EEOC Loses CVS Severance Agreement Battle

EEOC Loses In CVS Severance Agreement Case

CVS Pharmacy, Inc. terminated a store manager and offered her a severance agreement, which included a broad release of waivable claims including claims under Title VII.  After signing the agreement and accepting the severance payment, the store manager filed a charge with the EEOC alleging that she had been fired because of her race and sex.  During the subsequent investigation by the EEOC, CVS provided the EEOC with a copy of the severance agreement.

The EEOC took the position that CVS’ use of the severance agreement led it to believe that CVS was “engaged in a pattern or practice of resistance to the full enjoyment of the rights secured by Title VII” in that the releases were supposedly overly broad, misleading and unenforceable.  The EEOC demanded that CVS enter into a consent decree to be filed in Court within 14 days.  (At about that same time, the EEOC dismissed the former employee’s charges of discrimination.)

CVS responded to the EEOC by requesting that it comply with the pre-lawsuit procedures contained in section 706 of Title VII, specifically that it engage in conciliation.  The EEOC responded that it was not required to engage in such procedures in this particular matter and reiterated its demand that CVS enter into a consent decree.  CVS responded by letter again request conciliation and also advising the EEOC that it was revising its severance agreement to remove any ambiguities concerning an employee’s rights under Title VII in connection with signing a severance agreement.  The EEOC did not respond but rather, six months later filed a lawsuit against CVS alleging violations of Title VII.  CVS moved to dismiss the lawsuit, or in the alternative that it be granted judgment on the ground that the EEOC did not comply with the pre-lawsuit procedures set forth in section 706 of Title VII.  The district court rejected the EEOC’s argument that it was not required to comply with those procedures and granted judgment to CVS.  The EEOC then appealed this judgment to the Seventh Circuit Court of Appeals (which includes the State of Illinois).

On appeal, the EEOC argued that section 707(a) of Title VII empowered it to file a lawsuit challenging a “pattern or practice of resistance” to an employee’s full enjoyment of rights under Title VII without having to engage in section 706’s pre-lawsuit procedures. Essentially, the EEOC argued that CVS’ use of the severance agreement could “chill” a terminated employee from pursuing their rights under Title VII with the EEOC and therefore constituted an improper “pattern or practice of resistance.”

The Seventh Circuit began by reviewing the history of Title VII and noted that originally, the U.S. Attorney General had the sole power to file lawsuits under section 707.  Congress later determined that this was a major flaw in Title VII and passed an amendment in 1972 that transferred the Attorney General’s authority to file “pattern or practice” lawsuits to the EEOC.  The EEOC argued that based on this legislative history, the EEOC was assuming the authority that had been previously held by the U.S. Attorney General and that the Attorney General was not required to comply with the pre-lawsuit procedures of section 706 prior to the 1972 amendments, therefore, the EEOC was not required to follow such procedures when it assumed this authority.

The Seventh Circuit rejected this reasoning and concluded that it would essentially “read out” section 706 from Title VII.  In essence, the EEOC was seeking to broaden its powers so that it could always proceed immediately with litigation by claiming there was a “pattern or practice of resistance” without having to engage in any of the pre-lawsuit procedures in pursuing claims of unlawful employment practices involving discrimination and retaliation.  The Seventh Circuit concluded that section 707 did not “create a broad enforcement power for the EEOC to pursue nondiscriminatory employment practices that it dislikes,” but rather, that it enabled the EEOC to pursue multiple Title VII violations in one consolidated proceeding.

The Seventh Circuit found it notable that the EEOC did not find that CVS had engaged in any discrimination or retaliation by offering the terminated store manager the severance agreement at issue.  It noted that multiple circuits, including the Seventh Circuit, had held that conditioning benefits on promises not to file charges with the EEOC was not enough by itself to constitute “retaliation” that would be actionable under Title VII.  Therefore, the Seventh Circuit found that the lower court was correct in finding that the EEOC’s claim against CVS failed as a matter of law and that the judgment had properly been granted.

Although the Seventh Circuit found against the EEOC and its expansive interpretation of its powers under Title VII, employers are reminded that they may wish to have legal counsel review severance agreements they are using to ensure that they do not run afoul of the EEOC’s interpretation.  Furthermore, when faced with the threat of action by the EEOC, employers should explore whether a matter is ripe for the pre-lawsuit procedures set forth in section 706 so that they may have an opportunity avoid the expense of litigation.

Contributor:  James Kachmar, Shareholder | Weintraub Tobin