EEOC puts new focus on severance agreements

For most employers, severance agreements are essential tools for ensuring that the end of an employment relationship does not lead to litigation.

But a recent lawsuit brought by the Equal Employment Opportunity Commission alleging that an overly broad severance agreement itself violated employees’ Title VII rights by chilling their ability to file discrimination charges has attorneys taking a closer look at such pacts.

Lawyers representing both employers and employees say the case is an example of the more aggressive enforcement posture the agency has taken in recent years. Rather than simply promulgating rules and issuing guidance, the EEOC has increasingly taken employers to court when it believes they are running afoul of the law.

“The interesting thing is that the EEOC cares enough to pursue litigation,” said Kevin Mosher, a partner in the Saint Paul, Minn., office of Thompson, Coe, Cousins & Irons. “This made it very clear that the agency doesn’t want such broad waivers in release agreements to potentially stop people from pursuing claims.”

The case of EEOC v. Baker & Taylor Inc., which was filed in an Illinois federal court, quickly settled. But the agency says the outcome illustrates its efforts to protect the rights of workers to file claims alleging discrimination and other wrongdoing.

“Free communication between the EEOC and employees is at the absolute heart of ensuring the nation’s workplaces remain free from unlawful discrimination,” said Gregory Gochanour, a supervisory trial attorney at the EEOC.

Plaintiffs’ lawyers say that while Title VII’s prohibition on agreements requiring employees to waive their rights to file EEOC charges is not new, the language of some agreements has become so sweeping that employees are discouraged from pursing valid claims — particularly if the agreement does not expressly explain their right to do so.

“It’s that lack of clarity that may discourage people from coming forward,” said David M. Blanchard, attorney and principal in the Ann Arbor, Mich., office of Nacht & Associates, where he represents individuals and small business owners.

Overly broad provision

The EEOC alleged that Baker & Taylor, a Charlotte, N.C.-based company that distributes books and other multimedia materials to libraries and retailers, violated Title VII by requiring employees to sign a severance agreement conditioning their receipt of severance pay upon the waiver of “all known and unknown claims.”

The release enumerated nearly two dozen specific statutes and causes of action that the employees expressly waived their rights under, including Title VII, the Americans with Disabilities Act, the Fair Labor Standards Act and the National Labor Relations Act. And the agreement did not contain a carve-out provision preserving employees’ right to contact the EEOC.

In its complaint, the EEOC charged that the language of the waiver was so broad that it could have been interpreted by employees to ban or limit communication with the agency.

Agency officials said that use of such a waiver undercuts a key component of employees’ legal protections: the right to file charges of discrimination with the EEOC and other federal agencies.

“This is one of those cases that don’t sound very serious initially. But, in fact, the issue raised by this case and its resolution relate to a legal right that is of critical importance to all employees,” said John C. Hendrickson, an attorney with the EEOC.

Under the terms of the consent decree resolving the matter, Baker & Taylor agreed to revise the language of the severance agreement and refrain from raising a statute of limitations defense against any EEOC claim brought by an employee who signed the agreement at issue.

Mosher said the settlement does not represent a major policy change, but should serve as an important reminder to employers and their attorneys.

“It seems to me that [EEOC officials] are signaling that they are going to devote resources to this and that they see it as an important issue, at least in this region,” he said.

Risky boilerplate

Mosher said that the EEOC’s stance on overly broad severance agreements is well known, noting that the agency has issued guidance on the matter for years. But while many employers have taken note of the agency’s position, there are other companies who are still using boilerplate severance agreements that were drafted decades ago.

The recent enforcement action should prompt them to review the language of their agreements to ensure they will not draw the agency’s attention.

“I think that is just good practice,” Mosher said.

Blanchard said he has seen agreements that push the limits of Title VII with language that may not prohibit contact with the EEOC, but certainly does not encourage it.

“I’ve seen severance agreements with explicit language that is very discouraging,” he said.

Plaintiffs’ attorney Tom Spiggle of the Spiggle Law Firm in Arlington, Va., said even employment pacts that do not explicitly bar employees from going to the EEOC can have a chilling effect.

“I have seen them say that they won’t bar you from filing a complaint at the EEOC if you agree not to ask for any monetary relief you might get from filing such claims,” he said, noting that such an agreement could dissuade many employees from reporting discrimination to the agency.

The recent case could also signal that the EEOC may be willing to take on other kinds of broad end-of-employment pacts, such as non-disparagement and confidentiality agreements than can be read as curtailing the ability of employees to bring claims or cooperate with EEOC investigations.

“There are employees signing broad non-disparagement clauses in which they agree not to speak disparagingly in any way about an employer, or agree not to disclose the terms of their employment,” Spiggle said. “My concern is that those are very broad.”