The EEOC Takes Aim at Severance Package Agreements: Part 2 – Can Your Agreement Withstand the Scrutiny?


In our last blog, we discussed the recent actions taken by the Equal Employment Opportunity Commission (“EEOC”) in three cases: EEOC v. Baker & Taylor, Inc., Civil Action No. 1303729 (N.D. Ill. 2013), EEOC v. CVS Pharmacy, Inc., No. 1:14-cv-00863 (N.D. Ill. 2014), and EEOC v. CollegeAmerica Denver, Inc., No. 14-cv-01232-LTB (E.D. Co. 2014). In each of these cases, we see the EEOC doing exactly what it announced it was going to do in its 2013-2016 Strategic Enforcement Plan: “target policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts.”  In light of these cases, the challenge for employers is to review their own severance agreements and make appropriate changes in order to ensure that their agreements satisfy the requirements of the EEOC’s new agenda.

Lessons to be learned from the Baker & Taylor, CVS and CollegeAmerica cases

A review of the recent lawsuits reveals what the EEOC considers problematic and provides guidance as to strategies for drafting severance agreements going forward.

As discussed in our prior blog, in Baker & Taylor, the EEOC asserted that certain provisions of the severance agreement violated Title VII of the Civil Rights Act of 1964 (“Title VII”) by conditioning severance on employees signing agreements that interfered with their right to file a charge, testify, assist, or participate in any manner in an investigation, hearing, or proceeding under Title VII. The case resolved pursuant to a settlement agreement, part of which required Baker & Taylor to revise its severance agreement to include a disclaimer that the agreement is not intended to limit an employee’s right or ability to file discrimination charges with the EEOC or its state and local counterparts as well as affirmative statements regarding these employee rights. The significance of this lawsuit from the EEOC’s perspective is best revealed by the statement it made following the settlement: “[T]he issue raised by this case and its resolution relate to a legal right that is of critical importance to all employees: the right to file a charge of discrimination and communicate with the EEOC and the local Fair Employment Practices Agencies.”

In CVS Pharmacy, the EEOC alleged that CVS “engaged in a pattern or practice of resistance to the full enjoyment of the rights secured by Title VII” by “conditioning receipt of severance benefits on FLSA exempt non-store employees’ agreement to a Separation Agreement that deters the filing of charges and interferes with employees’ ability to communicate voluntarily with the EEOC” and state fair employment practice agencies (sometimes referred to as FEPAs). The complaint highlighted the following allegedly improper provisions, all of which appear to be standard provisions that many employers currently include in their separation agreements:

  • A Cooperation clause requiring the employee to “promptly notify the Company’s General Counsel by telephone and in writing” upon receiving a subpoena, deposition notice, interview request, or other inquiry regarding among other things an administrative investigation.
  • A Non-Disparagement clause providing that the employee will not make statements that disparage the business or reputation of the company.
  • A Non-Disclosure of Confidential Information provision by which the employee agrees not to disclose confidential information, including “information concerning the Corporation’s personnel, including the skills, abilities, and duties of the Corporation’s employees, wages and benefit structures, succession plans, information concerning affirmative action plans or planning….”
  • A General Release of Claims which released, among other things, “charges” and included as released “any claim of unlawful discrimination of any kind.”
  • A No Pending Actions; Covenant Not to Sue provision in which the employee agrees “not to initiate or file or cause to be initiated or filed, any action, lawsuit, complaint or proceeding asserting any of the Released Claims against any of the Released Parties….”

In its complaint, the EEOC also found the following disclaimer insufficient: “Nothing in this paragraph is intended to or shall 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 agreement prohibit employee from cooperating with any such agency in its investigations.”

It is notable that the CVS Pharmacy disclaimer language essentially tracked the language suggested by the EEOC, itself, in its 1997 publication, “Enforcement Guidance on Non-Waivable Employee Rights Under EEOC-Enforced Statutes.”  It was also similar to the Kodak settlement language, which had previously been acceptable to the EEOC. Clearly, the EEOC is telling us that it now has different expectations of employers.

The EEOC found the sheer length of the agreement (five-pages, single spaced) noteworthy, and complained CVS’s “carve-out” language was too hidden, because it was reduced to a single qualifying sentence and did not expressly touch all of the challenged provisions in the Agreement.  However, the complaint focused its attack primarily on the language in the standard cooperation, non-disparagement, nondisclosure, release-of-claims, and covenant-not-to-sue clauses, alleging that the agreement, as written, interfered with an employee’s right to file a charge or communicate with the EEOC.

The EEOC’s complaint against CollegeAmerica reflects similar criticisms. In that case, the EEOC alleged that the separation agreement “chills and interferes with employees’ rights to file charges and/or cooperate with the Commission and state [FEPAs] in violation of [the ADEA] and/or assist others pursuing discrimination claims against CollegeAmerica . . . .”  Like the CVS Pharmacy separation agreement, the CollegeAmerica agreement included rather standard cooperation and non-disparagement provisions. But unlike the CVS Pharmacy agreement, the “no claims” provision in the CollegeAmerica agreement purportedly prohibited employees from even contacting any governmental or regulatory agency for the purpose of filing a complaint or grievance. The agreement also stated “[e]xcept as compelled by law, Employee will not assist any other private person or business in their pursuit of claims against the Company.”  Moreover, while the CVS Pharmacy agreement included a specific carve-out provision that made exception for any claim that an employee cannot lawfully waive, the CollegeAmerica agreement contained no such provision.

Despite some key differences in the CVS Pharmacy and CollegeAmerica agreements, the common thread running through both lawsuits is the EEOC’s view that if a separation agreement can be construed to deter an employee from filing a charge, it is unlawful, even if it does not explicitly prohibit the employee from filing a charge. This is true even where, as in the case of CVS Pharmacy, the agreement contains the type of explicit carve-out provision endorsed by the EEOC in Kodak making clear that nothing in the agreement prohibits the employee from participating in any federal, state, or local agency proceeding.

What should employers do in light of these new developments?

The EEOC has sent a clear message that it intends to scrutinize severance agreements with an eye toward targeting policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts.  Employers may want to consider the following to maximize the chance that their separation agreements will pass the EEOC’s current standards:

  1. Keep it short and simple. The EEOC took issue with the length of CVS’s agreement – five single-spaced pages.  If possible, try to keep the agreement to two or three pages, and avoid using legalese.
  1. Be explicit. Expressly state that the agreement does not interfere with the employee’s rights to file charges with the EEOC or participate in agency investigations under federal civil rights laws the EEOC enforces, including Title VII, the ADA, the ADEA, the Genetic Information Nondiscrimination Act, and the Uniformed Services Employment and Reemployment Rights Act.  However, the agreement still can and should condition severance payments on an employee’s agreement to waive the right to file or pursue litigation in court, and give up the chance to recover any money based on a claim filed with the EEOC.  Despite the EEOC’s inclusion of language purporting to allow an employee to “recover any appropriate relief” in the Baker & Taylor consent decree, it may be premature, at least for now, for employers to go this far, particularly in light of the contrary Kodak consent decree language. This approach recognizes a balance between the important interests in including confidentiality, non-disparagement, and cooperation clauses in severance agreements with the risk that these clauses may be found to violate employees’ rights.
  1. Stand out and be bold. Employers can and should still use “carve-out” language in separation agreements, but that language should be prominently featured.  Put it in a standalone section of the agreement so that it is not buried in another paragraph.  Emphasize the language by making it ALL CAPS, underlined, bold or italicized (or all four).
  1. Include a severability clause, which provides that if a court finds any provision of your separation agreement unenforceable or overbroad, the remainder of the agreement remains valid. Such a clause could protect the enforceability of the rest of the agreement.

Contributor:  Sherry S. Bragg, Attorney at Law | Weintraub Tobin