Court Dismisses EEOC’s Attack on Severance Agreements, But Not on the Merits

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The EEOC’s lawsuit against CVS, which alleged that the company’s severance agreements were impermissibly restrictive, has been dismissed, but not for the reasons employers would have hoped. EEOC v. CVS Pharmacy, Inc., No. 1:14-cv-863 (N.D. Ill. Oct. 7, 2014).

On October 7, 2014, Judge Darrah released the Court’s written opinion granting summary judgment to CVS, but the decision was not based on the merits. Rather, the Court dismissed the case for procedural reasons, ruling that the EEOC failed to engage in conciliation efforts with CVS before filing the lawsuit. Under Title VII, the Court ruled, the Commission has a statutory duty to engage in conciliation efforts before it is permitted to file a lawsuit.

The EEOC conceded that it made no attempts at conciliation but argued that, based on the construction of the statute and the circumstances under which Congress authorized the EEOC to bring “pattern or practice” lawsuits, the conciliation requirement did not apply to “pattern or practice” cases.

The Court rejected that position. It recognized that Title VII permits the EEOC to bring a “pattern or practice” lawsuit without a charge having first been filed, but Title VII still requires the EEOC to exhaust conciliation efforts before bringing any lawsuit.

Because the Court did not rule on the validity of the severance agreement, this decision is noteworthy only in that it closes the book on what employers universally considered a bizarre lawsuit by the Commission. The EEOC brought this lawsuit attacking CVS’s severance agreement on the grounds that it allegedly dissuaded employees from filing charges with the EEOC, even though the agreement explicitly advised employees that the agreement did not limit their right to file a charge with the EEOC. The Commission claimed that the way the severance agreement was drafted constituted unlawful “resistance” to Title VII by CVS.

By nearly all accounts (except the EEOC’s), the CVS form severance agreement was a non-controversial, standard severance agreement containing provisions that are commonly included in severance agreements. In fact, the Retail Litigation Center, Inc. filed an amicus curiae brief in the case – a filing that is extraordinarily rare in a district court case – explaining that similar agreements are used nationwide in the public and private sector and that if the court were to invalidate such agreements, the decision would have “far-reaching and dramatic implications across multiple industries.”

Although not the basis for Judge Darrah’s opinion, he did comment in a footnote that even if the CVS agreement had explicitly prohibited employees from filing charges with the EEOC (which it did not), then such a clause would have been illegal and therefore unenforceable. But including such a clause in the severance agreement would not, by itself, have been an unlawful act by CVS.

The issue of whether the EEOC is always required to exhaust conciliation efforts before filing a lawsuit is already before the U.S. Supreme Court in the recently commenced 2014-15 term and will be heard in the case of Mach Mining v. EEOC. A definitive ruling on that issue is expected by June 2015.

It remains to be seen whether the EEOC will seek another test case to challenge standard severance agreement provisions.

The Bottom Line: This high profile case fades away with little resolution. Employers should make sure their severance agreements do not prohibit employees from filing EEOC charges, but there is nothing in this decision that requires employers to take a new approach toward severance agreements.

 

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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