Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 95-cv-00141)
Before: MANSMANN and GREENBERG, Circuit Judges, and HILLMAN, District Judge. *fn1
Thomas Long, a former Sears employee, appeals an order of the district court granting summary judgment in favor of Sears in an action filed by Long based in part on the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. Section(s) 621 et seq., as amended by Title II of the Older Workers Benefit Protection Act of 1990 ("OWBPA"), 29 U.S.C. Section(s) 626(b). The main issue, one of first impression for us, concerns the effect of a release, drafted by Sears and executed by Long, by which Long purported to waive all claims, including those based on age discrimination, associated with his termination. The district court rejected Long's argument that the release was invalid because it failed to meet specific and detailed requirements of the OWBPA. The court declined to consider alleged deficiencies in the release, concluding that the document, even if flawed, was ratified when Long accepted and retained severance benefits paid to him following execution of the release. Reasoning that the ratified release operated to preclude all claims associated with Long's termination, the district court granted summary judgment in favor of Sears.
Because we are convinced that the ratification doctrine should not apply to a waiver of age discrimination claims which is invalid under the OWBPA and that Long should not be required to tender back severance benefits before proceeding with his age discrimination claims, we find that the grant of summary judgment with respect to these claims was inappropriate. We will, therefore, reverse in part the order of the district court relating to the ADEA claim. We will remand the non-ADEA claims for further consideration.
The relevant facts, which relate primarily to Long's employment history with Sears, are undisputed. Long, who was born in 1936, had a twenty year history with Sears where, beginning in 1964, he worked in a variety of sales capacities. From the early 1980s Long was employed in Sears' Home Improvement Products and Services Division (HIPS). As a HIPS employee, Long, at different times, sold heating and air conditioning, siding, windows, and doors, although his primary responsibility was to sell roofing. By all accounts, Long's job performance was excellent and his earnings, based on straight commission, were in the neighborhood of $100,000 per year.
In 1992, Sears analyzed the HIPS division's economic performance and concluded that reorganization was warranted. In January 1993 Sears announced that its HIPS division, with the exception of one unit, would close nation-wide. HIPS employees were told that Sears would discontinue its home improvement services permanently and that it would lay off employees not transferred to other Sears positions by mid-April. Employees allegedly were promised that every effort would be made to place them elsewhere in the Sears organization and were told that placement preference would be given to long-term HIPS employees with satisfactory performance.
In February 1993 Sears offered Long and certain other employees a reorganization package which included severance benefits. In exchange for the package, eligible employees were asked to sign a "General Release and Waiver" which read as follows:
GENERAL RELEASE AND WAIVER I
In consideration of the benefits I will receive under the Sears Closed Unit/ Reorganization Severance Allowance Plan as described in the attached Benefit Notification form, I, _________________ hereby release, waive, and forever discharge officers, successors, and assigns from any and all actions, causes of action (INCLUDING, BUT NOT LIMITED TO, ACTIONS UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, STATE CIVIL RIGHTS STATUTES, AND THE AMERICANS WITH DISABILITY ACT), damages or claims of damage of every character whatsoever by reason of my employment with Sears, whether known or hereafter discovered, including, but not limited to, my termination from Sears.
I have read this General Release and Waiver and understand all of its terms. I have signed it voluntarily with full knowledge of its legal significance. I have been given the opportunity to consult with an attorney but have chosen not to do so.
Written in capital letters across the top of the release was the following: "DO NOT SIGN THIS UNTIL YOU HAVE READ THE ATTACHED NOTICE."
The notice attached bore a heading which read: "IMPORTANT NOTICE: THIS NOTICE IS BEING PROVIDED TO SATISFY THE REQUIREMENTS OF THE OLDER WORKERS BENEFIT PROTECTION ACT." The notice itself provided that: 1) an employee would have up to forty-five days from receipt of the severance package to decide whether to sign the release; 2) the release was revocable for up to seven days following its execution and no severance payments would be made until this seven day period had passed; 3) a list was attached showing the birth dates and job titles of those to whom the package had been offered; and 4) if applicable, a list was attached which included a list of employees deemed ineligible to receive the package. The notice also contained a provision suggesting that the employee consult an attorney prior to signing the release and clarified that rights which might arise in the future would not be waived by signing the release.
Although he now alleges that he did not understand the terms or significance of the release, Long signed the document on March 18, 1993. He contends that he was pressured by his supervisor to sign and did so, in part, based upon his confidence that he would eventually be placed elsewhere in the Sears organization. Although he actively sought a transfer, Long was not offered another position; his last day of work was April 9, 1993. *fn2
On March 8, 1994, after having signed the release and receiving more than $39,000 in severance benefit payments, *fn3 Long filed charges of discrimination with the Equal Employment Opportunity Commission and the Pennsylvania Human Relations Commission alleging violations of the Age in Discrimination in Employment Act of 1967, 29 U.S.C. Section(s) 621-634, and the Pennsylvania Human Relations Act of 1955 ("PHRA"), 43 Pa. Cons. Stat. Ann. Section(s) 951-863. Long claimed that he was discriminated against based on his age because, following his layoff, Sears "retrained younger employees with less seniority" to work in other departments and, contrary to its representation, Sears "continued its Home Improvement Operations." On January 10, 1995, Long filed a complaint in the district court claiming age discrimination under the ADEA and the PHRA. He also alleged that Sears violated Section 510 of the Employment Retirement Security Act of 1974 ("ERISA"), 29 U.S.C. Section(s) 1140, by terminating his employment to avoid further accrual and payment of pension benefits, and asserted state common law claims. *fn4
In response to Long's complaint, Sears filed an answer raising, among others, the following affirmative defense: "Plaintiff has waived and released all claims against [Sears]" and "Plaintiff ratified his waiver and released all claims against [Sears] by his acceptance of and failure to return his severance payment." Thereafter, Sears filed a motion for summary judgment, alleging that Long's claims were barred by the release. Specifically, Sears argued that the release satisfied the requirements of the OWBPA and that, in any event, Long had ratified the release, making it enforceable despite any statutory deficiencies. Long opposed this motion with facts alleged to demonstrate discrimination and filed a cross-motion for summary judgment contending that the release was invalid for failure to comply with the requirements of the OWBPA *fn5 and was void and unenforceable because it had been obtained by fraud. Long agreed to credit severance pay received against any damages awarded.
On March 1, 1996, the district court granted summary judgment in favor of Sears on all claims without addressing Sears' compliance with the OWBPA. While the court recognized that "[w]hether the Sears release meets the facial requirements of the OWBPA is a question of fact not resolvable here by summary judgment," it concluded that summary judgment was, nonetheless, appropriate. In reaching this conclusion the district court relied on authority holding that releases which fail to conform to the OWBPA are merely voidable and, under traditional principles of contract law, may be ratified by retention of benefits received. Citing the decision in Wamsley v. Champlin Refining and Chemical, Inc., 11 F.3d 534 (5th Cir. 1993), the district court concluded that the ratification doctrine had survived the enactment of the OWBPA and operated to bar Long's claims:
Because Long retained, and did not offer to return more than $39,000 paid in consideration of a Release that he suspected was defective, we hold that he ratified that Release and is precluded from pressing claims arising from his termination by Sears. 1996 WL 94537 at *8 (E.D. Pa. March 1, 1996). *fn6 This appeal followed.
Our review of the district court's grant of summary judgment is plenary. "[B]ecause the facts are undisputed, we decide [this] appeal as a matter of law." DiBiase v. SmithKline Beecham, 48 F.3d 719 (3d Cir.), cert. denied, 116 S. Ct. 306 (1995). The legal questions before us are straightforward: (1) Are releases of ADEA claims which fail to conform to the requirements of the OWBPA enforceable or can they be rendered enforceable, or ratified, by an employee's acceptance and retention of severance benefits? (2) Where ratification does not apply, does retention of severance benefits operate nonetheless to prevent an employee from pursuing a claim under the ADEA? *fn7 (3) Where a release of ADEA claims is invalid under the OWBPA and does not, therefore, release the employer from liability for the ADEA claims, is the release nonetheless effective in insulating the employer with respect to non-ADEA claims covered by the release? The district court granted summary judgment in favor of Sears, predicting that we would hold that Long, by retaining severance benefits, ratified the allegedly defective release and, as a result, is precluded from pursuing a claim under the ADEA. This prediction was based, in part, on the decision in Ponzoni v. Kraft General Foods, 774 F. Supp. 299 (D.N.J. 1991), aff'd, 968 F.2d 14 (3d Cir. 1992). In Ponzoni, a pre-OWBPA case, we affirmed without opinion the district court's determination that a release of ADEA claims which was not knowing and voluntary could be enforced, nonetheless, because it had been ratified through retention of benefits. As we will explain, we conclude that the enactment of the OWBPA changed the legal landscape with respect to the release of ADEA claims. In light of the law as it now stands, we conclude that the ratification doctrine does not apply to ADEA releases which fail to comply with the OWBPA. *fn8 As a result, the district court erred in granting Sears' motion for summary judgment. This error is rooted in the fact that the law with respect to employee releases which fail to comply with the OWBPA is unsettled.
In order to place the issues raised here in context we turn to the language and legislative history of the OWBPA.
The Older Workers Benefit Protection Act became effective on October 16, 1990, as an amendment to the ADEA. Its purpose was two-fold: to "make clear that discrimination on the basis of age in virtually all forms of employee benefits is unlawful," and to "ensure that older workers are not coerced or manipulated into waiving their rights to seek legal relief under the ADEA." S. Rep. No. 263, 101st Cong., 2d Sess. 2 (1990). Congress' concern over employee waiver of rights under the ADEA was summarized as follows:
[E]arly retirees or employees offered the chance to participate in exit incentive or other group termination programs can effectively be forced to waive their right to file a claim when the employer conditions such participation on the signing of a waiver. The problem is particularly acute in large-scale terminations and lay-offs, where an individual employee would not reasonably be expected to know or suspect that age may have played a role in the employer's decision, or that the program may be designed to remove older workers from the labor force. The preemptive waiver of rights occurs before a dispute has arisen and indeed before an employee is even aware of any potential or actual pattern of discrimination. Such a pre-emptive waiver may also preclude the employee from asserting claims that arise out of subsequent discriminatory conduct by the employer, e.g. hiring younger workers to replace the terminated older workers. These waivers are both unfair and inconsistent with the intent of the ADEA.
S. Rep. No. 79, 101st Cong., 1st Sess. 9 (1989). *fn9 The Report emphasized the need for protective legislation, noting that:
Age discrimination victims typically earn more than the minimum wage, but their average annual income is only $15,000. Moreover, once out of work, these older Americans have less than a 50/50 chance of ever finding new employment. The[y] often have little or no savings, and may not yet be eligible for Social Security. Accordingly, it is reasonable to assume that many employees would be coerced by circumstances into accepting significant compromises. This is especially true where employees are unable even to recognize the potential of their claims because no dispute exists between them and their employer. Id.
In an effort to protect older workers, Title II of the OWBPA defined those circumstances in which ADEA waivers would be permitted.
Prior to the OWBPA, the general approach of the courts was to find waivers permissible subject to a requirement that they be made "knowingly" and "willfully." "Under the [OWBPA,] waivers must [still] be made knowingly and voluntarily. However, they cannot be deemed to be so unless several statutory minima are met." Pellicciotti, Older Workers Benefit Protection Act of 1990: Congress Responds to Betts Decision, 35 Res Gestae 114, 115 (1991). These minimum requirements are set forth at 29 U.S.C. Section(s) 626(f):
(1) An individual may not waive any right or claim under this chapter unless the waiver is knowing and voluntary. . . . [A] waiver may not be considered knowing and voluntary unless at a minimum --
(A) the waiver is part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual . . .
(B) the waiver specifically refers to rights or claims arising under this chapter;
(C) the individual does not waive rights or claims that arise after the date the waiver is executed;
(D) the individual waives rights or claims only in exchange for consideration in addition to anything of value to which the ...