Employment & Labor Insider

Is IBM crazy, or just crazy like a fox?

Bloomberg BNA reported this week that IBM has stopped providing the "disclosures" required by the Older Workers Benefit Protection Act when it hands out severance packages.

As you know, when an employer has a "group termination" -- usually, a reduction in force, but a "group" can be as few as two people -- it is required to disclose the job titles and ages of the individuals in the "decisional unit," which means the working unit from which the decisions were made. If the employer doesn't make the disclosures (and get 'em right), then it can't get a valid waiver of age discrimination claims under the federal Age Discrimination in Employment Act although the waiver may be valid in other respects.

If you've ever been involved in carrying out a RIF, you know that those disclosures can be a real pain. First, you have to determine what the appropriate "decisional unit" is. If you're closing a plant or eliminating a department, the disclosures are easy. But if you're looking at making a few cutbacks here and there in different departments -- and possibly using different criteria in the different departments -- then it can be very difficult to figure out what the "decisional unit" is.

And then you have to decide what to say about the "eligibility criteria" for receiving a severance package. Again, if everybody is terminated for the same reason (or retained for the same reason), then this can be easy. But in many RIF situations, you might have a mix of employees who were terminated based on lack of seniority (easy), employees who were terminated because the employer took the opportunity of the RIF to let go some marginal performers (trickier), and employees who were terminated because they didn't have the skills that the employer needed based on its future needs (HELP!!!!!).

Like I said, a big pain. So IBM just decided it wasn't going to bother with disclosures any more, which reminds me of this scene from Office Space:

The plaintiff's bar is, not surprisingly, unhappy about IBM's decision. I'm not aware of any comment from the EEOC. But how can IBM do this?

They aren't requiring employees to give up their age discrimination claims, that's how. They're just requiring them to use arbitration instead of the court system. Which I think is legal, based on Gilmer v. Interstate/Johnson Lane*, a Supreme Court decision from the 1990's. In Gilmer, the Court said that ADEA claims could be subject to compulsory arbitration.

*I was the juniormost attorney on the losing side in the Gilmer case. We were representing the plaintiff/employee. (At my previous law firm, we were allowed to represent employers and employees, although not in the same lawsuit.)

IBM says that it made this change because of concerns that its employees raised about privacy. Even though the disclosures didn't contain names, I guess the employees believed it was too easy to identify them by their job titles and ages. I have never heard of employees raising this as a concern, but as people become more protective of their privacy, it's certainly possible. But I suspect the real motivating factor was IBM's desire to quit playing the lottery.

My initial reaction was that allowing arbitration and skipping the disclosures wouldn't save IBM much trouble. Arbitrations, like court cases, can be expensive and can result in large awards to plaintiffs. However, the Bloomberg BNA article cited to a Cornell University study that indicated that this could be a smart move for a big company like IBM: The win rate for employment discrimination plaintiffs in court is about 36 percent, according to the study, but only 21 percent in arbitration. (The win rates didn't include settlements.) And when employees win, they don't win nearly as big in arbitration as they do in court.

Given the fact that IBM was hit earlier this year with a $2.5 million age discrimination verdict in Connecticut, I guess they were willing to give up the chance of getting a full release (but also the possibility of an employee's refusal to sign the agreement, followed by a lottery-level verdict) in exchange for more predictability and more-moderate awards. Most employers, I think, will prefer to continue hassling with the disclosures in exchange for a full, valid release of all age claims. But it will be interesting to see how this no-disclosure/arbitration strategy works for IBM.