IBM Class Action Defense Case-Syverson v. IBM: General Release And Covenant Not To Sue Created Confusion In Employee Layoff Agreement Rendering Waiver Of ADEA Claims Unenforceable Ninth Circuit Holds

Oct 17, 2006 | By: Michael J. Hassen

Ninth Circuit Reverses District Court Judgment Enforcing Employee Waiver of ADEA Claims Because Language was not “Written in a Manner Calculated to be Understood by an Average Individual Selected by IBM for Employment Termination” and so was not “Knowing and Voluntary”

A putative class action was filed against IBM based on the allegation that an employee layoff program violated the federal Older Workers Benefit Protection Act (OWBPA) and the federal Age Discrimination in Employment Act (ADEA). Syverson v. International Business Machines Corp., 461 F.3d 1147, 1149-50 (9th Cir. 2006). Defense attorneys moved to dismiss the class action complaint based on the executed wavier of ADEA claims and covenant not to sue signed by the plaintiffs as part of the layoff program. Id., at 1150. The district court granted the defense motion to dismiss the class action, but the Ninth Circuit reversed.

In 2001, as part of a workforce reduction plan, IBM offered employees that had been selected for termination severance pay and benefits if they executed a “Microelectronics Resource Action (MERA) General Release and Covenant Not To Sue.” Syverson, at 1149. Plaintiffs filed age discrimination charges with the Equal Employment Opportunity Commission; the EEOC dismissed the charges because it found that “the MERA Agreement satisfies the OWBPA’s minimum requirements for ‘knowing and voluntary’ waiver of ADEA rights and claims and is enforceable, thus depriving the employees of their right to pursue their age discrimination claims.” Id., at 1150. The EEOC issued plaintiffs notices of right to sue, and they commenced a putative class action challenging, in part, “the MERA Agreement’s use of both a release covering ADEA claims and a covenant not to sue excepting them, the pairing of which allegedly caused confusion over whether ADEA claims were excepted from the release.” Id.

The district court granted the defense motion to dismiss because it concluded that the MERA Agreement was “written in a manner calculated to be understood by an average individual selected by IBM for employment termination” and was “knowing and voluntary” under the OWBPA. Syverson, at 1150. In part, the district court relied on the judgment entered by a Minnesota district court, Thomforde v. International Business Machines Corp., 304 F.Supp.2d 1143 (D. Minn. 2004), upholding similar language in an IBM contract. Id. While the Syverson appeal was pending, the Eighth Circuit reversed Thomforde and held that IBM’s contract “is not written in a manner calculated to be understood by the intended participants as required by the OWBPA.” Thomforde v. International Business Machines Corp., 406 F.3d 500, 504 (8th Cir. 2005).

We do not here discuss the provisions of the OWBPA or the ADEA; rather, we focus on the Circuit Court’s analysis of whether the waiver was written in a “manner calculated” to be understood by its audience. On this issue, the Ninth Circuit rejected plaintiffs’ claim that the MERA Agreement is confusing because it states, “This Release does not preclude filing a charge with the [EEOC]”; the Court explained that this language “merely notes that such relief is unaffected by the MERA Agreement” and is an accurate representation of federal law. Syverson, at 1157-58 (citing 29 U.S.C. § 624(f)(4)). The Circuit Court agreed, however, that the MERA Agreement “engenders confusion over whether ADEA claims are in fact covered by the release or are excepted from it.” Id., at 1158. In this regard, the Court found persuasive the reasoning of the Eighth Circuit, and quoted from Thomforde, 406 F.3d at 503, as follows:

[O]ne plausible reading of the document reveals that the employee releases IBM from all ADEA claims and agrees not to institute a claim of any kind against IBM, except the employee may bring an action based solely under the ADEA. Without a clear understanding of the legal differences between a release and a covenant not to sue, these provisions would seem to be contradictory; how can an employee bring a suit solely under the ADEA if the employee has waived all claims under the ADEA?

Syverson, at 1158. At bottom, the Ninth Circuit concluded that combining general releases with covenants not to sue necessarily creates confusion, because “a covenant not to sue is pertinent only if the underlying right is not extinguished, which a release extinguishes any underlying right.” Id., at 1160.

The Ninth Circuit also observed that the MERA Agreement advises the employee “to consult an attorney” before signing. Syverson, at 1156-57. The Court explained that this admonishment, and the direction to consult an IBM employee with any questions, does nothing to redress the confusion inherent in the MERA Agreement. On the contrary, as Thomforde explained,

[i]t seems axiomatic that if an agreement needs clarification, it is not written in a manner calculated to be understood. To rely on the agreement’s direction to seek legal advice, a separate statutory requirement for a valid waiver, [citation], for clarification of the waiver would nullify the distinct requirement that the agreement be written in a manner calculated to be understood by the participant (as opposed to his attorney).

Id., at 1161 (quoting Thomforde, 406 F.3d at 504 n.1). The Ninth Circuit agreed, concluding at page 1161 that “were we to embrace IBM’s suggestion that any lack of clarity might be cured by compliance with § 626(f)(1)(E), we would rob all purpose from the distinct “manner calculated” requirement set forth in subsection (A).” Accordingly, the Court reversed the judgment of the district court.

NOTE: The Ninth Circuit refused to apply “offensive nonmutual issue preclusion” against IBM, Syverson, at 1153-56; the Court concluded that “while the question is close, the issue decided in Thomforde is not identical to that raised here,” id., at 1156.

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