Hunton Employment & Labor Perspectives

In the past few months, the EEOC has filed two federal lawsuits challenging what might be considered “run of the mill” separation agreements. Such separation or severance agreements have become a relatively common practice when the employment relationship is terminated, as the employer can offer a severance payment in exchange for a broad release of potential claims. These agreements provide employers with the finality that is necessary for making business decisions, risk assessments, long-term plans, and the like. In cases in which there are potentially viable claims, settling them immediately avoids the time and expense of litigation. And even if the employee would not have had any viable claims against the employer, merely avoiding the possibility of litigation and its costs is usually well worth the amount of the severance payment. The indication that EEOC is taking a closer look at these agreements is thus concerning to employers and the lawyers who represent them.

The first complaint was filed on February 7, 2014, in the Northern District of Illinois against CVS Pharmacy. The factual allegations are merely that CVS conditioned receipt of a severance payment on acceptance of “an overly broad, misleading and unenforceable Separation Agreement.” Particularly troubling is that the features of the Separation Agreement with which EEOC expressed concern are so commonplace, including standard provisions of notice to and cooperation with General Counsel in the case of any subpoena, deposition notice, interview request, or other investigative process; non-disparagement; non-disclosure of confidential information; a general release including discrimination claims; a representation of no pending actions and a covenant not to sue; and agreement to injunctive relief and attorney fees. The Complaint also stresses (in italics) that it was a “five-page single spaced Separation Agreement,” as if this contributed to the alleged misleading and unenforceable nature of the agreement. EEOC alleged that the Separation Agreement would interfere with an employee’s right to file a charge with the EEOC or other Fair Employment Practice Agencies, and it further alleged that extensive use of these separation agreements constituted a pattern or practice intended to violate the employees’ exercise of Title VII rights.

CVS moved to dismiss the Complaint, arguing that the Agreements expressly permit cooperation with the EEOC and other agencies that enforce anti-discrimination laws. In fact, the Agreements each contained a disclaimer that nothing “is intended to or shall interfere with Employee’s right to participate in  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.” That motion is currently pending before the court.

On April 28, the Retail Litigation Center Inc., requested leave of the court to file an amicus brief in support of CVS and its motion to dismiss. Leave was subsequently granted on May 6. In its brief, the RLC argued that, because similar separation agreements are used by employers across the United States, if the court were to accept the arguments made by EEOC, the ruling would impact retailers and major employers nationwide. This is particularly the case, the RLC contended, given that the alleged violation is nothing more than offering a separation agreement to employees. There is no allegation of discrimination or retaliation, which are the only types of “unlawful employment practices” prohibited by Title VII. Even if the Agreement was held unenforceable on public policy grounds, this would not give rise to a separate cause of action under Title VII. Moreover, the RLC pointed out, similar language to that which the EEOC objected in the CVS Separation Agreement was being used in separation agreements across the country, including sample agreements provided by the EEOC itself.

The RLC further argued that EEOC’s objections were vague and open-ended, based upon “overall form and style,” and not based on clear, objective standards. To penalize the employer for the Agreements’ overall form and style, for instance the length and the single-spacing, would violate due process. A ruling in favor of EEOC would also fail to provide notice so that future employers could conform their agreements accordingly. Instead, the agreements would be judged upon undefined, subjective standards, leading to arbitrary enforcement.

Finally, the RLC contended that a determination that the Separation Agreements at issue were unenforceable would undercut a strong public policy in favor of informal dispute resolution. The finality that is attained through a Separation Agreement depends upon the employer’s certainty that the Agreement will be enforced. Absent such certainty, the Agreement itself becomes a matter of risk, with the potential of a Title VII enforcement action. This would also undermine Congress’s goal of enabling informal dispute resolution through Title VII.

EEOC filed the second complaint on April 30, 2014, in the District Court of Colorado against CollegeAmerica Denver, Inc. Like in the CVS Complaint, EEOC alleged that conditioning receipt of the severance payment upon acceptance of “overly broad, misleading, and unenforceable Separation and Release Agreements” would chill and interfere with employees’ rights to cooperate with EEOC and other agency investigations of alleged discrimination. Unlike the CVS case, the CollegeAmerica case also involves an individual employee who had accepted the severance payments and signed the Agreement. Debbi Potts was accused of violating the non-disparagement provision based on some emails she had exchanged with another former co-worker. When CollegeAmerica tried to recover the severance payment, Potts filed an ADEA discrimination charge. CollegeAmerica responded by filing a claim for breach of the non-disparagement clause based upon Potts’ ADEA charge. This led to further charges and ultimately an EEOC claim against CollegeAmerica for retaliation.

It seems clear that EEOC is taking a closer look at separation agreements to make sure that employees are able to fully exercise those rights that are unwaivable and protected by statute. Employers would be well advised to do the same, bearing also in mind that EEOC may be trying to use litigation to define new standards or guidelines for such separation agreements.