May 14, 2014

Troublesome Separation Agreement Provisions

Recently, the United States Equal Employment Opportunity Commission (EEOC) increased its scrutiny of separation agreements and releases that—the EEOC argues—interfere with its ability to investigate claims and remedy discrimination. Recent examples are the EEOC's lawsuits against CVS Pharmacy, Inc., and against CollegeAmerica Denver, Inc.

The basic issues raised by the EEOC are not new. For example, for many years, the federal Age Discrimination in Employment Act (ADEA) has stated:

No waiver agreement may affect the Commission's rights and responsibilities to enforce [the ADEA]. No waiver may be used to justify interfering with a protected right of an employee to file a charge or participate in an investigation or proceeding conducted by the Commission. 

29 U.S.C. §626(f)(4). The EEOC has taken similar positions with respect to other laws that it enforces. 

What is new is the EEOC's attack on provisions long thought by employers and employment lawyers to be completely legitimate. Obviously, a provision in an agreement that specifically prohibits filing an EEOC charge would be unenforceable and might be itself the basis for a charge. However, the EEOC in two recent lawsuits challenges release provisions that make no reference to the EEOC. Examples include:

  • Non-disparagement:  A promise not to make negative statements about the employer might be construed to prohibit the employee from explaining to the EEOC how he or she has allegedly been discriminated against. 
  • Non-disclosure of confidential information:  As has the National Labor Relations Board (NLRB) with respect to employee handbook policies, the EEOC challenges requirements that employees not disclose an employer's confidential information. One assumes that the EEOC does not object to prohibiting the disclosure of trade secrets; the issue seems to be that not allowing an employee to provide the EEOC with information about the employer's human resources practices would interfere with the EEOC's ability to investigate.
  • Cooperation:  In the CVS lawsuit, the EEOC challenged a provision requiring the employee to notify the employer's general counsel if the employee was subpoenaed or otherwise contacted by an investigator, attorney or third party. The complaint against CollegeAmerica cites the requirement in its separation agreements that the employee cooperate with the company with regard to "any investigation, administrative action or litigation" about which the employee has information.
  • Non-assistance:  The CollegeAmerica separation agreements provide that "[e]xcept as compelled by law, Employee will not assist any other private person or business in pursuit of claims against the Company." 
  • Statement of no pending actions and a covenant not to sue:  The challenged provisions require the employee to represent that the employee has not filed or initiated any complaint or claim with any agency. The provisions go on to commit the employee not to initiate or file any action, lawsuit, complaint or proceeding asserting any of the claims that had been released. In the view of the EEOC, this provision was not saved by the explicit statement in the CVS agreement that nothing in that paragraph is intended to interfere with the employee's right to participate in a proceeding or cooperate in an investigation conducted by a governmental agency enforcing discrimination laws.
  • Specification of remedies:  The CVS separation agreement includes language allowing a court to enjoin the employee from breaching the agreement and awarding the employer attorneys' fees if a court issues injunctive relief or awards damages due to the employee's breach of the agreement. Note that the ADEA regulations, specifically 29 C.F.R. §1625.23(b), prohibit a waiver agreement from providing for the award of attorneys' fees or any other penalty against an employee who commences an ADEA lawsuit.
  • A general release of claims:  In the most inexplicable provision of the EEOC's complaints, the EEOC objects to statements that the release covers all claims through the effective date of the agreement, including all claims of unlawful discrimination of any kind. To obtain a release of all claims is, of course, the primary reason that employers seek—and provide consideration for—releases.

The EEOC complaints allege that the use of the provisions discussed above constitutes "resistance" to the full enjoyment of rights secured by Title VII and the ADEA because the separation agreements interfere with an employee's right to file a charge and to participate in an investigation.

To remedy these alleged wrongs, the EEOC asks the court to declare these terms void, to enjoin CVS and CollegeAmerica from using these terms in their separation agreements, to order CVS and CollegeAmerica to send "corrective communications" to inform employees that they retain the right to file discrimination charges and respond to agency requests for information, and to provide any former employee who signed a separation agreement containing these terms an additional 300 additional days to file a discrimination charge.

Although the courts have yet to decide whether the EEOC's arguments in these two lawsuits go beyond the requirements of the law, employers should carefully review their separation agreements and releases and consider how to reduce the risk of an EEOC challenge. For example, any non-disparagement clause should have an explicit exception for communications with government agencies. Also, employers should consider whether a covenant not-to-sue is really necessary if all the potential claims are included in the release provision. If an employer decides to include a covenant not-to-sue term, the provision should specifically state that it is not intended to prevent the filing of a charge with any governmental agency. However, it is difficult to imagine obtaining a release that did not address all claims of unlawful discrimination.

Release language should be revised so that under any fair reading it does not purport to restrict people from filing charges or participating in investigations. Many releases contain general language explicitly making this point, but the EEOC alleges that such a statement in the CVS separation agreement is insufficient. 

Although this issue is not mentioned in the EEOC complaints, there are limits on how far employers can go in complicating their releases with detailed qualifications and limitations. The ADEA cautions that waivers must be "written in a manner calculated to be understood" by the people asked to sign it. 29 U.S.C. § 626(f)(1)(A).

If you would like help reviewing your organization's separation agreements or releases, please contact a  Faegre Baker Daniels employment lawyer.   

This update is intended for general information purposes only and is not to be considered legal or employment advice. The information herein should not be acted upon without appropriate professional advice.

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