 40 and the twelfth being age 41. Plaintiffs also claimed that by the end of 1994, Coors had hired enough new security personnel to bring the total number of employees in that department back to the number that existed prior to the downsizing that eliminated Plaintiffs’ positions. Coors denied these allegations, explaining that the replacement hirings were the consequence of its restructuring plan, whereby several management positions had been eliminated and replaced with entry-level positions.
Alternately claiming that Coors had (a) constructively discharged them under the ADEA, (b) fraudulently or negligently induced them to resign from their jobs and sign the Releases, (c) wrongfully discharged them, and (d) engaged in outrageous conduct, Plaintiffs sued Coors under both federal and state law. Coors filed a motion for summary judgment on all of Plaintiffs’ claims, relying in principle upon the plain language of the Releases executed by the Plaintiffs. The district court granted Coors’ motion for summary judgment, concluding that the plain and express language of the Releases left no room for factual dispute, and therefore, barred Plaintiffs’ claims. In the alternative, the court concluded that Plaintiffs’ claims were barred because it was undisputed that Plaintiffs did not “tender back” their severance packages before bringing suit, and such tender was required in order to bring a valid discrimination claim under Colorado state law. Plaintiffs appealed.
The ADEA Claims
In an effort to overcome the plain language of the Releases, Plaintiffs argued that while releases of the sort executed by them are permitted under the OWBPA, the Releases they signed were invalid because Plaintiffs did not “knowingly and voluntarily” execute them as required by the Act. In support of this position, Plaintiffs alternately claimed that they (a) were induced to sign the Releases by fraudulent representations made by Coors, (b) executed the Releases under duress, and (c) were, with Coors, mistaken as to the claims being waived. Coors countered that the Releases were valid because they satisfied the express requirements of the OWBPA. In addressing the “express requirements” argument made by Coors, the court noted that the release requirements under the OWBPA are “minimum” requirements for a valid waiver of ADEA claims. The court noted that under Section 626(f)(1) of the OWBPA, a waiver must, at a minimum, meet the following requirements to satisfy the threshold test of validity:
(1) the release must be written in a manner calculated to be understood by the employee signing the release, or by the average individual eligible to participate;
(2) the release must specifically refer to claims arising under the ADEA;
(3) the release must not purport to encompass claims that may arise after the date of execution;
(4) the employer must provide consideration for the waiver or release of ADEA claims above and beyond that to which the employee would otherwise already be entitled;
(5) the employee must be advised in writing to consult with an attorney prior to executing the agreement;
(6) the employee must be given at least 45 days to consider signing if the incentive is offered to a group;
(7) the release must allow the employee to revoke the agreement up to 7 days after signing; and
(8) if the release is offered in connection with an incentive or group termination program, the employer must provide information relating to the job titles and ages of those eligible for the program, and the corresponding information relating to employees in the same job titles who were not eligible or not selected for the program.
The court concluded that the Releases signed by the Plaintiffs satisfied these “minimum” requirements. The court went further, however, noting that these “statutory factors are not exclusive and other circumstances, outside the express statutory requirements, may impact whether a waiver under the OWBPA is knowing and voluntary.” In explaining how this standard should be implemented, the court noted that one must “look beyond the contract language and consider all relevant factors in assessing a plaintiff’s knowledge and the voluntariness of the waiver.” Relying both upon general principles of contract law and the legislative history of the OWBPA, the court recognized that contracts are void and unenforceable if they are procured through fraud, duress, or mutual mistake. The court then equated a contract that is void and unenforceable due to fraud, duress, or mutual mistake, with a release under the OWBPA that is not “knowingly and voluntarily” executed. Having established this analytical framework, the court commenced analyzing the facts asserted by the Plaintiffs against the elements of a cause of action for fraud, duress, and mutual mistake.
Was there fraud?
In evaluating Plaintiffs’ claims of fraud, the court first considered the elements of a fraud cause of action under Colorado statutory and case law. (The elements and pertinent case law are virtually identical to that of Oklahoma.) Of particular prominence in the court’s analysis was consideration of the fraud that exists when one party makes a promise regarding a future event, but has no intention of fulfilling it. In this case, Plaintiffs alleged that Coors never intended to reduce the employees in its security department, and that the 9.36 full-time position reduction was merely a ruse to secure the termination of its older employees so younger replacements could be hired. Plaintiffs further argued that Coors’ statement regarding revisiting the outsourcing issue in six months was also a ruse to mask its true intentions.
Based on these allegations, as well as the fact that Coors began advertising for replacements shortly after Plaintiffs’ terminations became effective, and the allegation that after the terminations Coors rebuilt the department to its pre-downsizing level, the court concluded that Plaintiffs had established a prima facie case for fraud as to the execution of the Releases. As a result, the court ordered that part of the case returned to the district court for further development.
Was there duress?
Next the court turned its attention to Plaintiffs’ claim that the Releases were not knowing and voluntary because they were signed under duress. Again the court looked to the elements of a claim for duress under Colorado law. In particular, Plaintiffs argued that Coors’ threat of outsourcing the security department left Plaintiffs with no choice but to accept the severance packages. In considering this allegation, the court noted that in order to make a claim for duress under Colorado (and coincidentally Oklahoma) law a party must show an unlawful threat or other improper means that causes the will of one party to be so taken away that he cannot properly enter into the contract. The court explained that exertion of pressure by threats alone or even physical compulsion was not sufficient to establish a prima facie case for duress. Rather, the force or threats must actually “subjugate the mind and will” of the person against whom they were directed so as to become the sole cause of the action taken. The court further noted that a claim for duress does not exist where the party takes the opportunity to reflect upon his decision, consults with others, and has the benefit of their advice, especially when one of those persons is an attorney.
In applying the facts to these legal requirements, the court concluded that Coors had not “threatened” the employees with downsizing in the manner necessary to constitute duress under Colorado law. “Coors was completely within its legal rights to downsize or outsource the security department,” the court noted, and the “pressures” felt by Plaintiffs are “present any time an employee faces the difficult choice between accepting additional benefits or pursuing his legal rights.” Finally, the court noted that Plaintiffs were given an opportunity for reflection upon their decisions, a seven day period within wich to revoke that decision, and were encouraged by Coors to consult legal counsel before signing the Releases. All total, the court concluded Plaintiffs were not exposed to nor did they sign the Releases under the duress necessary to invalidate the Releases.
Was there a mutual mistake?
Next the court turned its attention to determining whether the allegations made by Plaintiffs, when considered with the facts set out in the summary judgement motions, could support Plaintiffs’ claim that the Releases were not knowingly and voluntarily executed due to a mutual mistake between Plaintiffs and Coors. In order to invalidate a contract under Colorado law based upon a mutual mistake between the parties, there must exist a mutual mistake. The court found no mistake concerning the Releases that was common to both the Plaintiffs and Coors. Plaintiffs argued that unless the Releases applied only to claims accruing prior to the time the Releases were signed, there was a mutual mistake as between Plaintiffs and Coors because Coors’ contention was that all claims asserted by Plaintiffs in the lawsuit were barred by the Releases, and Plaintiffs’ ADEA claims did not accrue until after the terminations became effective. The court concluded that rather than a question of mutual mistake, the dispute was really one concerning the scope of the Releases. Because the Releases clearly released any claim in any way relating to Plaintiffs’ employment with Coors, which included Plaintiffs’ ADEA claims, there could be no mutual mistake that would invalidate the Releases.
Does Plaintiffs’ failure to “tender back” benefits prior to suing Coors bar Plaintiffs’ ADEA claims?
Finally, Coors argued that under Colorado law Plaintiffs’ failure to tender back their termination benefits prior to bringing suit against Coors resulted in Plaintiffs’ ratification of the Releases, and therefore, the release of claims made therein were effective, irrespective of any fraud, duress, or mistake. Under Colorado law, the court concluded that Plaintiffs’ failure to “tender back” their benefits was a ratification by Plaintiffs of the Releases, and therefore, Plaintiffs’ state law claims were barred by the language of the Releases irrespective of any fraud, duress, or mistake that may have occurred. The court further concluded, however, after considering the statutory language of the OWBPA, that waiver of the federally based ADEA claims could not be ratified by Plaintiffs’ failure to tender back their termination benefits. Therefore, the court concluded, Plaintiffs’ ADEA claims were not affected by Plaintiffs’ failure to “tender back” benefits under Colorado state law.
What can an employer learn from this case?
In this case the court did not determine that Coors had defrauded Plaintiffs, or that it had improper motives in obtaining Plaintiffs voluntary termination through early retirement packages. Nevertheless, Coors was made to defend Plaintiffs’ allegations in federal district court, and despite success at that level on its motion for summary judgement, was made to return to that court by the 10th Circuit to further defend its actions. None of this, of course, came cheaply. Therefore, any employer that attempts to restructure its company by seeking voluntary resignations from its employees in consideration of some early-retirement benefits package, must be aware that its actions in effecting such resignations may later come under scrutiny by a plaintiff’s attorney and later a court. Improper motives, or proper motives that are not carefully executed, will unravel the best of releases and waivers of claims. Employers that wish to reorganize should not only avoid any impropriety in executing the plan, but must go further and avoid even the appearance of impropriety. Minimize the risk of becoming a target. Seek competent legal advice before developing a reorganization or downsizing plan. No matter how good the terms at the time of termination, former employees who feel they have been wronged will seek their pound of flesh whether they have truly been wronged of not.
Steven K. Metcalf