EEOC targets employers’ waiver and release agreements

Employers should be cautious about the language included in waiver and release agreements. In this article, BLR provides valuable steps that can help reduce the risk that an employer and its severance agreements become a target of the EEOC.

Employers and employees routinely enter into agreements where the employee waives potential claims and releases the employer from liability in exchange for consideration, typically severance pay, from the employer. The Equal Employment Opportunity Commission (“EEOC” or the “Commission”) contends to support this kind of private settlement of disputes, but it has recently waged an attack on employer agreements containing waivers and releases.

In the last 15 months, the EEOC filed three lawsuits against employers based on the alleged illegality of their agreements with employees. Specifically, the EEOC contends that such agreements violate federal anti-discrimination law by inhibiting employee’ rights to file charges with the EEOC and participate in investigations by the Commission. In light of the EEOC’s increased scrutiny of waiver and release agreements, employers should be wary of potential pitfalls as they draft release agreements.
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While the right to file a charge or participate in EEOC investigations cannot be waived, the EEOC has taken various positions on whether terms of agreements that may impede this right are merely unenforceable or are, in and of themselves, a violation of the law.

In 1997, the EEOC stated that agreements between employers and employees that attempt to inhibit participation with the EEOC violate the anti-retaliation provisions of the statutes the Commission enforces. Subsequently, the Sixth Circuit Court of Appeals rejected the EEOC’s argument that an agreement containing an impermissible “charge-filing ban” was retaliatory, and instead found that, while the provision might have been unenforceable, it did not constitute unlawful retaliation. (EEOC v. Sundance Rehab. Corp., 466 F.3d 490, 501 (6th Cir. 2006)).

Then, in 2009, the Commission seemingly softened its position, telling employees that provisions in severance agreements prohibiting filing a charge or participating in an EEOC investigation are “invalid and unenforceable” rather than unlawful.

The EEOC indicated a renewed interest in waiver and release agreements in its Strategic Enforcement Plan for 2013-2016. The Plan set forth a goal of preserving employees’ access to the legal system, in part, by targeting “overly broad waivers, [or] settlement provisions that prohibit filing charges with the EEOC or providing information to assist in the investigation or prosecution of claims of unlawful discrimination.”

In the litigation that has ensued, the EEOC is again contending that agreements purportedly infringing on the right to file a charge are not only unenforceable, but are also unlawful.

The EEOC’s recent litigation against employers

Since May 2013, the EEOC has filed lawsuits against three employers – Baker & Taylor, Inc., CVS Pharmacy, Inc., and CollegeAmerica Denver, Inc.– alleging that certain terms in the employers’ agreements with employees unlawfully prevent employees from filing charges or providing the EEOC or similar state agencies with information during an investigation. (EEOC v. Baker & Taylor, Inc., No. 1:13-cv-03729, Northern District of Illinois; EEOC v. CVS Pharmacy, Inc., No. 1:14-CV-863, Northern District of Illinois; EEOC v. CollegeAmerica Denver, Inc., No. 1:14-cv-01232, District of Colorado.)

In each lawsuit, the EEOC claims that the agreements constitute a resistance to employees’ rights under the relevant statutes to file charges or participate in investigations. The claims against Baker & Taylor and CVS are brought under Title VII of the Civil Rights Act of 1964, and the claims against CollegeAmerica are based on the Age Discrimination in Employment Act of 1967 (ADEA). Because the language of the statutes differs, the outcome of the cases could vary depending on the statutory basis of the claims.

Notably, the cases against Baker & Taylor and CVS solely allege a “pattern and practice” theory, and do not contain individual allegations of discrimination or retaliation. Not only that, but the EEOC does not even contend that the agreements prevented any specific employee from filing a charge or participating in an investigation.

The litigation against CollegeAmerica does contain individual claims, and the former employee at issue signed an agreement that explicitly (and improperly) prohibited her from “contacting any governmental . . . agency with the purpose of filing any complaint.” The EEOC contends that this provision “chills and deters the filing of charges of discrimination,” despite the fact that the employee filed three EEOC charges against the Company after signing the agreement.

In the recent lawsuits, the EEOC has taken issue with a variety of terms in the agreements used by employers, including:

  • Releases with broad language that included “charges” or could be read to attempt to release the ability to file a charge;
  • Covenants not to sue that could be interpreted to prohibit employees from filing charges, such as an agreement not “to institute any complaint . . . in any administrative agency of the United States.”;
  • Provisions acknowledging that the employee had not filed a charge prior to executing the agreement;
  • Language stating that the employee would not assist others in bringing claims against the employer;
  • Terms obligating employees to assist the employer with any investigation, administrative action, or lawsuit;
  • Non-disparagement clauses that purportedly prevent the employee from making negative statements about the employer to the Commission;
  • Confidentiality provisions that prohibit disclosure of such information as wages, benefits, personnel information, and the skills, abilities, and duties of employees; and
  • Provisions requiring an employee to the pay the employer’s attorneys’ fees for breaching the agreement.

Notably, the CVS agreement at issue contained a disclaimer in the covenant not to sue stating that the provision is not intended to interfere with the “[e]mployee’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’s complaint notes that this disclaimer is “a single qualifying sentence that is not repeated anywhere else in the Agreement.”

The lawsuit against Baker & Taylor ended in a consent decree through which Baker & Taylor agreed to include the following language in all of its future agreements with employees:

Nothing in this Agreement is intended to limit in any way an Employee’s right or ability to file a charge or claim of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) or comparable state or local agencies. These agencies have the authority to carry out their statutory duties by investigating the charge, issuing a determination, filing a lawsuit in Federal or state court in their own name, or taking any other action authorized under these statutes. Employees retain the right to participate in any such action and to recover any appropriate relief. Employees retain the right to communicate with the EEOC and comparable state or local agencies and such communication can be initiated by the employee or in response to the government and is not limited by any non-disparagement obligation under this agreement.

CVS and CollegeAmerica have filed motions to dismiss for failure to state a claim, which are currently pending before their respective courts.

Recommendations for employers

It is important to remember that no statutory or regulatory amendment spurred the EEOC’s recent hardline position that potentially overbroad waiver and release agreements are unlawful. Currently, no federal court has agreed with the EEOC’s position that the mere inclusion of potentially unenforceable terms in an agreement with an employee violates any statute enforced the Commission.

Although employers should be cautious about the language included in future agreements, they should not overreact by excluding potentially important terms, such as covenants not to sue or non-disparagement provisions. Rather the following steps can help reduce the risk that an employer and its severance agreements become a target of the EEOC:

  • Ensure that agreements with employees do not explicitly or implicitly prohibit an employee from filing a charge or complaint with the EEOC or state agency or from participating in an investigation by those agencies. For instance, do not include the word “charges” or language such as “complaints before administrative agencies” in the releases or covenants not to sue.
  • Include a general disclaimer stating that no provision of the agreement is intended to interfere with the employee’s right to file a charge with the EEOC or state agency or to participate in an investigation conducted by those agencies. Consider using bold font for the disclaimer language or requiring the employee to initial by the paragraph to verify that he/she has read it.
  • Alternatively, or in conjunction with a general disclaimer, include disclaimer language in specific provisions, such as the covenant not to sue, confidentiality, or non-disparagement terms, which states that the limitations of the provisions do not inhibit the employee’s right to file a charge or participate in an EEOC or state agency investigation.

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