Final Exit: Voluntary Severance Plans

Voluntary severance plans (“VSPs”) or early retirement incentive plans are a valuable tool schools can use to adapt to their changing workforce needs. Generally, VSPs offer a financial incentive to qualified employees in exchange for their resignation. VSPs are typically offered to individuals who meet contractually prescribed years of service and can be tailored in a variety of different ways.

The Age Discrimination in Employment Act (“ADEA”) and the Older Workers Benefit Protections Act (“OWBPA”) prohibit a VSP from being used as a pretense for discriminating against older workers by: (1) denying severance pay to employees eligible for retirement while paying other similarly situated em­ployees; or (2) forcing older workers to retire through the establishment of a mandatory retirement age.

To comply with the ADEA and the OWBPA, a VSP must: (1) be truly voluntary; (2) be made available for a reasonable period of time (i.e., at least 45 calendar days); and (3) not result in arbitrary age discrimina­tion. As long as a VSP complies with these requirements, an employer may:

  1. set a minimum age or a minimum number of years of service for eligibility;
  2. offer a VSP for a limited period of time (e.g., only to those who resign between certain dates); and
  3. offer a VSP only to a subset of employees (e.g., only to teachers, administrators, support staff; only to a particular department; or only to employees at a single school).

Since most employees who resign pursuant to a VSP are close to retirement, school officials should protect against age discrimination claims by including a waiver/release of claims in the VSP agreement that complies with the waiver provisions of the OWBPA.

Both the ADEA and OWBPA establish procedural requirements for VSPs to be considered a valid waiv­er/release. There are also other issues, such as integration with an existing collective bargaining agreement, which should be considered.

The EEOC emphasizes that the underlying purpose of these requirements is to provide enough information to enable the employee to make an in­formed choice about signing the waiver/release agreement. According to the EEOC, information about age eligibility should be broken down according to each individual who is eligible to participate in the VSP and each person who is ineligible. The use of age bands broader than one year (e.g., ages 20-30) does not satisfy this requirement. The U.S. Supreme Court has ruled that where an employer obtains a release of age discrimination claims but does not otherwise fol­low the statutory procedures for obtaining such a release, an employee may later file an age discrimina­tion claim against the employer, and the employee would not be obligated to return the money he or she received as part of the VSP.

VSPs are complex legal documents that must comply with the ADEA and OWBPA. If the eligible em­ployees are unionized, the VSP must be negotiated with the union and a letter of agreement should be executed by the union leadership and board of educa­tion. The VSP documents should explain that employees understand that the VSP offer is voluntary and that there will be no adverse consequences for electing not to participate in the VSP. If your school is considering a VSP, please contact your Thrun Law Firm labor attorney for assistance in preparing the necessary waiver/release and other VSP documents.