EEOC Challenges Standard Language in Employee Separation Agreements
Certain standard provisions in employee separation agreements have recently come under fire from the Equal Employment Opportunity Commission ("EEOC") due to claims that such language may "chill or otherwise interfere with employee rights to file charges of discrimination." The provisions targeted by the EEOC include covenants not to sue, confidentiality, and non-disparagement clauses – clauses that have long been considered regular and necessary language for employee separation agreements in exchange for payment of severance compensation and other severance benefits.
Background. The EEOC has long maintained that an employer may not interfere with the protected right of employees to file a charge, testify, assist, or participate in an investigation or other proceeding under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, or the Equal Pay Act. The issue regarding covenants not to sue, confidentiality, and similar provisions is that they can be interpreted by employees as prohibiting the employee’s engagement in one of the protected actions listed above. For example, if a separation agreement provides that the employee will not file any suit, charge or complaint against the employer, that language would seemingly prohibit filing a charge of discrimination with the EEOC in violation of the employee’s protected right to do so. However, the EEOC has permitted employers to get around this apparent contradiction by including a clear disclaimer in the separation agreement addressing an employee’s retained rights.
Since 2006, the gold standard for covenant not to sue and disclaimer language has been a consent decree filed in EEOC v. Eastman Kodak Co. The Kodak consent decree set forth language that Kodak was required to use in its separation agreements on a prospective basis following a challenge to its separation agreements by the EEOC. The consent decree included standard covenant not to sue language indicating that an employee agreed not to file claims, charges, or complaints against Kodak that related to the employee’s period of employment or separation from employment. Along with the general covenant not to sue, the consent decree also explicitly provided that nothing in the separation agreement would prohibit an employee from filing a charge or participating in an investigation or proceeding conducted by the EEOC (or a comparable state/local agency), and that the employee expressly waived his or her right to recover monetary damages in an action against the company. Although the disclaimer in the consent decree was clear, it only appeared in the covenant not to sue provision. Post-Kodak, many employers incorporated similarly formatted provisions into their separation agreements as a proactive measure against such challenges by the EEOC.
Recent Developments. In a seeming change of position, the EEOC recently filed suit against CVS Pharmacy in February 2014 for alleged interference with employee rights to file charges and participate in proceedings by the EEOC based on language in CVS’ separation agreements. The EEOC identified six separate provisions that allegedly deterred and interfered with employee rights, including 1) a cooperation provision; 2) a non-disparagement provision; 3) a non-disclosure provision; 4) a release of claims provision; 5) a covenant not to sue; and 6) a breach provision. Although CVS’ separation agreements included disclaimer language similar to that found in the Kodak consent decree (presumably approved by the EEOC), the EEOC noted that the disclaimer was merely "a single qualifying sentence" in the covenant not to sue and was not repeated elsewhere in the separation agreement (an issue never raised in Kodak). The EEOC is seeking, among other things, corrective communications from CVS to inform employees that they have the right to file charges of discrimination and to initiate and respond to communication with the EEOC and state/local administrative agencies regarding such charges.
The EEOC followed its suit against CVS with another lawsuit in April 2014 challenging the language in a separation agreement used by CollegeAmerica, a private college based out of Utah. The EEOC’s complaint alleges that CollegeAmerica required employees to sign "overly broad, misleading, and unenforceable Separation and Release Agreements that chill and interfere with its employees’ rights to file charges and/or cooperate with the Commission." The separation agreement at issue stated that the employee agreed not to initiate contact with any governmental or regulatory agency for the purpose of filing a complaint or grievance against CollegeAmerica, and also contained a non-disparagement clause. The EEOC alleged retaliation after CollegeAmerica sued its former employee seven days after the employee filed a discrimination charge. The EEOC is seeking the same relief in CollegeAmerica as it is seeking in the CVS case.
It should be noted that the CVS and CollegeAmerica lawsuits are currently still pending. It is unclear whether courts will uphold the EEOC’s stricter stance and if the EEOC will receive some or all of the specific relief it has requested. However, given the importance of obtaining an enforceable release of claims through a separation agreement with a departing employee, employers should consider whether their standard separation agreements should be updated in light of the EEOC’s new position. Employers should pay particular attention to provisions that might have a "chilling effect" on an employee’s exercise of rights or that may otherwise interfere with the EEOC’s ability to investigate or prosecute charges of discrimination. Based on the EEOC’s recent actions, a visible and clear disclaimer that informs employees of their reserved rights following execution of a separation agreement should be included. One way to strengthen the disclaimer would be to set it off as a separate provision to avoid claims that the disclaimer is "buried" in the separation agreement. The disclaimer should be easily understandable and should clearly indicate that it applies to the entire separation agreement. Additionally, the disclaimer provision can specifically reference any covenant not to sue, confidentiality, and/or non-disparagement language so employees are clearly on notice that such provisions do not bar their ability to file a charge or otherwise cooperate with the EEOC or a similar state/local administrative agency in an investigation.By taking proactive steps, employers can hopefully help safeguard their separation agreements against future challenges from the EEOC. The attorneys in Koley Jessen’s Employment, Labor and Benefits Practice group are available to further discuss changes in the EEOC’s position and how your separation agreements can be updated to address these considerations.