pharmacistEmployers like separation agreements.  Separation agreements, of course, are contracts that employees sign when their employment is terminated that allows them to be paid severance and in exchange they usually give up the right to sue their employer.  Separation agreements provide finality to employment terminations by offering employers protection from claims and potential claims.  The agreements many employers use are often standardized and have served them well for years.  But now might be the time to take another look at those documents, lest the Equal Employment Opportunity Commission (“EEOC”) looks first.

Recently, the EEOC has aggressively asserted its (re)interpretation of the law regarding the enforceability of separation (severance) agreements, suing several companies for using what it perceived to be overly broad agreements.  See, EEOC v. CVS Pharmacy, Inc. no. 1:14-cv-00863 (N.D. Ill. 2014); see also, EEOC v. CollegeAmerica Denver, Inc., no. 14-cv-01232-LTB (E.D. Co. 2014).  The EEOC doesn’t like separation agreements that do not make it sufficiently clear (in the EEOC’s opinion) that employees do not waive the right to file charges with the EEOC or participate in agency investigations, even though the employee can waive claims for damages under the statutes the EEOC enforces like Title VII or the Americans with Disabilities Act (“ADA”).  In the CVS Pharmacy and CollegeAmerica cases, the EEOC alleged the employers’ separation agreement forms constituted a “pattern or practice” of denying employees their statutory rights.  (“Pattern or practice” is significant because such cases can carry much higher penalties than a run-of-the-mill lawsuit; they can also inspire class-action lawyers to start snooping around.)

The EEOC hinted at this before.  In its 2012-16 Strategic Enforcement Plan (that we blogged about here), the EEOC announced its intention 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.”  The agency is zealously pursuing that intention, alleging in CVS Pharmacy, for example, that CVS’s separation agreement interfered with an employee’s right to file a charge with the EEOC and its ability to investigate.  But CVS’s separation agreement contained language that expressly allowed exactly that: “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”

The EEOC complained CVS’s “carve-out” language was too hidden, because it was reduced to a single qualifying sentence and did not expressly touch all of the challenged provisions in the Agreement.  For its part, CVS could hardly be blamed for using the particular language it used in its agreement, as the EEOC itself endorsed it in a 2006 case, EEOC v. Eastman Kodak Co., no. 06-cv-6489 (W.D.N.Y. 2006) (W.D.N.Y. Oct. 6, 2006) (entering consent decree stipulated by EEOC mandating use of specific language in separation agreements).  The CVS Pharmacy case was recently dismissed on unrelated procedural grounds (see opinion here) and CollegeAmerica is still pending, so employers are left to wonder if they can be sued for using language the EEOC has already endorsed in Eastman Kodak.

So what exactly should employers do in the meantime?

Many may choose to just ignore the EEOC’s current enforcement as a politically-motivated fad.  For those who want to play it safe, they should evaluate their separation agreements, particularly those that may be used in large layoffs which may increase the chances the EEOC will notice them.  We suggest employers consider the following to maximize the chance separation agreements can pass the EEOC’s current standards:

  1. STAND OUT AND BE BOLD.  Employers can still use “carve-out” language in separation agreements, but that language should be prominently featured.  Put it in a standalone section of the agreement so that it is not buried in another paragraph.  Emphasize the language by making it ALLCAPS, bold, underlined, or italicized (OR ALL FOUR).
  2. Be explicit.  State explicitly that the agreement does not interfere with the employee’s rights to file charges with the EEOC or participate in agency investigations under federal civil rights laws the EEOC enforces, including Title VII, the ADA, the ADEA, the Genetic Information Nondiscrimination Act, and the Uniformed Services Employment and Reemployment Rights Act.  Employers still can and should condition severance payments on an employee’s agreement to waive the right to file or pursue litigation in court, and give up the chance to recover any money based on a claim filed with the EEOC.
  3. Include a severability or “blue pencil” clause.  If a court finds any provision of your separation agreement unenforceable or overbroad, such a clause could protect the enforceability of the rest of the agreement.
  4. Keep it short and sweet.  The EEOC took issue with the length of CVS’s agreement – five single-spaced pages.  Try to keep the agreement to two or three pages if possible, and avoid using legalese – even lawyers try to avoid legalese these days.

We will be closely following the EEOC’s activity in this area, particularly the courts’ responses (and particularly in the CollegeAmerica case).  Stay tuned.

Our law clerk Ryan Kunkel was extaordinarily helpful in putting this post together.