Employment Separation Agreement with Release of Claims in Exchange for Severance Valid and Enforceable

On December 17, 2015, the 7th Circuit upheld an important employment law ruling of the United States District Court for the Northern District of Illinois, that an employment separation agreement which provides an employee with severance payments in exchange for a release of employment discrimination, retaliation and other employment law claims, and which contains the other standard terms typically found in a severance agreement, is valid and enforceable.  CVS v. EEOC, No. 14-3653 (7th Cir., 12/17/2015).  This decision provides employers with valuable guidance on drafting legally effective employment separation agreements, because it spells out the terms of a severance or separation agreement which a court will enforce.  It also rejects the argument advanced by the EEOC, that standard severance agreements constitute a pattern and practice of discrimination in violation of Title VII because they discourage employees from filing EEOC charges.

The key terms of the severance agreement that the court upheld include the following: (1) a general release of claims against the employer; (2) a covenant to not sue the employer; (3) a confidentiality provision requiring the employee to not disclose confidential company information or the terms of the separation agreement; and (4) a non-disparagement clause prohibiting the employee from making disparaging statements about the employer.  The agreement also contained certain carve-outs, which are essential to its validity.  The carve-outs include the following: (1) a provision that the employee retains the right to participate in an investigation or proceeding conducted by the EEOC or other anti-discrimination government agency; (2) a provision that the employee retains the right to cooperate with or provide the EEOC or other anti-discrimination agency with truthful information; and (3) a provision that the agreement does not prohibit the employee from testifying truthfully in a court of law or other tribunal.  In view of these carve-outs, the 7th Circuit concluded that the severance agreement does not discourage an employee from filing a charge of discrimination or retaliation with the EEOC, and, therefore, systematic use of the severance agreement does not constitute a pattern and practice of discrimination or unlawful interference with rights guaranteed by Title VII of the Civil Rights Act of 1964.  In addition, the 7th Circuit ruled that in order for the EEOC to advance a valid lawsuit against an employer, the EEOC's complaint must allege a specific employment action that constitutes unlawful discrimination or retaliation.  Thus, the dismissal of the EEOC's lawsuit against CVS was affirmed.

Significantly, the 7th Circuit also ruled that the EEOC is required to participate in and exhaust conciliation procedures with the employer as a precondition to filing a lawsuit against the employer for alleged violations of Title VII.  On this basis, the 7th Circuit affirmed the entry of summary judgment against the EEOC.  The issue of a pre-lawsuit conciliation requirement for the EEOC has been one of the most closely watched employment law issues in the year 2015, because it affects the ability of the EEOC to file its own lawsuits against private employers.  It is possible that the EEOC will appeal the CVS v. EEOC decision to the U.S. Supreme Court.