7th Circuit delivers employers an early Christmas gift in EEOC severance agreement case

In EEOC v. CVS Pharmacy, Inc., the EEOC challenged what I have previously described as several garden-variety, boilerplate provisions in a severance agreement. I’ve also previously predicted that a win for the EEOC in this case would be ruinous for employers.

Late last week, the 7th Circuit affirmed the decision of the district court, which had dismissed the EEOC’s lawsuit based on its failure to conciliate with CVS prior to filing suit.

And, the 7th Circuit agreed, affirming the case on those grounds. But, the 7th Circuit also went further, and offered hope to employers this federal courts will not stand for the folly the EEOC is trying to put forth by filing this type of case.

Here is what the 7th Circuit [pdf] said:

[S]uits under Section 707(a) must challenge practices that threaten the employee’s right to be free from workplace discrimination and retaliation for opposing discriminatory employment practices—the only rights secured by Title VII. Section 707(a) does not create a broad enforcement power for the EEOC to pursue nondiscriminatory employment practices that it dislikes.… 

The EEOC does not … allege that CVS engaged in retaliation by offering the Agreement to terminated employees, and that is because the argument would fail: Several circuit courts, including ours, have held that conditioning benefits on promises not to file charges with the EEOC is not enough, in itself, to constitute “retaliation” actionable under Title VII.

The court continued, in footnote 4, to take apart the EEOC’s position:

Even if we were to accept the EEOC’s arguments about the scope of its powers under Section 707(a) and the lack of procedural prerequisites to a suit, the EEOC’s claim would still fail because the Agreement makes clear that it does not obstruct the signatory’s ability to file a charge with the EEOC. The Agreement stipulates that “nothing” precludes the signatory from “participat[ing] in a proceeding with any appropriate federal, state, or local government agency enforcing discrimination laws,” and that the signatory may “cooperat[e] with any such agency in its investigation.” Moreover, the Agreement expressly states that its general release provision does not apply to rights that the signatory cannot lawfully waive. Therefore, the district court correctly concluded that it is unreasonable to construe the Agreement as restricting the signatory from filing a charge or otherwise participating in EEOC proceedings. 

The EEOC contends that the Agreement is confusing because of its small font and “legalese,” but does not dispute that the parties could locate and read the provisions informing them of their ability to participate in EEOC proceedings. In addition, the Agreement advises the terminated employee to consult with an attorney and requires that the employee attest to fully understanding and voluntarily accepting its terms. The EEOC does not allege that there was a disparity in bargaining power that might suggest procedural unconscionability. Nor does the EEOC present evidence that anyone has actually been misled by the Agreement; instead, the EEOC admits that Ramos filed a charge of discrimination one month after signing it. 

In other words, the agreement proposed by CVS did not violate Title VII, and it would have been futile for the EEOC to have argued as much.

Moving forward, what should employer do to ensure that their severance agreements pass muster under the 7th circuit’s standard:

1. Carve out from the release the employee’s right to file a charge of discrimination with the EEOC or the parallel state agency, the right to participate in proceedings with such agencies, and the right to cooperate with such agencies in their investigations.
2. Advise the signing employee, in writing, to consult with an attorney before signing.
3. Obtain in the agreement the employee’s consent that the employee understood the agreement and is voluntarily signing it.

This case is a huge win for employers. When an employer offers an employee a severance agreement, it wants to be done with the employee. It is paying severance in exchange for finality. It wants finality in not being sued by the employee, and not having to sue the employee for breaching confidentiality or for bad-mouthing the company. Part of the bargain that the employer must live with is the fact that, legally, it cannot ask the employee to waiver statutorily protected rights to file an discrimination charge or cooperate in an investigation. But, save those carve outs, an otherwise lawful agreement should not fail. And, thankfully, this case reaches that reasonable conclusion.