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.

EEOC Takes Aggressive Position On Severance Agreements

The Equal Employment Opportunity Commission (“EEOC”) recently filed a lawsuit against one of the nation’s largest pharmacy chains, CVS, claiming its separation agreements violate Title VII of the Civil Rights Act. This action by the EEOC is surprising and significant, since the targeted provisions are ones that are commonly found in severance agreements. According to the lawsuit, the EEOC claims that CVS conditioned payment of severance benefits on execution of severance agreements that contained overly broad, misleading, and unenforceable language that unlawfully prevents employees from communicating with the agency or filing discrimination claims. In its lawsuit, the EEOC claims the following provisions of the agreement violate Title VII:

• A cooperation clause requiring employees to notify the company of contacts relating to legal proceedings;
• A non-disparagement clause;
• A non-disclosure of confidential information clause; and 
• A general release and covenant not to sue clause.
  

The EEOC is seeking a permanent injunction prohibiting CVS from restricting the rights of former employees to file charges or participate in agency proceedings, reformation of CVS’s separation agreement, and for CVS to provide 300 additional days for any former employee who signed the agreement to file administrative charges.

The EEOC claims that being able to bring charges and communicate with employees plays a critical role in the EEOC’s enforcement policy because it informs the agency of employer practices that may be unlawful. An employee’s right to communicate with the EEOC is protected under federal law, and therefore, the EEOC claims that when employers have language similar to that found in CVS’s severance agreements, it has the effect of buying an employee’s silence regarding discriminatory practices.

The EEOC’s claims are a departure from its prior position in which it previously determined similar language was in compliance with Title VII. In fact, CVS modeled its severance agreements with language the EEOC previously found compliant in an earlier lawsuit. This can be rightly viewed as an overreach by the EEOC to strike down provisions of severance agreements that are used almost universally by employers and have been previously approved by the agency.

If the EEOC is successful in this lawsuit, employers will need to revisit their severance agreements and make any necessary changes to comply with the court’s decision. However, unless the court strikes down the provisions in the case, or another court acts otherwise, we are not currently recommending a drastic departure from our prior severance agreements based on this lawsuit. While we believe it is unlikely that the EEOC will be successful on all of its claims against all provisions of CVS’s agreements, this new aggressive stance by the agency is a good reminder to employers to always revisit severance agreements to ensure they are legally compliant, and consider taking steps to avoid similar claims.

Nick Johnson is an attorney with Washington, DCbusiness law firm Berenzweig Leonard. He can be reached at njohnson@BerenzweigLaw.com.