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EEOC Signals a Continuing Assault on Employer Severance Agreements

Posted on Fri, Jun 27, 2014 @ 10:55 AM

by Jack B. HarrisonJack B. Harrison

In the past several months, the Equal Employment Opportunity Commission (EEOC) filed two lawsuits confirming the agency’s intent to continue to aggressively challenge severance agreements negotiated between an employer and employee.

The first of these cases, EEOC v. CVS Pharmacy Inc. was filed in February 2014 in the United States District Court for the Northern District of Illinois.  In this first suit, the EEOC alleged that the defendant had violated Title VII by conditioning its offer of severance benefits on the employee signing a severance agreement that, according to the EEOC, “deters the filing of charges and interferes with employees’ ability to communicate voluntarily” with the EEOC.  According to the EEOC’s complaint, the offending provisions in the severance agreement included a requirement that the employee notify the company if he or she became part of an administrative investigation, a non-disparagement clause, a non-disclosure of confidential information clause, a release of all claims by the employee, and a covenant not to sue the company.  As should be obvious to most employers, many of these types of clauses are standard provisions in many severance agreements.

The EEOC filed its second suit challenging the provisions of a severance agreement in April 2014 in the United States District Court for the District of Colorado.  In this suit, EEOC v. CollegeAmerica Denver, the EEOC alleged that the severance agreement used by the defendant, a private college, chilled and interfered with the employee’s rights to pursue age discrimination claims under the Age Discrimination in Employment Act (ADEA).

In CollegeAmerica, the director of the Wyoming campus of CollegeAmerica, Debbi Potts, resigned from her position in July 2012.  In September 2012, Potts signed a separation agreement that included a provision that she would “refrain from personally (or through the use of any third-party) contacting any governmental or regulatory agency with the purpose of filing any complaint or grievance that shall bring harm to CollegeAmerica” and also included a non-disparagement provision.  Potts then filed a charge of discrimination against CollegeAmerica with the EEOC. 

During the course of the EEOC’s investigation of Potts’ claim, CollegeAmerica produced a form severance agreement that it had used for several years.  This form agreement included provisions under which an employee would release all claims alleging discrimination and/or claims arising under Title VII, would agree not to assist in pursuit of claims against the company, unless compelled by law, and would agree that no lawsuit or administrative action had been filed against the company in the employee’s name.  In its complaint filed in this case, the EEOC alleges that the severance agreements used by CollegeAmerica include “provisions that chill and deter the filing of charges of discrimination and may interfere with employees’ ability to communicate voluntarily with the EEOC . . . and interfere with employees’ protected right to file charges or participate in investigations or proceedings conducted by the Commission.”

Taken together, these two suits serve as a signal to employers that the EEOC plans to continue its review of and challenge to severance agreements that include provisions such as those outlined in these two cases.  Given that such provisions are standard in many severance agreements used by employers, it becomes important that prudent employers review their standard severance agreements to determine whether they will withstand a challenge by the EEOC.  The provisions in these agreements should be narrowly tailored to provide the maximum protection possible for the employer, while, at the same time, not intruding on the employee’s rights under Title VII and other discrimination statutes.

Tags: Severance Agreements, EEOC