Employers’ motivation to obtain a release of claims may range from reducing the risk of litigation after a group layoff, to resolving a live dispute with a single employee. These goals generally are consistent with the strong public policy favoring settlement of disputes without litigation.1
To achieve resolution, employers and employees typically enter into a form of “release agreement,” a type of contract.2 In the employment context, employers may promise money or other benefits to one or more employees in exchange for an employee’s promise to waive (or release) potential legal claims against the employer.
Employers’ release agreements may include contractual terms that conflict with other strong public policies. For example, there is a policy in favor of employees’ access to government agencies that enforce anti-discrimination laws, such as the federal Equal Employment Opportunity Commission (“EEOC”). These countervailing policies support limits on what employers may ask employees to give up in exchange for severance pay or other consideration. The government also has imposed protections to ensure employers do not take advantage of unsophisticated workers. For example, some states prohibit releases of wage claims.
Over the years, the EEOC has issued regulations and other guidance addressing release agreements, such as the detailed regulations with which employers must comply to obtain a release of age claims.3 The EEOC also has issued less formal guidance regarding releases seeking to interfere with employees’ access to the agency. The agency has litigated this issue in particular, resulting in court decisions invalidating waivers of the right to file a charge.
Although the EEOC’s regulation of release agreements is not new, the agency recently has sued employers over provisions previously thought to be benign. The EEOC’s February 2014 lawsuit against CVS, a retail pharmacy chain, challenges release language that the agency believes interferes with employees’ rights under anti-discrimination laws. Employers may be surprised to learn that what they considered to be standard language is, in the EEOC’s view, a “pattern or practice” of unlawful interference with employees rights in violation of Title VII of the Civil Rights Act of 1964.
As of this writing, it is unclear whether the EEOC will succeed in the litigation against CVS. But the government’s focus on the contents of release agreements should prompt employers to review theirs to ensure compliance. This article summarizes the EEOC’s pending litigation, the established limitations on release agreements, and provides recommendations for employers.
B.       The EEOC’s New Challenges to Release Agreements
1.    EEOC v. CVS, Inc.
The Equal Employment Opportunity Commission filed a lawsuit against CVS in February 2014.4 The lawsuit concerns a standard release agreement that CVS allegedly requires employees to sign in exchange for severance pay.
The EEOC’s specific objections to CVS’s agreement are as follows:
- “Cooperation”: The agreement requires an employee to notify the company’s general counsel if he or she “receives a subpoena, deposition notice, interview request, or another inquiry . . . relating to any civil criminal, or administrative investigation, suit, proceeding or other legal matter . . . .”
- “Non-Disparagement”: This provision states that the employee “will not make any statements that disparage the business or reputation” of CVS or its employees.
- Non-Disclosure: This paragraph prohibits the employee from disclosing “information concerning the Corporation’s personnel, including the skills, abilities and duties of the Corporation’s employees, wages and benefit structures, succession plans, [and] information concerning affirmative action plans . . ..”
- Release: The agreement’s general release includes “any claims of unlawful discrimination of any kind . . .”
- Covenant not to sue: The agreement includes a promise not to file any future claim against CVS. However, it specifically recognizes that the employee has a “right to participate in a proceeding with any appropriate federal, state, or local government agency,” and that the agreement would not preclude the employee from “cooperating with any such agency in its investigation . . . .”
- Remedies: the agreement requires an employee to reimburse CVS for attorney’s fees if CVS obtains injunctive relief or damages against the employee for breaching the agreement.5
2.     The Legal Basis for the EEOC’s Objections to the Release Language
The gist of the EEOC’s Complaint against CVS is that the company conditioned non-exempt workers’ “receipt of severance pay on an overly broad, misleading, and unenforceable Separation Agreement . . . that interferes with its employees’ right to file charges with the [EEOC and state fair employment practices agencies] and communicate voluntarily with and participate in the proceedings conducted by the EEOC and FEPAs.”6
The EEOC’s asserted legal basis for challenging CVS’s release is that the above clauses violate § 707 of the Civil Rights Act of 1964.7 Section 707 provides:
Whenever the Attorney General has reasonable cause to believe that any person or group of persons is engaged in a pattern or practice of resistance to the full enjoyment of any of the rights secured by this subchapter, and that the pattern or practice is of such a nature and is intended to deny the full exercise of the rights herein described, the Attorney General may bring a civil action in the appropriate district court of the United States by filing with it a complaint (1) signed by him (or in his absence the Acting Attorney General), (2) setting forth facts pertaining to such pattern or practice, and (3) requesting such relief, including an application for a permanent or temporary injunction, restraining order or other order against the person or persons responsible for such pattern or practice, as he deems necessary to insure the full enjoyment of the rights herein described. (emphasis added).8
The agency’s reliance on § 707 in its lawsuit against CVS is unusual for a number of reasons. First, the EEOC’s claim against CVS appears to be the first time the agency has challenged a release agreement on the ground that a release violates § 707, rather than the anti-discrimination or anti-retaliation provisions of Title VII.9
Second, the EEOC alleges a “pattern or practice” case, normally reserved for claims that an employer has engaged in a “pattern or practice” of actual discrimination or retaliation. But the EEOC contends CVS’s inclusion of the above provisions in its release agreement constitutes “resistance to the full enjoyment” of Title VII rights,10 merely because the release language exists. That is, the EEOC argues that it is not required to prove that CVS discriminated, retaliated, or otherwise took negative action against employees who sign the releases. The agency’s position appears to be contrary to precedent. Courts have held that a “pattern or practice” case is just a method of proving discrimination or retaliation, not a free-standing cause of action in its own right.11
Third, the EEOC for many years has protected employees’ right to file a discrimination charge with the agency or cooperate with an investigation, and has steadfastly maintained that employees cannot give up those rights.12However, CVS’s release agreement does not preclude employees from filing a charge or participating in EEOC investigations. Rather, the agreement appears to preserve that right.13 The CVS agreement states generally: “this release does not include any rights that employee cannot waive . . . .”14 It also provides:
Nothing in this Agreement is intended to or shall interfere with Employee’s right to challenge the Company’s compliance with the waiver requirements of the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act. Moreover, nothing in this paragraph is intended to or shall interfere with Employee’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 such agency in its investigation.15
The agency in the past has challenged release agreements over matters such as unlawful waivers, as discussed above. But the EEOC in this case attacks other provisions that previously have escaped legal challenge. For example, the EEOC objects to CVS requiring employees merely to notify the company if they are participating in an investigation because it might discourage employees from doing so. CVS’s agreement contains a normal “non-disparagement” obligation. The agency apparently is concerned that such a provision could deter a former employee from making negative comments to the EEOC about discriminatory practices.
The EEOC emphasizes in the Complaint that the CVS agreement is “five pages single spaced.”16 The EEOC’s does not explain how the length of the agreement, which addresses a variety of matters, violates § 707.
Finally, the EEOC includes in the Complaint the release of all discrimination claims, the covenant not to sue (which carves out participation in investigations) and even the employer’s confidentiality agreement, which are normal features of release agreement.17 It is unclear why (apart from the challenged to the carve-out) the agency objects to the release or covenant not to sue, as it is well established that employees may release discrimination claims and promise not to file suit.18
If the EEOC prevails, it could seek an inunction against reliance on the offending agreement.19 If the EEOC convinces the courts to void the agreement, employees might be able to sue despite their having signed it. The EEOC has a long road ahead of it. CVS has filed a motion to dismiss the case, which is pending as of this writing. Even if the Complaint survives the motion, the EEOC ultimately could fail to prevail at trial.
C.       Other Limitations on Release Agreements
Because the EEOC’s theory against CVS is novel, the outcome of the litigation against CVS is uncertain. However, the EEOC’s intensified interest in the contents of settlement agreements should prompt employers to consider other issues that may arise with respect to enforceability of their release agreements.
1.     Releases of Federal Discrimination Claims Generally
As stated, the EEOC has long prohibited employers from requiring employees to waive the right to file a discrimination complaint with the agency or to participate in an investigation.20 Therefore, employers must ensure their agreements do not preclude employees’ participation in administrative proceedings.
In addition, the EEOC and courts maintain that releases of discrimination claims, at minimum, must be “knowing and voluntary.”21 Courts apply different criteria to determine whether releases are “knowing and voluntary.” Some courts rely on traditional contract principles and examine only if the waiver was “clear.”22 Other courts analyze release agreements under a multi-factor test. These factors include:
- whether the agreement is “written in a manner that was clear and specific enough for the employee to understand based on his education and business experience;”
- whether the agreement “was induced by fraud, duress, undue influence, or other improper conduct by the employer;”
- whether the employee has “had enough time to read and think about the advantages and disadvantages of the agreement before signing it;”
- whether the employee spoke with a lawyer, or was encouraged to, or discouraged from, doing so;
- whether the employee had input in “negotiating the terms of the agreement;” and
- “whether the employer offered the employee consideration (e.g., severance pay, additional benefits) that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.”23
2.     Releases of Federal Age Discrimination Claims
With respect to releases of age discrimination claims under federal law, the Older Workers Benefit Protection Act24 and the regulations the EEOC promulgated thereunder25 define what a release of claims must contain to be “knowing and voluntary.” A detailed discussion of the various requirements is beyond the scope of this article. Generally, however, the regulations include several requirements, e.g., that the language of a release be understandable to the reader; that the employee be advised to consult with a lawyer; that the release specifically refer to the ADEA and age discrimination claims; that employees have specified time to consider whether to sign and then additional time to revoke the agreement, and more.26 And, when the release is presented as part of a group layoff or exit incentive plan, there are additional requirements.27 Language aside, the regulations prohibit waivers of future claims under the ADEA.28 The consideration must exceed anything to which the employee already was entitled.29
3.     Releases of Other Federal Employment Laws
The National Labor Relations Board (“NLRB”) has invalidated separation agreements that limit employees’ exercise of rights under the National Labor Relations Act (“NLRA”).30 For example, in Goya Foods,31 the NLRB held that a release of claims in which the employees promised “not [to] engage in any union activity relating to GOYA and/or its employees” violated the NLRA.32 In Metro Networks, Inc. the NLRB held that release language interfering with the employee’s right to cooperate with NLRB proceedings also violated the NLRA.33
The U.S. Department of Labor’s regulations under the federal Family and Medical Leave Act expressly provide that “Employees cannot waive, nor may employers induce employees to waive, their prospective rights under FMLA . . . .”34 However, the regulation goes on to explain: “For example, employees (or their collective bargaining representatives) cannot trade off the right to take FMLA leave against some other benefit offered by the employer. This does not prevent the settlement or release of FMLA claims by employees based on past employer conduct without the approval of the Department of Labor or a court.”35 As a result, employees may release FMLA claims based on an employer’s previous conduct, but cannot compromise claims a current employee might make based on future FMLA-related decisions.36
The U.S. Court of Appeals for the Fifth Circuit held in 2012 that employers and employees may compromise bona fide disputes under the Fair Labor Standards Act.37 Thus, to settle claims under the FLSA, there must be a good faith dispute over wages due. A release that includes FLSA claims, without any live dispute, likely will not be enforceable if an employee later sues over unpaid wages due under the FLSA.
Courts find that knowing and voluntary releases of most ERISA-based claims are valid.38 Some courts are reluctant to enforce release agreements in cases involving vested benefits.39 That is because of ERISA’s “anti-alienation” provision.40 But the Supreme Court’s decision in Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan,41 may make it more likely that courts will enforce properly drafted releases of ERISA claims.42
4.     State Law Limitations on Releases
Employers also must be aware of state laws that limit release agreements. For example, certain states prohibit releases of claims for unpaid wages.43 In California, a general release does not operate to release unknown claims, if the settling party would not have released them if he or she knew about them.44 Many states prohibit waiver of the right to seek unemployment benefits.45 Employers therefore must be sensitive to state laws that may limit or preclude releases of certain claims.
Again, the EEOC may not succeed in its efforts to invalidate CVS’s separation agreement. However, employers should not ignore the scrutiny that government agencies and courts are applying to their releases. Employers can take effective and relatively simple steps to improve the enforceability of release agreement.
1.       Knowing and voluntary. A release of most federal claims will not be valid unless it is considered “knowing and voluntary.” To prevent or thwart challenges under this standard, employers should re-write releases to be understandable to the employees whom the employer asks to sign them. That may include re-writing releases in “plain English,” or translating an agreement presented to those for whom English is not their first language. It cannot hurt to have the employee expressly acknowledge that the release is knowing and voluntary. Also, the more time the employee has to sign, the more likely the agreement will be upheld. Given the EEOC’s express criticism of the length of CVS’s agreement, the shorter the agreement, the better.
2.       Age Discrimination. Employers seeking waiver of age discrimination claims obviously must comply with the OWBPA waiver requirements. Courts will invalidate releases that, among other requirements, are not understandable to the reader; do not expressly mention the ADEA and OWBPA, do not include the special provisions applicable to group terminations; do not advise employees to obtain the advice of counsel; or do not provide adequate consideration. These releases also most provide specific amounts of time to consider the agreements and to revoke them. Employers should not seek releases of age discrimination claims if they are not including the requirements.
3.       Carve-outs. Releases must carve out the right to file an administrative charge with the EEOC, as well as state agencies. Releases must not preclude employees from participating in administrative proceedings. However, employees may agree not to seek an individual recovery in addition to the release’s consideration. Employers should consult with counsel about whether they should preserve the rights of employees to file administrative charges with state and federal agencies other than the EEOC (such as the NLRB, U.S. Department of Labor, state agencies, etc.).
4.       Additional Terms. Employers may be tempted to include in release agreements promises that are unrelated to the releases of claims. These include confidentiality agreements and other restrictive covenants, non-disparagement clauses, and the like. Broad, vague provisions may implicate laws that could result in challenges to the agreement’s enforceability. Employers should review these agreements, particularly in light of the NLRB’s recent willingness to challenge otherwise neutral policies that arguably implicate the NLRA.
5.       Severability. Courts may sever – cross out – illegal terms contained in release agreements. Well-drafted release agreements contain provisions authorizing courts to do so, which allow the remaining provisions to remain enforceable.
6.       Other Issues. Employers may rely on form releases they have used for years. Some are edited over time, resulting in mistakes such as mis-numbered paragraphs, inaccurate internal references, and inconsistent terminology. Stale releases also may not include updated language to comply with new case law or regulations. Courts will invariably construe ambiguities in release agreements against the employer. A release can stop a costly lawsuit in its tracks. It is worth the time and trouble to ensure it is well-drafted.
1.See Stephen McG Bundy, The Policy in Favor of Settlement in an Adversary System, 44 Hastings L.J. 1 (1992) (“It is a truism that the law favors a policy of settlement and compromise.”), available at: http://scholarship.law.berkeley.edu/facpubs/1000. Congress has evinced a policy in favor of settlement in cases brought under Title VII of the Civil Rights Act of 1964. See EEOC v. Hiram Walker & Sons, Inc., 768 F.2d 884, 889 (7th Cir. 1985).↩
2. A “release agreement” is called by a variety of names, including “release,” “separation agreement,” “severance agreement,” etc. Such agreements may involve current or former employees. For the sake of consistency, I will refer to these as “release agreements,” unless context dictates otherwise.
3. See 29 C.F.R. Part 1625.↩
4. See Complaint, EEOC v. CVS, Inc., No. 1:14-cv-00863, (N.D. Ill. Feb. 7, 2014)↩
5. See id. ¶ 8.↩
6. See id. at p.1. ↩
7. See Civil Rights Act of 1964, tit. VII, § 707, 42 U.S.C. § 2000e-6.↩
8. Although the statute references the “Attorney General,” the EEOC is empowered to file the lawsuit alleging a violation of § 707. See 42 U.S.C. § 2000e-6(c).↩
9. The courts have not accepted the argument that offering a release containing terms to which the EEOC has objected, such as a non-cooperation clause, constitutes unlawful retaliation. See, e.g., EEOC v. SunDance Rehabilitation Corp., 466 F.3d 490, 498, 500 (6th Cir. 2006) (offering separation agreement containing allegedly unlawful non-cooperation clause was not in and of itself a violation of Title VII’s anti-retaliation provision).↩
10. See Complaint ¶ 10, EEOC v. CVS, Inc., No. 1:14-cv-00863 (N.D. Ill. Feb. 7, 2014).↩
11. See, e.g., Celestine v. Petroleos de Venez. SA, 266 F.3d 343, 355 (5th Cir. 2001) (“A pattern or practice case is not a separate and free-standing cause of action . . . . but is really ‘merely another method by which disparate treatment can be shown.’”) (citation omitted).↩
12. See, e.g., EEOC v. Cosmair, Inc., 821 F.2d 1085, 1090 (5th Cir. 1987) (“Allowing the filing of charges to be obstructed by enforcing a waiver of the right to file a charge could impede EEOC enforcement of the civil rights laws.”). The EEOC in enforcement guidance, expressly stated: “promises not to file a charge or participate in an EEOC proceeding are null and void as a matter of public policy.” See Equal Employment Opportunity Commission, “Enforcement Guidance on Non-Waivable Employee Rights Under Equal Employment Opportunity Commission (EEOC) Enforced Statutes, No. 915.002 (Apr. 10, 1997).↩
13. The CVS agreement is attached as Exhibit A to the Complaint. See Complaint, EEOC v. CVS, Inc., No. 1:14-cv-00863, (N.D. Ill. Feb. 7, 2014), Exh. A. ↩
14. See id. ¶ 7.↩
15. See id.↩
16. See Complaint ¶ 8, EEOC v. CVS, Inc., No. 1:14-cv-00863, (N.D. Ill. Feb. 7, 2014).↩
17. See id.↩
18. See Equal Employment Opportunity Commission, “Enforcement Guidance on Non-Waivable Employee Rights Under Equal Employment Opportunity Commission (EEOC) Enforced Statutes, No. 915.002 (Apr. 10, 1997) (citing EEOC v. Cosmair, Inc., 821 F. 2d at 1091 (“although an employee cannot waive the right to file a charge with EEOC, he can waive the right to recover in his own lawsuit as well as the right to recover in a lawsuit brought by the EEOC on his behalf); EEOC v. U.S. Steel Corp, 671 F. Supp. at 358 (where provision in a waiver agreement preventing employees from assisting EEOC is enjoined, employer may still assert the waiver as a bar to recovery on a claim of age discrimination brought by or on behalf of an individual who signed a valid waiver involving that claim).”).↩
19. The remedy for violation of § 707 is injunctive relief. See 42 U.S.C. § 2000e-6(a). That is the only relief the EEOC seeks against CVS. See Complaint, Prayer for Relief, EEOC v. CVS, Inc., No. 1:14-cv-00863, (N.D. Ill. Feb. 7, 2014).↩
20. See supra n. 12 and accompanying text.↩
21. See, e.g., Equal Employment Opportunity Commission, Understanding Waivers of Discrimination Claims in Employee Severance Agreements (available online at http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html#5) (“A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily consents to the waiver. “).↩
22. See id. n. 6 and accompanying text.↩
23. See id. nn. 7-8 and accompanying text.↩
24. See Older Workers Benefit Protection Act, P.L. 101-433, 104 Stat. 983 (1990), 29 U.S.C. §§ 626(f)(1)(B), (F), (G) (“OWBPA”). Section 201 of the OWBPA amends the Age Discrimination in Employment Act to prohibit releases of claims under that law unless the release agreement complies with specific requirements. ↩
25. See 29 C.F.R. Part 1625, subpart B (2014).↩
26. See 29 C.F.R. § 1625.22(b).↩
27. See id. § 1625.22(f).↩
28. See id. § 1625.22(c).↩
29. See id. § 1625.22(d)(1).↩
30. See National Labor Relations Act, 29 U.S.C. §§ 151-160.↩
31. 358 N.L.R.B. No. 43 (2012).↩
32. See id.
33. 336 N.L.R.B. 63, 67 (2001). See also Ishikawa America Gasket, Inc., 337 N.L.R.B. 175, 175 (2001) (NLRB invalidated release in which employees promised “she shall not for a period of twelve months following the last day the Employee was employed by the Company . . . engage in any dispute or work disruption with the Company, or to engage in any conduct which is contrary to the Company’s interests in remaining union-free.”).↩
34. See 29 C.F.R. § 825.220(d) (2014).↩
35. See id. Amended in 2009, the original text of the regulation stated simply: “Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA.” See 29 C.F.R § 825.200(d) (2008). Based on that language, courts previously had held that an employee could not release FMLA claims without U.S. Dept. of Labor or court approval. See, e.g., Taylor v. Progress Energy, Inc., 493 F.3d 454, 463 (4th Cir. 2007) (holding the previous version of § 825.220(d) “bars the prospective and retrospective waiver or release of rights under the FMLA, including the right to bring an action or claim for a violation of the Act.”).↩
36. See, e.g., Paylor v. Hartford Fire Ins. Co., 748 F.3d 1117, 1124 (11th Cir. 2014) (holding prospective waiver and release of FMLA claims “was valid” and “entitled Hartford to judgment as a matter of law.”).↩
37. See Martin v. Spring Break ’83 Prods., LLC, 688 F.3d 247, 257 (5th Cir. 2012) (“the district court did not err by finding an enforceable release resolving this wage dispute.”). The only appellate court previously to have considered the issue held that only the Secretary of Labor or a court could approve a settlement of claims under the Fair Labor Standards Act. See Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352 (11th Cir. 1982).↩
38. See, e.g., Howell v. Motorola, Inc., 633 F.3d 552, 559 (7th Cir. 2011). ↩
39. See Lynn v. CSX Transp., 84 F.3d 970 (7th Cir. 1996)
40. See 29 U.S.C. § 1056(d)(1); 26 U.S.C. § 401(1)(13); Lynn, 84 F.3d at 975.↩
41. 555 U.S. 285 (2009). The Supreme Court there held that ERISA’s “anti-alienation” provision did not preclude releases of claims under the statute.
42. See Bacon v. Stiefel Labs., Inc., 2011 U.S. Dist. LEXIS 119654 (S.D. Fla. Oct. 17, 2011).
43. See, e.g., Cal. Lab. Code § 206.5 (“An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made.”); Lewis v. Giordano’s Enters., 397 Ill. App. 3d 581, 597 (Ill. App. Ct. 1st Dist. 2009) (holding that under Illinois law, a “finding that employees can waive their rights under those [wage payment] statutes by signing a release would be contrary to public policy, . . . .”).
44. See Cal. Lab. Code § 1542. However, releasing parties may release unknown claims under California law by waiving the statute’s protections.↩
45. See, e.g., Conn. Gen. Stat. § 31-272(a); NY. Lab. Law, Art. 18, § 595(1); ↩