In a closely watched case, a federal district court questioned the stance of the U.S. Equal Employment Opportunity Commission (EEOC) that a severance agreement and general release of claims offered to employees can violate federal law, despite the absence of any discriminatory or retaliatory employer conduct. While that view of the U.S. District Court for the Northern District of Illinois was not central to its ruling, and is therefore nonbinding on the EEOC or other courts, the decision marks a setback to the agency in its recent efforts to pursue claims based on standard language found in many employment severance agreements.

The EEOC alleged that CVS Pharmacy, Inc., violated Title VII of the Civil Rights Act of 1964—the federal law that prohibits unlawful discrimination and retaliation in employment—by conditioning former employees’ severance pay on their agreeing to a release of claims that, the EEOC argued, unlawfully deterred the employees from filing charges of discrimination and communicating with the agency. The EEOC asserted that offering an agreement that prohibited an employee from filing or initiating a complaint against the employer constituted a pattern or practice of resistance to the exercise of rights protected by Title VII.

Although the EEOC accused CVS of no discriminatory or retaliatory conduct, it argued “resisting” Title VII rights could, on its own, constitute a violation of the statute. Prior to bringing the suit, the agency had notified CVS that there was reasonable cause to believe the company was engaged in a pattern or practice of resistance to the full enjoyment of rights protected by Title VII. It then engaged with CVS in two settlement negotiations, but never instituted a formal conciliation process before filing its complaint.

The court found that the agency was not authorized to pursue a lawsuit without first attempting conciliation. Instead, it noted that Section 706 of Title VII specifically charges the EEOC to “eliminate any... alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” The statute also authorizes the EEOC to bring a complaint to remedy a pattern or practice of resistance to full enjoyment of Title VII-protected rights.

But the court found no support in either the statute itself or its legislative history for the argument that the authority to bring suit is not subject to the requirements of Section 706. The court pointed out that the EEOC’s own regulations require it to pursue informal methods of resolving claims before proceeding to court. Therefore, the EEOC was not authorized to bring the suit, and CVS was entitled to summary judgment, the court ruled.

In footnotes to its decision, the court noted flaws with the EEOC’s underlying theory that the severance agreements at issue constituted unlawful resistance to the exercise of protected rights. Specifically, it found that the term “resistance” as used in Title VII should not be read to include any actions that would not be considered either discrimination or retaliation under the statute.

In addition, the court disagreed with the EEOC that the agreement CVS offered to employees deterred the filing of charges or interfered with the employees’ rights to communicate with the agency. For example, while the agreement prohibited the initiating or filing of a complaint, it specifically carved out the right to participate in agency proceedings and protected those rights that cannot legally be waived.

This opinion should cause the EEOC to recommit to pursuing conciliation with employers charged with unlawful activities before it begins any federal court proceedings. It also signals a blow to the agency in its aggressive recent stance on employee severance agreements. While the court here did not reach the merits of the EEOC’s claim, the language of its opinion could provide support for rulings against the EEOC by other courts considering similar cases. Nevertheless, the EEOC will likely continue to pursue claims based on severance agreements, and employers should carefully consider the language they include in their agreements.