The EEOC's Latest Target – Severance Agreements

by McNees Wallace & Nurick LLC
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Employers have long offered employees severance or other post-employment benefits in exchange for a waiver and general release of claims.  Agreements of this kind often help make a difficult separation somewhat easier.  By providing severance or other consideration to a departing employee, employers can obtain a release of claims to ensure finality and no future litigation or trouble from the departing employee.  Or so they thought.

 

Even if employees waive and release claims under the employment discrimination laws in a severance agreement, employees retain the right to file charges of discrimination with the Equal Employment Opportunity Commission (EEOC) pursuant to the EEOC’s “policing” powers.  In essence, employees can waive their right to any monetary recovery from such charges, but they can not lawfully waive their right to file a charge or participate in an investigation.  In the 2000s, the EEOC had blessed severance agreement language that made clear that the employee would not be entitled to any monetary recovery relating to EEOC claims, so long as the agreement did not prohibit the employee from filing a charge or participating in an investigation.  While employees retained the right to file charges after signing the severance agreement, very few did, as they had no financial incentive to do so.

 

Recently, the EEOC has taken a new and aggressive approach to what it has labeled “overly broad waivers” and “settlement provisions that prohibit filing charges with the EEOC or providing information to assist in the investigation or prosecution of claims of unlawful discrimination.”  See EEOC Strategic Enforcement Plan FY 2013-2016 at http://www.eeoc.gov/eeoc/plan/sep.cfm.

 

In May 2013, the Chicago District Office of the EEOC settled litigation that it had filed against Baker & Taylor, Inc. over language in its form severance agreement.  As part of this settlement, Baker & Taylor agreed to include language in its future severance agreements that went well beyond the language previously blessed by the EEOC.  This new language included confirmation that employees retain the right to file a charge with and participate in any charge investigation by the EEOC or a comparable state or local agency and “to recover any appropriate relief” as part of this process.

 

In February 2014, the Chicago District Office filed a lawsuit against CVS Pharmacy, Inc., claiming that its form severance agreement was “overly broad, misleading and unenforceable.”   In its complaint, the EEOC emphasized that the agreement at issue was five pages, single spaced, and claimed that numerous provisions in the agreement violated Title VII, including:

  • A non-disparagement provision that prohibited the employee from making disparaging statements about the business or reputation of CVS and its officers, directors, and employees.
  • A confidential information clause that prohibited the employee from disclosing to any third party any of CVS’s confidential information.
  • General release language that included a release of “any claim of unlawful discrimination of any kind.”
  • A general covenant not to sue.

The EEOC noted that the agreement’s covenant not to sue paragraph included the following language:

 

Nothing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.

 

The EEOC believes that this qualifying language, which closely tracked language that the EEOC previously blessed, does not save the other provisions of the agreement that it believes are overly broad and unlawful.

 

In response to the filing of the complaint, CVS has stated that it believes that its form severance agreement is lawful and that it intends to contest the EEOC’s claims.

 

Where Are We Now?

In light of the EEOC’s current Strategic Enforcement Plan and the Baker & Taylor and CVS cases, what once was relatively uncontroversial language in severance agreements now may give rise to increased scrutiny or even litigation.  By essentially rejecting disclaimer language it blessed less than 10 years ago, the EEOC has created uncertainty for employers who are seeking (and willing to pay for) finality and certainty with former employees in the form of a severance agreement and general release of claims. 

 

Employers should watch the CVS litigation to see if CVS elects to fight and obtain an adjudication on the merits rather than settle.  Courts ultimately may reject the EEOC’s current position on severance agreement language.  Unless and until that occurs, employers who regularly use severance agreements should review those agreements closely to see whether and to what extent their form agreements contain language similar to the provisions challenged by the EEOC in the CVS litigation.  Now is the time to review and consider refreshing those agreements, with the following principles in mind:

  • Shorter and simpler agreements generally are better in most situations.
  • The agreement should emphasize the employee’s right to file administrative charges and participate in investigations by government agencies.
  • Any blanket non-disparagement and non-disclosure of confidential information provisions should include language making clear that these provisions do not apply to the employee’s right to file charges and participate in investigations.
  • Revisit language mandating cooperation with the employer after separation to ensure that any cooperation obligations do not infringe on these protected rights.
  • Proceed with caution on any covenant not to sue, as such covenants can run afoul of these rights if inartfully drafted and may excessively complicate the agreement even if well drafted.  

Severance agreement remain a viable tool for employers.  The EEOC’s recent actions have increased the risk associated with their widespread use, especially for employers using dated or very aggressive forms.  These agreements can be drafted in a way to minimize such risk while accomplishing much of what the employer seeks when offering severance in exchange for a release of claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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