July 02, 2014
EEOC targets severance agreements
By Timothy M. Barber

The Equal Employment Opportunity Commission (EEOC) previously approved employee severance agreements that contain an express "carve-out" provision stating that nothing in the agreement prevents employees from filing charges with the EEOC or participating in EEOC investigations.

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The EEOC has now taken a much more aggressive approach and has filed two lawsuits challenging severance agreements that contain such carve- out language, arguing that other provisions in the agreements discourage employees from exercising their rights under Title VII of the Civil Rights Act of 1964. As a result of these lawsuits, you should consider revising your standard severance agreements.

Background

Section 707 of Title VII allows the attorney general to file suit to bar any "pattern or practice of resistance to the full enjoyment of any of the rights secured" under the statute. Section 707 is incorporated in several other federal antidiscrimination laws, including the Age Discrimination in Employment Act (ADEA).

In its publicly available "enforcement guidelines," the EEOC cautions that:

An employer may not interfere with the protected right of an employee to file a charge, testify, assist, or participate in any manner in an investigation, hearing, or proceeding under Title VII. . . . These employee rights are non-waivable under the federal civil rights laws.
. . .
Some employers attempt to limit an individual’s right to file a charge or participate in an EEOC proceeding by requiring him or her to sign an agreement in which s/he relinquishes these statutory rights. Such language may appear in contracts requiring the use of alternative dispute resolution procedures (such as mediation or arbitration), waiver agreements, employee handbooks, employee benefits plans, and "non-compete" agreements. Notwithstanding the format or context of the agreement in which such language might appear, promises not to file a charge or participate in an EEOC proceeding are null and void as a matter of public policy. Agreements extracting such promises from employees may also amount to separate and discrete violations of the anti-retaliation provisions of the civil rights statutes.

The EEOC has long taken the position that severance agreements that require employees to waive their right to file charges with the EEOC or similar federal and state agencies and participate in agency investigations violate Title VII. Such provisions also have been invalidated by federal courts, including the U.S. District Court for the Western District of Wisconsin. Until recently, the EEOC approved severance agreements that contained a carve-out provision stating that nothing in the agreement limits an employee’s right to file a charge with the EEOC or participate in any resulting investigation.

However, the EEOC recently filed two lawsuits against employers challenging other provisions in severance agreements, such as waiver of claims, nondisclosure, nondisparagement, and cooperation clauses. The agency claims that such provisions discourage, or ’chill," employees from exercising their rights under federal antidiscrimination laws and violate Section 707.

CVS Pharmacy lawsuit

In February 2014, the EEOC filed a pattern and practice lawsuit against CVS Pharmacy in the U.S. District Court for the Northern District of Illinois claiming its standard employee severance agreement is overly broad and violates Section 707. The agency took issue with the fact that the agreement consists of five pages of single-spaced text.

Substantively, the EEOC claims the following provisions violate Title VII:

  1. A cooperation clause that requires employees to "promptly notify the Company’s General Counsel by telephone and in writing" of contacts relating to legal proceedings, including an "administrative investigation" by "any investigator, attorney or any other third party";
  2. A nondisparagement provision stating that employees can't "make any statements that disparage the business or reputation of the Corporation, and/or any officer, director, or employee of the Corporation";
  3. A nondisclosure provision that prevents employees from disclosing information about the company absent express consent;
  4. A general release of claims covering all "causes of action, lawsuits, proceedings, complaints," and "any claim of unlawful discrimination of any kind";
  5. A broad covenant not to sue covering "any action, lawsuit, complaint or proceeding" and requiring the employee to reimburse the company for its attorneys’ fees if he files any such claim; and
  6. A breach clause stating that the company can sue employees and seek injunctive relief for violating the agreement.

The EEOC claims the agreement is "overly broad, misleading and unenforceable" and violates Title VII because it interferes with employees’ rights to file charges, communicate voluntarily, and participate in investigations with the EEOC and other government agencies.

As noted above, the EEOC previously approved severance agreements that contained a carve-out provision. The CVS agreement contained such a provision in the "Covenant Not to Sue" paragraph: "Nothing in this paragraph is intended to or shall interfere with Employee’s right to participate in any 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." However, the EEOC attacked CVS’s carve-out provision, stating it’s "a single qualifying sentence that is not repeated anywhere else in the agreement."

CollegeAmerica lawsuit

Debbi D. Potts, the campus director of CollegeAmerica’s Cheyenne, Wyoming, campus, resigned in July 2012. She received a severance payment in exchange for signing a separation agreement that included a nondisparagement provision, a cooperation clause, and several other provisions.

Potts later exchanged e-mails with another ex-employee in which she allegedly disparaged CollegeAmerica. The company found out and demanded that Potts return the severance payment she received when she signed the agreement. She responded by filing an EEOC charge against it. CollegeAmerica then sued her for breach of the severance agreement. Potts filed additional retaliation charges with the EEOC.

On April 30, 2014, the EEOC sued CollegeAmerica in the U.S. District Court for the District of Colorado, claiming its severance agreement violated the ADEA. Like the CVS lawsuit, the EEOC alleges that the provisions in the severance agreement chill individuals’ rights to file discrimination charges and participate in EEOC investigations. Specifically, the agency objects to the provisions that require an employee to:

  1. Promise not to file any complaint or grievance with a government agency;
  2. Refrain from disparaging the company;
  3. Refrain from cooperating with any individual who files claims against the company;
  4. List all regulatory violations and certify that the employee has had an opportunity to resolve any violations;
  5. Certify that she has filed no charges, complaints, or lawsuits against the company; and
  6. "Cooperate with and assist the Company, as reasonably requested by the Company, with regard to any investigation, administrative action or litigation for which or about which [she] has information."

The agreement states that a violation of any of those provisions constitutes a breach of the agreement and is sufficient grounds for CollegeAmerica to suspend any outstanding severance payments.

Bottom line

While it’s far from clear that the courts in these lawsuits ultimately will adopt the EEOC’s interpretation of Section 707, you can expect the agency to continue challenging severance agreements until a federal court of appeals rules otherwise. In the meantime, you can protect yourself by reviewing your standard severance agreements and modifying them to address the concerns raised by the EEOC in these two lawsuits. As indicated above, the EEOC no longer views a single, isolated carve-out sentence as being sufficient to protect an employee’s rights under Title VII.

Thus, you would be well-advised to include an entirely separate section in your agreement that expressly preserves employees’ rights under Title VII and sets forth explicit exceptions to the provisions the EEOC believes chill those rights. Specifically, this paragraph should state:

  1. Employees aren’t waiving but retain their rights to file complaints and participate in investigations by state and federal agencies charged with enforcing antidiscrimination laws;
  2. Employees aren’t waiving their right to file suit under any state or federal antidiscrimination law; and
  3. Engaging in such actions isn’t a breach of the severance agreement.

Recognizing the law isn’t settled, you may wish to consider including language referencing cooperation, nondisclosure, and nondisparagement clauses and indicate that nothing in those provisions limits an employee’s ability to exercise the above-referenced rights. Finally, you should review the form of your severance agreement to ensure it’s formatted in a manner that is easy to read.

Tim Barber is an attorney with Axley Brynelson, LLP and an editor of Wisconsin Employment Law Letter. He can be reached at 608-283-6740 or tbarber@axley.com.

Severance Agreements and the EEOC On July 8, 2014, don't miss BLR's webinar, Severance Agreements: Drafting Do’s and Don’ts for Avoiding EEOC Attention . In just 90 minutes, you'll learn how to avoid potential problems with severance agreements and minimize your legal risks!


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