The EEOC Takes Aim at Severance Package Agreements: Where We Were and Where We Are Now

Severance Package Agreements The EEOC Takes Aim at Severance Package Agreements

Most employers like to use severance or separation agreements because they provide some measure of finality to employment terminations by offering employers protection from claims and potential claims.  Almost all severance agreements include a general release in which the employee, in exchange for severance pay, waives the right to almost any claim arising out of his or her employment – except for filing or cooperating with an investigation of an already filed charge with the Equal Employment Opportunity Commission (“EEOC”) or a state counterpart.  The EEOC has in the past acknowledged that waivers are enforceable– if they’re not “overbroad”– a term that the EEOC interprets very broadly.  However, if, in the EEOC’s view, the language in the agreement can “reasonably” be interpreted as prohibiting or discouraging an employee (or former employee) from filing a charge or cooperating in an EEOC investigation of a charge, then the waiver is “overbroad, misleading and unenforceable.”

Severance Agreements Under Kodak.

Since 2006, the case of EEOC v. Eastman Kodak Co., No. 06-CV-6489 (W.D.N.Y. 2006) has been the guiding authority on the issue of severance agreements. Eastman Kodak’s severance agreement required its employees to return any severance pay and pay Eastman Kodak’s legal fees if they assisted the EEOC in investigating any discrimination charges.  This is where the agreement went awry. One week after filing suit, the EEOC and Eastman Kodak entered into a settlement agreement which required Eastman Kodak to use the following express language in its severance agreements going forward:

“Except as described below, you agree and covenant not to file any suit, charge or complaint against Releasees in any court or administrative agency, with regard to any claim, demand, liability or obligation arising out of your employment with Kodak or separation therefrom.  You further represent that no claims, complaints, charges, or other proceedings are pending in any court, administrative agency, commission or other forum relating directly or indirectly to your employment by Kodak. Nothing in this Agreement shall be construed to prohibit you from filing a charge with or participating in any investigation or proceeding conducted by the EEOC or a comparable state or local agency.  Notwithstanding the foregoing, you agree to waive your right to recover monetary damages in any charge, complaint, or lawsuit filed by you or by anyone else on your behalf.”

Using Kodak as guidance, many employers have since included this exact language, or some variation thereof, in their severance agreements without running afoul of Title VII, the Age Discrimination in Employment Act (ADEA), or the EEOC.

The EEOC Took A More Aggressive Stance On Severance Agreements After 2013.

On December 17, 2012, the EEOC released its Strategic Enforcement Plan for Fiscal Year 2013-2016 and stated its intent to “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.”  These policies and practices include retaliatory actions, overly broad waivers, settlement provisions that prohibit filing charges with the EEOC or providing information to assist in the investigation or prosecution of claims of unlawful discrimination, and failure to retain records required by EEOC regulations.

Shortly thereafter, in May of 2013, the EEOC’s Chicago Regional Office took action in furtherance of this more aggressive stance when it filed a lawsuit against Baker & Taylor, Inc. (EEOC v. Baker & Taylor, Inc., Civil Action No. 1303729 (N.D. Ill. 2013), alleging that the employer’s severance agreement interfered with employee’s rights to file charges.  The EEOC focused on the following two provisions contained in the severance agreement:

I further agree never to institute any complaint, proceeding, grievance, or action of any kind at law, in equity, or otherwise in any court of the United States or in any state, or in any administrative agency of the United States or any state, country, or municipality, or before any other tribunal, public or private, against the Company arising from or relating to my employment with or my termination of employment from the Company, the Severance Pay Plan, and/or any other occurrences up to and including the date of this Waiver and Release, other than for nonpayment of the above-described Severance Pay Plan (emphasis added).

I agree that I will not make any disparaging remarks or take any other action that could reasonably be anticipated to damage the reputation and goodwill of Company or negatively reflect on Company. I will not discuss or comment upon the termination of my employment in any way that would reflect negatively on the Company. However, nothing in this Release will prevent me from truthfully responding to a subpoena or otherwise complying with a government investigation.” (Emphasis added.)

The case resolved with a settlement in which Baker & Taylor agreed to include the following, broadly written provisions in its severance agreements:

“Nothing in this Agreement is intended to limit in any way an Employee’s right or ability to file a charge or claim of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) or comparable state or local agencies.  These agencies have the authority to carry out their statutory duties by investigating the charge, issuing a determination, filing a lawsuit in Federal or state court in their own name, or taking any other action authorized under these statutes.  Employees retain the right to participate in such any [sic] action and to recover any appropriate relief.  Employees retain the right to communicate with the EEOC and comparable state or local agencies and such communication can be initiated by the employee or in response to the government and is not limited by any non-disparagement obligation under this agreement [sic].”  (Emphasis added).

Notably, Baker & Taylor was required 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.  Moreover, while the EEOC in the Kodak settlement expressly agreed that an employer can require an employee to waive the right to recover monetary damages in an EEOC proceeding, it appears to have changed its position in the Baker & Taylor settlement by requiring language allowing an employee to retain the right to “recover any appropriate relief” in an EEOC proceeding. This requirement arguably undermines one of the main reasons for providing severance pay in the first place, to wit: minimizing the risk of such proceedings, and the damages arising therefrom. What’s more, this change came about without any change whatsoever to Title VII or the ADEA between the two settlements. One possible explanation for this inconsistency is that the Kodak matter arose in New York, whereas the Baker & Taylor settlement arose out of the EEOC’s Chicago Regional Office, which is known to be a particularly aggressive office.

Sending a clear message to employers of what to expect in the future, the EEOC stated in its press release announcing the Consent Decree that was part of the settlement that “the 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.”

On the heels of Baker & Taylor, in 2014, the EEOC again pushed its more aggressive agenda by filing two more lawsuits – one under Title VII and one under the Age Discrimination in Employment Act (ADEA) – against companies based on fairly generic severance agreements with employees, agreements which would have arguably been acceptable under Kodak.

First, the EEOC Chicago Regional Office brought action against CVS alleging that it’s severance agreement unlawfully violates employees’ right to communicate with the EEOC and file discrimination charges (EEOC v. CVS Pharmacy, Inc., 1:14-cv-00863 (N.D. Ill. 2014)).  Shortly thereafter, the EEOC brought another suit against a second company, CollegeAmerica Denver, asserting similar allegations relating to that employer’s severance agreement (EEOC v. CollegeAmerica Denver, Inc., 14-cv-01232-LTB (E.D. Co. 2014)).  While both of these cases were dismissed on procedural grounds, the fact that they were filed at all signals that the EEOC is serious about its stated goals: to target practices that discourage or prohibit employees from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts.

So, employers must now take a closer look at their own severance agreements to ensure that they will withstand any future challenge from the EEOC.  In the next blog, we will discuss in greater detail the lessons to be learned from Baker & Taylor, CVS and CollegeAmerica, and some of the things that employers can do to ensure that their severance agreements withstand the scrutiny of the EEOC’s more stringent expectations.

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

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