Severance Waivers Are Endangered Species

The EEOC is tasked with enforcement of various federal laws prohibiting job discrimination, including, among others, Title VII of the Civil Rights Act of 1964 (Title VII), the Equal Pay Act of 1963 (EPA), the Age Discrimination in Employment Act of 1967 (ADEA), and the Americans with Disabilities Act of 1990 (ADA). An individual who believes that employment rights under federal laws have been violated may file a charge of discrimination with the EEOC. When a charge is filed, the EEOC will normally investigate the alleged violation and, if the charge is found to have merit, may bring suit against the employer to remedy the violation.

It is well settled that individuals generally may waive their rights to recovery under the federal equal employment opportunity statutes administered by the EEOC. Since the Supreme Court's 1974 decision in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), the federal courts have generally held that rights under Title VII and other equal employment opportunity statutes may be waived provided that the employee's waiver is 'voluntary and knowing.' Indeed, the ability to waive individual rights under the ADEA was codified in an amendment to that statute contained in the Older Worker Benefit Protection Act of 1990, which established specific standards to be met for a waiver to qualify as knowing and voluntary.

Despite the ability to waive individual rights under the equal employment opportunity statutes, the EEOC has consistently taken the position that an agreement between an employer and employee purporting to waive the employee's right to file a charge with the EEOC (as distinguished from the employee's right to recover personally) is void as against public policy. In the view of the EEOC, employers should not be allowed to frustrate the broad remedial purposes of the equal employment opportunity statutes by encouraging employees (through severance payments or other arrangements) not to alert the EEOC to violations of such statutes. Courts have generally agreed with this position, distinguishing between agreements not to seek damages or other remedies for the benefit of oneself (which are enforceable if knowing and voluntary) and agreements not to notify the EEOC of alleged violations (which are unenforceable). See EEOC v. Cosmair, Inc., L'Oreal Hair Care Division, 821 F.2d 1085, 1090 (5th Cir. 1987).

In addition, the EEOC has taken the position that such agreements are also per se retaliatory. In EEOC v. Board of Governors of State Colleges and Universities, 957 F.2d 424 (7th Cir. 1992), the EEOC successfully argued that a collective bargaining agreement that denied employees their contractual right to a grievance procedure whenever the employee initiates a claim in any other administrative or judicial forum, including the filing of a charge with the EEOC, is per se retaliatory. The EEOC alleged that denying a contractual benefit upon the filing of a claim with the EEOC violated the anti-retaliation provision of the ADEA. Id. at 426. The Seventh Circuit agreed with the EEOC, stating that 'to hold for the Board would be to allow it to deter its employees' exercise of their ADEA rights by imposing adverse employment consequences.' Id. at 431. Recently, the EEOC has taken an increasingly aggressive approach to challenging as retaliatory waiver agreements that arguably deter an employee from participating in the EEOC enforcement process.

EEOC v. SunDance Rehabilitation Corp.

In 2004, the EEOC brought suit against SunDance Rehabilitation Corp., challenging the general release contained in the company's separation agreement. EEOC v. SunDance Rehab. Corp., 328 F.Supp.2d 826, 828 (N.D. Ohio 2004). Significantly, the EEOC's suit was premised solely on the structure of the waiver offered to a group of laid off employees ' the EEOC had found no reasonable cause to conclude that the layoffs themselves were motivated by discrimination. Rather, the EEOC argued that language in the release requiring an employee to give up her right to file a charge with the EEOC was per se retaliation under Title VII, the ADEA and the ADA, because 'agreement signers may not file discrimination charges [except] on pain of suit for return of severance, damages, fees and costs.' Id. at 836. The district court agreed and granted summary judgment for the EEOC, holding that '[b]y the terms of the Separation Agreement, the employee loses his contractual right to the severance pay if he files a charge of discrimination,' thus allowing the employer to deny a contractual right because the employee engaged in the protected activity of filing a charge of discrimination. Id. at 837-38.

In October 2006, the Sixth Circuit reversed the district court's decision. EEOC v. SunDance Rehab. Corp., 2006 U.S. App. LEXIS 26278 (6th Cir. Oct. 24, 2006). The Sixth Circuit distinguished Board of Governors (upon which the district court had relied) because the employer in that case 'actually took an adverse action against the employee because the employee had pursued the statutorily protected activity of filing a charge with the EEOC ' [whereas] SunDance offered a contract and, on the record before us, has engaged in no further action.' Id. at 20-21. The court held that the mere offer of the Separation Agreement to all employees terminated in a reduction in force, without more, does not amount to facial retaliation under the equal employment opportunity statutes. The court further stated that 'the charge-filing ban may be unenforceable; but its inclusion in the Separation Agreement does not make SunDance's offering that Agreement in and of itself retaliatory.' Id. at 29 (emphasis original).

EEOC v. Lockheed Martin Corp.

In January 2005, the EEOC again took up the argument that a waiver of the right to pursue a charge with the EEOC was facially retaliatory. In EEOC v. Lockheed Martin Corporation, an employee at Lockheed was notified on Oct. 16, 2000 that her position was being eliminated at the end of the month and that she was being terminated in connection with layoffs resulting from a merger. 444 F. Supp. 2d 414, 416 (D. Md. 2006). The employee was provided with, but refused to sign, a severance agreement containing a general release that stated 'this Release prohibits my ability to pursue any Claims or charges against the Released Parties seeking monetary relief or other remedies for myself and/or as a representative on behalf of others.' Id. Prior to termination, the employee filed a charge with the EEOC, alleging that her termination was discriminatory on the basis of race, gender and age. Shortly after filing the charge with the EEOC, the employee, through counsel, sent a letter to Lockheed asserting that 'notwithstanding the charge, she had the right to receive severance benefits, and that the release was retaliatory as written.' Id. Lockheed responded that it would not amend its release and that the employee would have to dismiss her EEOC charge against the company if she wished to sign the release and receive severance benefits. The employee continued to refuse to sign the severance agreement and was terminated shortly thereafter.

The EEOC brought suit on the employee's behalf in January 2005, arguing that the release was facially retaliatory insofar as Lockheed's actions interfered with protected activity in two respects: 1) the conditioning of severance benefits on the withdrawal of the EEOC charge ' whether or not the employee was otherwise entitled to those benefits before she filed the charge ' constituted retaliation; and 2) as in SunDance, the release itself prohibited the employee from filing an EEOC charge and was thus facially retaliatory. In order to demonstrate retaliation, the district court held, a plaintiff must show that she engaged in protected activity and that a materially adverse action with a causal connection to the protected activity was taken by the employer. Id. at 418. Because the filing of an EEOC charge is a protected activity and the denial of severance benefits is an adverse employment action, the district court reasoned, the case turned on the connection between the protected activity and the adverse action. Lockheed argued that there could be no causal connection because the release was presented to the employee before any EEOC charge had been filed, and the employee had no entitlement to severance benefits without giving up the right to pursue her charge. The district court rejected these arguments and granted summary judgment for the EEOC.

The district court's decision in Lockheed Martin relied heavily on the Northern District of Ohio's SunDance opinion, which was reversed by the Sixth Circuit two months after the Lockheed Martin decision was announced. Accordingly, it is unclear whether the outcome in the Lockheed Martin case may be affected by the reversal in SunDance. On Nov. 6, 2006, Lockheed Martin filed a Motion for Reconsideration, asking the court to amend its Aug. 8, 2006 ruling. As of the writing of this article, the motion for reconsideration remains pending.

Other Recently Filed Cases and Consent Decrees

The EEOC has recently brought similar suits against other major employers characterizing waivers that arguably limit the right to file claims with the EEOC as per se retaliation. In EEOC v. Land O' Lakes, Inc., No. 06-3828 (D. Minn. Sept. 25, 2006), the EEOC alleged that Land O' Lakes 'instituted and maintained a policy in its Separation Agreement and Release that required terminated employees to agree, as a material term of the agreement, that they had not filed a claim of discrimination with the EEOC and had no current intent to file such a claim.' Complaint at 1, Land O' Lakes, No. 06-3828 (D. Minn. Sept. 25, 2006). The Complaint alleges that such policy is retaliatory and violates public policy under the ADEA, Title VII and the EPA. Id.

Similarly, in EEOC v. Sara Lee Corp., No. 06-0645 (S.D. Ohio Sept. 29, 2006), the EEOC alleged that Sara Lee violated the retaliation provisions of various equal employment opportunity statutes by offering a severance agreement to employees as part of a reorganizational lay-off that included, among other things, a waiver of the right to file a complaint with the EEOC. The local newspaper, the Cincinnati Enquirer, quoted a regional attorney from the EEOC as saying 'The right to file a charge is sacrosanct ' any policy that prohibits workers from exercising their statutory rights to complain of discrimination will be vigorously prosecuted.' James McNair, Sara Lee Sued Over Severance, Cincinnati Enquir-er, Oct. 4, 2006, available at http://news.enquirer.com/apps/pbcs.dll/article?AID=/20061004/BIZ01/610040322/-1/back01.

Additionally, the EEOC has entered into at least two consent decrees with employers regarding waivers of the right to file a charge with the EEOC. In February 2003, The EEOC entered into a consent decree with P&O Nedlloyd, Ltd. whereby the firm agreed to revise its Severance Benefits Plan to eliminate a waiver of the right to file a charge or cause or permit a charge to be filed on an employee's behalf. EEOC v. P & O Nedlloyd, Ltd., No. 2:02-CV-574 (E.D. Va. Feb. 26, 2003). In September 2006, Ventura Foods agreed to eliminate the provision in its severance agreement that required waiver of the right to file EEOC discrimination charges and further agreed that it 'would not institute or maintain a Severance Agreement and General Release, or any similar agreement, which prohibits an employee from filing a charge with the EEOC or participating in an EEOC investigation.' EEOC v. Ventura Foods, LLC, No. 05-663 (D. Minn. Sept. 1, 2006).

Conclusion

These cases, and the public comments of the EEOC, suggest a heightened willingness by the agency to litigate over its position that waivers of the right to pursue discrimination charges constitute per se retaliation. In light of such litigation risks, employers who utilize severance agreements with broad waivers of employee rights must recognize that attempts to limit an employee's ability to pursue charges of discrimination with the EEOC may not only render the waiver unenforceable, but may give rise to a separate claim of retaliation ' even in the absence of other evidence of discrimination. Accordingly, employers should scrutinize the breadth of the waiver language in their separation agreements and consider whether revisions may be appropriate in light of the current litigation environment.

Karl Nelson is the partner-in-charge at Gibson, Dunn & Crutcher's Dallas office, and a member of the firm's Labor and Employment, Employee Benefits, and Executive Compensation Practice Groups. Samantha Ferris is an associate in that office.

When involuntary employment terminations become necessary, employers often seek protection from possible post-employment claims by conditioning severance pay on the signing of a general release and agreement not to sue. As a general rule, such waivers are enforceable if they are 'knowing and voluntary.' Less clear, however, is under what circumstances an employer may condition severance payments on a promise by the departing employee that he/she will not pursue a charge with the Equal Employment Opportunity Commission (EEOC) in connection with an allegation of discrimination, harassment, or retaliation.

Recently, increased litigation activity by the EEOC signals renewed agency focus on severance arrangements that seek to limit a former employee's ability to participate in any manner in EEOC administrative proceedings. Such agreements, in the EEOC's view, are not just unenforceable, but also constitute per se retaliation. The EEOC's position, and its recent litigation in this area, creates increased risk for employers currently using aggressive severance agreements that purport to limit the right of former employees to pursue a charge with the EEOC.

The EEOC and Waivers

The EEOC is tasked with enforcement of various federal laws prohibiting job discrimination, including, among others, Title VII of the Civil Rights Act of 1964 (Title VII), the Equal Pay Act of 1963 (EPA), the Age Discrimination in Employment Act of 1967 (ADEA), and the Americans with Disabilities Act of 1990 (ADA). An individual who believes that employment rights under federal laws have been violated may file a charge of discrimination with the EEOC. When a charge is filed, the EEOC will normally investigate the alleged violation and, if the charge is found to have merit, may bring suit against the employer to remedy the violation.

It is well settled that individuals generally may waive their rights to recovery under the federal equal employment opportunity statutes administered by the EEOC. Since the Supreme Court's 1974 decision in Alexander v. Gardner-Denver Co. , 415 U.S. 36 (1974), the federal courts have generally held that rights under Title VII and other equal employment opportunity statutes may be waived provided that the employee's waiver is 'voluntary and knowing.' Indeed, the ability to waive individual rights under the ADEA was codified in an amendment to that statute contained in the Older Worker Benefit Protection Act of 1990, which established specific standards to be met for a waiver to qualify as knowing and voluntary.

Despite the ability to waive individual rights under the equal employment opportunity statutes, the EEOC has consistently taken the position that an agreement between an employer and employee purporting to waive the employee's right to file a charge with the EEOC (as distinguished from the employee's right to recover personally) is void as against public policy. In the view of the EEOC, employers should not be allowed to frustrate the broad remedial purposes of the equal employment opportunity statutes by encouraging employees (through severance payments or other arrangements) not to alert the EEOC to violations of such statutes. Courts have generally agreed with this position, distinguishing between agreements not to seek damages or other remedies for the benefit of oneself (which are enforceable if knowing and voluntary) and agreements not to notify the EEOC of alleged violations (which are unenforceable). See EEOC v. Cosmair, Inc., L'Oreal Hair Care Division , 821 F.2d 1085, 1090 (5th Cir. 1987).

In addition, the EEOC has taken the position that such agreements are also per se retaliatory. In EEOC v. Board of Governors of State Colleges and Universities , 957 F.2d 424 (7th Cir. 1992), the EEOC successfully argued that a collective bargaining agreement that denied employees their contractual right to a grievance procedure whenever the employee initiates a claim in any other administrative or judicial forum, including the filing of a charge with the EEOC, is per se retaliatory. The EEOC alleged that denying a contractual benefit upon the filing of a claim with the EEOC violated the anti-retaliation provision of the ADEA. Id. at 426. The Seventh Circuit agreed with the EEOC, stating that 'to hold for the Board would be to allow it to deter its employees' exercise of their ADEA rights by imposing adverse employment consequences.' Id. at 431. Recently, the EEOC has taken an increasingly aggressive approach to challenging as retaliatory waiver agreements that arguably deter an employee from participating in the EEOC enforcement process.

EEOC v. SunDance Rehabilitation Corp.

In 2004, the EEOC brought suit against SunDance Rehabilitation Corp., challenging the general release contained in the company's separation agreement. EEOC v. SunDance Rehab. Corp. , 328 F.Supp.2d 826, 828 (N.D. Ohio 2004). Significantly, the EEOC's suit was premised solely on the structure of the waiver offered to a group of laid off employees ' the EEOC had found no reasonable cause to conclude that the layoffs themselves were motivated by discrimination. Rather, the EEOC argued that language in the release requiring an employee to give up her right to file a charge with the EEOC was per se retaliation under Title VII, the ADEA and the ADA, because 'agreement signers may not file discrimination charges [except] on pain of suit for return of severance, damages, fees and costs.' Id. at 836. The district court agreed and granted summary judgment for the EEOC, holding that '[b]y the terms of the Separation Agreement, the employee loses his contractual right to the severance pay if he files a charge of discrimination,' thus allowing the employer to deny a contractual right because the employee engaged in the protected activity of filing a charge of discrimination. Id. at 837-38.

In October 2006, the Sixth Circuit reversed the district court's decision. EEOC v. SunDance Rehab. Corp., 2006 U.S. App. LEXIS 26278 (6th Cir. Oct. 24, 2006). The Sixth Circuit distinguished Board of Governors (upon which the district court had relied) because the employer in that case 'actually took an adverse action against the employee because the employee had pursued the statutorily protected activity of filing a charge with the EEOC ' [whereas] SunDance offered a contract and, on the record before us, has engaged in no further action.' Id. at 20-21. The court held that the mere offer of the Separation Agreement to all employees terminated in a reduction in force, without more, does not amount to facial retaliation under the equal employment opportunity statutes. The court further stated that 'the charge-filing ban may be unenforceable; but its inclusion in the Separation Agreement does not make SunDance's offering that Agreement in and of itself retaliatory.' Id. at 29 (emphasis original).

EEOC v. Lockheed Martin Corp.

In January 2005, the EEOC again took up the argument that a waiver of the right to pursue a charge with the EEOC was facially retaliatory. In EEOC v. Lockheed Martin Corporation, an employee at Lockheed was notified on Oct. 16, 2000 that her position was being eliminated at the end of the month and that she was being terminated in connection with layoffs resulting from a merger. 444 F. Supp. 2d 414, 416 (D. Md. 2006). The employee was provided with, but refused to sign, a severance agreement containing a general release that stated 'this Release prohibits my ability to pursue any Claims or charges against the Released Parties seeking monetary relief or other remedies for myself and/or as a representative on behalf of others.' Id. Prior to termination, the employee filed a charge with the EEOC, alleging that her termination was discriminatory on the basis of race, gender and age. Shortly after filing the charge with the EEOC, the employee, through counsel, sent a letter to Lockheed asserting that 'notwithstanding the charge, she had the right to receive severance benefits, and that the release was retaliatory as written.' Id. Lockheed responded that it would not amend its release and that the employee would have to dismiss her EEOC charge against the company if she wished to sign the release and receive severance benefits. The employee continued to refuse to sign the severance agreement and was terminated shortly thereafter.

The EEOC brought suit on the employee's behalf in January 2005, arguing that the release was facially retaliatory insofar as Lockheed's actions interfered with protected activity in two respects: 1) the conditioning of severance benefits on the withdrawal of the EEOC charge ' whether or not the employee was otherwise entitled to those benefits before she filed the charge ' constituted retaliation; and 2) as in SunDance, the release itself prohibited the employee from filing an EEOC charge and was thus facially retaliatory. In order to demonstrate retaliation, the district court held, a plaintiff must show that she engaged in protected activity and that a materially adverse action with a causal connection to the protected activity was taken by the employer. Id. at 418. Because the filing of an EEOC charge is a protected activity and the denial of severance benefits is an adverse employment action, the district court reasoned, the case turned on the connection between the protected activity and the adverse action. Lockheed argued that there could be no causal connection because the release was presented to the employee before any EEOC charge had been filed, and the employee had no entitlement to severance benefits without giving up the right to pursue her charge. The district court rejected these arguments and granted summary judgment for the EEOC.

The district court's decision in Lockheed Martin relied heavily on the Northern District of Ohio's SunDance opinion, which was reversed by the Sixth Circuit two months after the Lockheed Martin decision was announced. Accordingly, it is unclear whether the outcome in the Lockheed Martin case may be affected by the reversal in SunDance. On Nov. 6, 2006, Lockheed Martin filed a Motion for Reconsideration, asking the court to amend its Aug. 8, 2006 ruling. As of the writing of this article, the motion for reconsideration remains pending.

Other Recently Filed Cases and Consent Decrees

The EEOC has recently brought similar suits against other major employers characterizing waivers that arguably limit the right to file claims with the EEOC as per se retaliation. In EEOC v. Land O' Lakes, Inc., No. 06-3828 (D. Minn. Sept. 25, 2006), the EEOC alleged that Land O' Lakes 'instituted and maintained a policy in its Separation Agreement and Release that required terminated employees to agree, as a material term of the agreement, that they had not filed a claim of discrimination with the EEOC and had no current intent to file such a claim.' Complaint at 1, Land O' Lakes, No. 06-3828 (D. Minn. Sept. 25, 2006). The Complaint alleges that such policy is retaliatory and violates public policy under the ADEA, Title VII and the EPA. Id.

Similarly, in EEOC v. Sara Lee Corp., No. 06-0645 (S.D. Ohio Sept. 29, 2006), the EEOC alleged that Sara Lee violated the retaliation provisions of various equal employment opportunity statutes by offering a severance agreement to employees as part of a reorganizational lay-off that included, among other things, a waiver of the right to file a complaint with the EEOC. The local newspaper, the Cincinnati Enquirer, quoted a regional attorney from the EEOC as saying 'The right to file a charge is sacrosanct ' any policy that prohibits workers from exercising their statutory rights to complain of discrimination will be vigorously prosecuted.' James McNair, Sara Lee Sued Over Severance, Cincinnati Enquir-er, Oct. 4, 2006, available at http://news.enquirer.com/apps/pbcs.dll/article?AID=/20061004/BIZ01/610040322/-1/back01.

Additionally, the EEOC has entered into at least two consent decrees with employers regarding waivers of the right to file a charge with the EEOC. In February 2003, The EEOC entered into a consent decree with P&O Nedlloyd, Ltd. whereby the firm agreed to revise its Severance Benefits Plan to eliminate a waiver of the right to file a charge or cause or permit a charge to be filed on an employee's behalf. EEOC v. P & O Nedlloyd, Ltd., No. 2:02-CV-574 (E.D. Va. Feb. 26, 2003). In September 2006, Ventura Foods agreed to eliminate the provision in its severance agreement that required waiver of the right to file EEOC discrimination charges and further agreed that it 'would not institute or maintain a Severance Agreement and General Release, or any similar agreement, which prohibits an employee from filing a charge with the EEOC or participating in an EEOC investigation.' EEOC v. Ventura Foods, LLC, No. 05-663 (D. Minn. Sept. 1, 2006).

Conclusion

These cases, and the public comments of the EEOC, suggest a heightened willingness by the agency to litigate over its position that waivers of the right to pursue discrimination charges constitute per se retaliation. In light of such litigation risks, employers who utilize severance agreements with broad waivers of employee rights must recognize that attempts to limit an employee's ability to pursue charges of discrimination with the EEOC may not only render the waiver unenforceable, but may give rise to a separate claim of retaliation ' even in the absence of other evidence of discrimination. Accordingly, employers should scrutinize the breadth of the waiver language in their separation agreements and consider whether revisions may be appropriate in light of the current litigation environment.

Karl Nelson is the partner-in-charge at Gibson, Dunn & Crutcher's Dallas office, and a member of the firm's Labor and Employment, Employee Benefits, and Executive Compensation Practice Groups. Samantha Ferris is an associate in that office.