EEOC Suffers Defeat in Ongoing Attack on Separation Agreements

The EEOC’s 2013-2016 Strategic Enforcement Plan identified as one of its top priorities the regulation of overly broad separation agreements that allegedly interfere with employees’ Title VII rights to file discrimination charges. Recently, the agency sued several employers for using what appear to be fairly standard separation agreements. The EEOC’s lawsuit against CVS, which has received the most attention, was dismissed last month when an Illinois federal court granted CVS's Motion for Summary Judgment on procedural grounds. Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., No. 14-cv-863 (N.D.Ill.2014).  While this was a technical ruling, it bodes well for employers that this standard separation agreement was not invalidated, and in fact, the Court appeared to criticize the agency’s case on the merits. Nonetheless, we do not expect the EEOC to back off from its new aggressive position, and employers should conduct a careful review of their separation agreements.

The CVS case was closely followed by employers and employment law attorneys alike because the terms of CVS's Severance Agreement are commonly used in separation agreements, namely, a cooperation clause, a non-disparagement clause, a confidentiality requirement, and a release with a covenant not to sue. The EEOC argued that the agreement was overly broad, misleading, and unenforceable because it interfered with an employee’s right to file a charge, even though the agreement provided that it did not prohibit the employee from participating in an investigation by a federal, state, or local agency that enforces discrimination laws. This disclaimer language is routinely included in separation agreements, and was previously deemed enforceable by the EEOC.  As such, many employers’ separation agreements were put in jeopardy by this case. If these terms were declared unenforceable, the incentive for most employers to pay employees monetary settlements in exchange for a release of claims and an agreement to not sue would be lost. In view of this dismissal of the EEOC's lawsuit, this will not be the case—for now.

The Court did not reach the issue of whether or not the terms of CVS's Severance Agreement are enforceable.  Instead, the lawsuit was dismissed on the ground that the EEOC did not fulfill the administrative prerequisite of attempting to conciliate with CVS before filing the suit.  Still, the judge added footnotes, that although not binding authority, seemingly do not bode well for the EEOC’s position. The judge noted the disclaimer to CVS’s general release language, the passage protecting the individual’s right to participate in agency proceedings, and reasoned that the language plainly encompasses the employee’s right to file an EEOC charge.

Notwithstanding the procedural defeat in this case, the EEOC has indicated that it continues to hold to its position, and may appeal the dismissal to the 7th Circuit. Looking ahead, we will wait and see what happens with the EEOC’s lawsuit in Denver against College America for its use of a severance agreement that also has non-disparagement as a condition for paying severance, and required that employees represent that they have no pending claims, including administrative actions, against the company. Ironically, the employee at issue in the College America case filed three EEOC charges after she signed the purportedly restrictive agreement. In the meantime, it is more important than ever for employers to have a well-crafted and comprehensive separation agreement that will withstand challenge.

Sara Dajani is an associate attorney with Berenzweig Leonard, LLP. She can be reached at sdajani@berenzweiglaw.com.