United States: Employment Law Commentary - Volume 28, Issue 2 - February 2016

Separation Anxiety: Best Practices for Employee Severance Agreements

Employers deal with employee separations all the time. Back when I was an HR manager for a major airline, when it came time for a layoff or other not-for-cause termination, most of the time I'd just pull the standard form separation agreement off the shelf, customize it a bit, and then work to get the employee to sign it. I confess that I never gave much thought to whether the separation agreement could ever be challenged, or worse, determined to be unenforceable.

Now I know better. While form agreements are certainly convenient, they can easily become outdated by failing to account for recent developments in the law. With the new year underway, now might be a good time to review your form separation agreements and decide whether a tweak or two is in order. Why now? Recently, the EEOC, SEC, and other government agencies have started to take a more aggressive stance on separation-agreement provisions—particularly those that are seen, at least from the agencies' points of view, as preventing or deterring employees from reporting employer wrongdoing.

For example, the EEOC has long taken the position that conditioning severance benefits on the employee's promise not to file an EEOC charge could constitute unlawful retaliation, in violation of federal employee-rights statutes.1 But in a recent shift, the EEOC has become even more strident in its enforcement efforts, and the agency has taken action against even those employers whose severance agreements expressly carve out restrictions on filing EEOC charges or participating in agency investigations. Courts have so far been reluctant to accept the EEOC's hawkish position. But with stepped-up enforcement actions on the rise, employers may do themselves a considerable disservice by relying on an outdated form agreement. Instead, it might be a good time to dust off the old agreements with an eye toward deciding whether saving the time and expense of defending an agency action outweighs the inconvenience of implementing a less restrictive separation agreement.

EEOC Guidance "Evolves"

Since at least 2009, the EEOC's position has been that, in the context of separation agreements, even those employees who agree to release all claims nevertheless should be allowed to file an EEOC charge and participate in agency proceedings. For example, the agency has said that severance agreement provisions that limit an employee's right "to testify, assist, or participate in an EEOC investigation are invalid and unenforceable".2 The agency has said that the "very existence" of an agreement that includes an employee's promise not to file a charge constitutes unlawful retaliation, in violation of federal employment-rights statutes.3

The EEOC has decided to step up its enforcement actions against employers who have these no-charge provisions in their separation agreements: In 2013, the agency announced new enforcement priorities, pledging to "target policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or that impede the EEOC's investigative or enforcement efforts."4 EEOC concerns extend to overly broad waivers and settlement provisions that employees might construe as prohibiting them from filing charges or assisting in agency investigations.5

Tension With Court Decisions

The EEOC's new aggressive position seems at odds with federal court decisions in these areas. For example, courts routinely hold that employees can properly waive or release accrued Title VII and other claims, so long as the waiver is made voluntarily and knowingly. Title VII rights, "like many other rights created by federal statutory law, may be surrendered through the execution of a release."6

Even so, employers should be aware that courts will "closely scrutinize" waivers like these, particularly when an employee is releasing a right that is remedial in nature.7 Courts have held, for example, that prospective claims cannot be contracted away and that rights to file charges similarly cannot be waived.9

This tension between the EEOC's aggressive enforcement priorities and courts' lack of enthusiasm for embracing those priorities leaves employers in the position of trying to make heads or tails of the uncomfortable gray area, as one employer learned too well.

EEOC v. CVS Pharmacy: A Case Study

The EEOC sued CVS in Illinois federal court, alleging that the pharmacy chain improperly tied employees' severance pay to their agreement not to communicate with the agency or file discrimination claims. Specifically, EEOC complained that CVS conditioned severance pay "on an overly broad, misleading and unenforceable" separation agreement "that interfere[d] with its employees' right to file charges" with government employment agencies.

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1 EEOC, Notice No. 915.002, Enforcement Guidance on Non-Waivable Employee Rights (Apr. 10, 1997), http://www.eeoc.gov/policy/docs/waiver.html ("Agreements that attempt to bar individuals from filing a charge or assisting in a Commission investigation run afoul of the anti-retaliation provisions because they impose a penalty upon those who are entitled to engage in protected activity under one or more of the statutes enforced by the Commission.").

2 EEOC, Understanding Waivers of Discrimination Claims in Employee Agreements, http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html.

3 EEOC, Notice No. 915.002, Enforcement Guidance on Non-Waivable Employee Rights (Apr. 10, 1997), http://www.eeoc.gov/policy/docs/waiver.html.

4 EEOC, Strategic Enforcement Plan FY 2013–2016, http://www.eeoc.gov/eeoc/plan/sep.cfm.

5 Id.

6 Cában Hernández v. Philip Morris USA, Inc., 486 F.3d 1, 8–9 (1st Cir. 2007); see also Hampton v. Ford Motor Co., 561 F.3d 709, 714–15 (7th Cir. 2009); Puentes v. United Parcel Serv., Inc., 86 F3d 196, 198 (11th Cir. 1996) ("When an employee knowingly and voluntarily releases an employer from liability for Title VII and § 1981 claims with a full understanding of the terms of the agreement, he is bound by that agreement.").

7 Stroman v. W. Coast Grocery Co., 884 F.2d 458, 461–63 (9th Cir. 1989).

8 Richardson v. Sugg, 448 F.3d 1046, 1055 (8th Cir. 2006) ("An employer cannot purchase a license to discriminate.").

9 EEOC v. SunDance Rehab. Corp., 466 F.3d 490, 499 (6th Cir. 2006) ("There can be little doubt that the filing of charges and participation by employees in EEOC proceedings are instrumental to the EEOC's fulfilling its investigatory and enforcement missions."); EEOC v. Cosmair, Inc., 821 F.2d 1085, 1091 (5th Cir. 1987).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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