Employers Take Heed – EEOC Scrutinizing “Standard” Severance And Settlement Agreements

Several recent EEOC lawsuits, one filed in the Northern District of Illinois and another very recently filed in the District Court of Colorado, suggest an emerging trend that may have broad reaching impact on what has been considered standard, enforceable language in severance and settlement agreements. Specifically, the agency has recently challenged commonplace general release language, confidentiality provisions and non-disparagement clauses, arguing that they unlawfully chill employees’ right to file a charge of discrimination and communicate with the EEOC – even if such agreements include a disclaimer that the employees may still file a charge notwithstanding the release.

In the pioneer case – filed against CVS Pharmacy, Inc. (“CVS”) in the Northern District of Illinois – the EEOC challenges CVS’s form separation agreement, despite the fact that the agreement explicitly contains language notifying the employee that nothing in the agreement is intended to “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 [a]greement prohibit Employee from cooperating with any such agency in its investigation.” Nevertheless, the EEOC concluded this was not sufficient – focusing on the fact that the disclaimer was only stated once in the agreement. The EEOC has gone even further – taking the position that commonplace confidentiality agreements and non-disparagement provisions somehow prevent employees from communicating with the EEOC about allegations of workplace discrimination. Based on the foregoing, the EEOC argues that CVS’s form agreement amounts to a “pattern and practice” of interfering with the employees’ right to file discrimination charges or communicate with the EEOC. This is an unsettling development in that many employers incorporate similar language in their standard separation and settlement agreements with the understanding that this approach comports with already settled law.

CVS filed a motion to dismiss the EEOC’s lawsuit, arguing: (1) that its “run-of-the-mill agreement” simply does not interfere with employees’ right to file a charge, pointing out that the agreement expressly stipulates that former employees may participate in EEOC proceedings; and (2) that Title VII’s pattern-or-practice provision merely authorizes the EEOC to use a class action-style proof framework against those employers who repeatedly and intentionally engage in discrimination and retaliation, and the alleged wrongdoing in this suit does not fall into that category of conduct. Rather, CVS argued, even if the severance agreement had the effect of discouraging participation in EEOC proceedings, at worst, the agreement would be unenforceable, and not demonstrative of a pattern of discrimination. The EEOC has not yet filed its response brief. Thus, the validity of the EEOC’s theory is unclear at this point.  

If the EEOC’s theory is successful, however, the result would severely limit the utility and value of releases, which is inconsistent with the public policy favoring the resolution of disputes. Indeed, if courts were to enforce the EEOC’s stance on CVS’s agreement, it would make it much more difficult for employers and employees to resolve disputes. Furthermore, the EEOC has failed to identify what release language it would find acceptable, leaving employers guessing about whether a bargained for release is even enforceable. The lack of a clear standard for enforceability would very likely make employers hesitant to enter into such an agreement (and pay consideration for a release) in the first place. Moreover, the EEOC’s position ignores legitimate and recognized employer concerns. For instance, confidentiality provisions in separation and settlement agreements are intended to protect confidential company information and, in some cases, are also intended to discourage the filing of frivolous charges by other employees. Finally, the EEOC’s position implicates important public policy considerations for employees, employers and the judicial system alike. Release agreements provide a benefit to departing or former employees who are provided with extra compensation while foregoing the cost and time of litigation, they provide a benefit to employers in the form of finality of the ongoing threat of potential litigation and they benefit the judicial system which is spared the cost of resolving innumerable employment disputes.

Regardless of the dubious merit of the EEOC’s allegations against CVS, employers should take notice of this apparently emerging trend. Whatever the outcome of CVS’s Motion to Dismiss, the EEOC is not likely to back away from its scrutiny of employer release language. In fact, it recently filed a similar lawsuit in the District Court of Colorado against CollegeAmerica. In that case, the EEOC challenged allegedly unlawful provisions in a separation agreement that conditioned the employee’s receipt of severance benefits upon, among other things, her promise not to file any complaint or grievance with any government agency and not to disparage the company. Although the agreement at issue in CollegeAmerica is more akin to those that have typically been susceptible to challenge (insofar as it specifically asks the releaser to give up her right to file a complaint with a government agency), these recent cases suggest that the EEOC is paying very close attention to the terms of severance pacts.

As such, employers may want to revisit their existing severance and settlement agreements and ensure that -at a minimum – they contain disclaimers regarding an employee’s right to participate in an EEOC investigation and file a charge. Employers may, however, include language in the release that clarifies that the employee waives the right to any monetary recovery if a third party asserts any claims on his or her behalf. As noted above, if the EEOC is successful in its attempts to control release language, the potential value of a release may decrease significantly. Thus, employers should keep an eye on this issue and consider consulting with counsel about whether and how to modify existing form agreements.

Joe Tilson and Jeremy Glenn of Meckler Bulger Tilson Marick & Pearson

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