New Court Case Disregards a Severance Plan Participant’s Release of ADEA Claims
06/13/2005In the recent case Thomforde v. International Business Machines Corporation, the Eighth Circuit Court of Appeals disregarded a severance plan participant’s release of age discrimination claims and covenant not to sue under the Age Discrimination in Employment Act (ADEA) and allowed the participant to sue IBM for age discrimination. The court’s decision was based on the fact that the release agreement signed by the participant used the term "release" and "covenant not to sue" interchangeably without clearly conveying the distinct meaning of these terms to the participant. While a "release" is a relinquishment of a claim or privilege by a party to the person against whom it might have been enforced, a "covenant not to sue" is an agreement by a party with a right of action not to enforce a claim. While IBM intended for participants to release all substantive ADEA claims and to covenant not to sue IBM except for procedural claims under ADEA to challenge the validity of the release (as is required under ADEA regulations), the release agreement was vague and did not clearly convey IBM’s intentions.
All employers that require a release of ADEA claims by participants in consideration for receiving severance or other benefits should closely examine their release agreements in light of the Thomforde case to ensure that their agreements clearly explain the release of claims and any covenants not to sue. The court in Thomforde emphasized that once an employer chooses to use legal terms of art in its release agreements, it has a duty to carefully explain those provisions such that the agreement is calculated to be understood by the average plan participant (as is required by ADEA).
