Employers 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.)
Continue Reading EEOC’s Tough Stance on Employee Separation Agreements
Employers have until the end of the year to take advantage of relief from penalties under section 409A of the Internal Revenue Code for agreements that require employees to sign releases before severance benefits are paid. Section 409A was enacted in 2004 to regulate deferred compensation. Internal Revenue Service ("IRS") regulations made clear that it
Recognizing that severance agreements are becoming more and more prevailant in the down economy, the