Standard Severance Agreements Challenged by the EEOC

May 19, 2014

Most employers include a waiver of claims in their standard severance agreements – i.e., a clause that explains the employee is waiving his or her right to bring suit against the company in exchange for some amount of severance pay.  Such clauses are so commonplace in today’s economy that it is unlikely any employee expects to receive severance pay without making such a waiver.  Two recent lawsuits by the EEOC, however, seek to challenge the customary scope of these waivers.  Specifically, in actions against CVS Pharmacy and CollegeAmerica, the EEOC has taken a new, aggressive position that seemingly standard severance waivers are invalid because they “discourage or prohibit individuals from exercising their rights under employment discrimination statutes [and] impede the EEOC’s investigative … efforts.” See generally EEOC Strategic Enforcement Plan FY 2013-16, at p. 10 (Dec. 17, 2012).  By suing to enjoin enforcement of these waivers, the EEOC has clearly signaled its intention to scrutinize and attack what has been standard severance practice for years.  Employers should accordingly take note and consider adjusting their approach until these cases are fully resolved.

I.          The CVS and CollegeAmerica Cases

In the CVS case, filed in February of this year, the EEOC alleges that a “five-page single spaced separation agreement” given to over 650 outgoing employees violates Title VII because it interferes with the employees’ right to file charges and participate freely in EEOC investigations.  To understand the EEOC’s position, it is important to first understand that the law generally allows employees to waive their individual right to recover for discrimination by executing severance agreements, but it does not permit them to waive the government’s right to pursue such actions on the employees’ behalf.  Waiving the individual’s ability to participate in government investigations, therefore, can run afoul of the law.

The CVS case is alarming because the EEOC claims that several standard clauses in the company’s severance agreement – including its general release of claims and covenant-not-to-sue – all make this mistake because the agreement waives the employees’ right to bring “any claim of unlawful discrimination of any kind,” whether “in … state or local court” or before any governmental “agency.”   In other words, the EEOC contends that this language purports to limit the EEOC’s rights by mere virtue of limiting the employee’s rights to do things that touch upon its enforcement authority.

The CVS agreement also includes a savings clause modeled after language the EEOC itself publicly approved back in 2006.  In particular, the agreement states that nothing in it is “intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local governmental agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”  While this clause seemingly alleviates any concern that the agreement impairs the EEOC’s rights in any way, the EEOC disagrees—asserting in its Complaint that the “illegal restrictions” in the CVS agreement are limited by a “single qualifying sentence not repeated anywhere else in the agreement.”  The EEOC’s lawsuit against CVS, therefore, seeks to invalidate a severance agreement that expressly permits an individual to file discrimination charges and participate in EEOC investigations.  That is a bold, aggressive new position for the EEOC, to be sure.

In the case against CollegeAmerica, filed in early May, the EEOC seeks to describe an employer’s effort to enforce its severance agreement as an act of retaliation.  The agreement in question precluded the employee from disparaging CollegeAmerica, and from filing a complaint with any court or governmental agency about her employment.  The agreement did not contain a savings clause like the CVS agreement, making it all the more suspect in the EEOC’s eyes.  

After the CollegeAmerica employee resigned, she later filed an age discrimination charge against the school, despite her agreement not to do so.  CollegeAmerica responded by suing the employee for violating their severance agreement.  This, in turn, has led the EEOC to claim CollegeAmerica’s suit constitutes retaliation against its former employee for exercising her rights under the ADEA.  Thus, not only is the school’s severance agreement allegedly unlawful, but so is its attempt to enforce it.

 II.        Advice for Employers Now

It is altogether possible that the arguments raised by the EEOC in these two actions will ultimately be rejected by the courts.  Nevertheless, a prudent employer should consider the following steps to protect itself and avoid the ire of the EEOC:

For more information, please contact Keith Moorman, or any member of the Frost Brown Todd Labor and Employment practice group.

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