EEOC Must Conciliate, But Still Few Answers Regarding Routine Separation Agreement Provisions

In February 2014, the EEOC sent waves through employer communities when it filed a lawsuit against a national retail pharmacy contending some of the company’s separation agreement provisions — which many considered “standard” and largely unremarkable — interfered with employee rights under Title VII and therefore violated the civil rights law. In October 2014, however, the federal court in Chicago to which the case was assigned dismissed the EEOC’s lawsuit, but did so without addressing the more critical questions raised by the case about the lawfulness of seemingly routine separation agreement provisions such as confidentiality and non-disparagement provisions.

Just recently, the United States Court of Appeals for the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) upheld the dismissal of the EEOC’s claims but, like the lower court, it did so without resolving many of the key questions surrounding the lawfulness of the key separation agreement provisions. Instead, the appellate court confirmed that the EEOC may not pursue litigation against a company for engaging in so-called “pattern or practice” violations of Title VII without first attempting to engage in conciliation and resolution efforts before bringing formal litigation against an employer. While the result is good news for employers, it still does not resolve some of the key questions for many companies: whether “standard” language in separation agreements improperly infringes on employee rights.

The EEOC’s case challenged a four-and-a-half-page separation agreement that included a release of all waivable Title VII discrimination and retaliation claims in exchange for severance benefits the employee would not otherwise receive. However, the agreement permitted the employee to participate in any government agency proceeding enforcing discrimination laws. After the employee filed a charge alleging she had been terminated because of her race and sex, the EEOC sent the employer a letter asserting the separation agreement was “overly broad, misleading and unenforceable” and “interferes with employees’ right to file charges with the EEOC, … communicate with the EEOC[,] and participate in EEOC … investigations.” The Commission then rebuffed the employer’s repeated requests for pre-suit conciliation and filed the lawsuit alleging a “pattern or practice of resistance to the full enjoyment of the rights secured by Title VII.”

The basis for the Chicago federal court’s dismissal was that certain provisions of Title VII obligate the EEOC to engage in informal conciliation efforts before commencing a lawsuit. On appeal to the Seventh Circuit, the EEOC claimed that these conciliation requirements do not apply when it pursues “pattern and practice of resistance” suits. The Seventh Circuit rejected the EEOC’s arguments, stating that the relevant provisions of Title VII do “not create a broad enforcement power for the EEOC to pursue non-discriminatory employment practices that it dislikes.”

What the appellate court instead directed is that Title VII’s “pattern or practice” provision merely allows consolidation of multiple violations in one suit and that any other ruling would effectively permit the EEOC to bypass the conciliation obligation in virtually all circumstances simply by contending that it was acting pursuant to broader pattern or practice enforcement powers. In reaching this conclusion, the Seventh Circuit placed itself in direct conflict with three other federal appellate circuits that currently allow the EEOC to bring pattern and practice of resistance suits without pre-suit conciliation and a charge of discrimination or retaliation. At this point, it is difficult to predict whether the EEOC will appeal to the Supreme Court, but the conflict amongst the federal appellate circuits now makes this issue something to watch.

While the recent appellate decision continues to leave unresolved many bigger questions regarding the lawfulness of routine separation agreement provisions, the appellate court did state — albeit in a footnote — that even if it felt the EEOC could bypass its conciliation obligations, its claim would still fail because the separation agreement at issue did not prohibit employees from filing charges with the EEOC. In this way, while the Seventh Circuit did not provide much analysis for use going forward, it at least signaled some indication that it saw no issue with the employer’s standard separation agreement language. In early 2014, we prepared guidance on how employers might want to update their standard separation agreement language in response to the EEOC’s new legal position, and the Seventh Circuit’s footnote suggests that guidance remains prudent to consider.

At this stage, because the EEOC’s various substantive challenges to separation agreement provisions have not been directly rejected, the Commission may very well continue to attack such provisions. Accordingly, it would be wise for employers to draft separation agreements as succinctly as possible in plain and simple language and make it clear that former employees are free to participate in government agency discrimination proceedings, including those before the EEOC. Because individual claims of discrimination may be waived, a release for those claims can be included, but a disclaimer should also be made that if any provision is found unlawful the agreement will otherwise remain in effect. Of course, if the EEOC comes calling and you would like to engage in pre-suit conciliation, be sure to unequivocally request it in writing.