By Chris DeGroff and Laura Maechtlen

Earlier this year, we blogged about the EEOC’s aggressive attack on CVS Pharmacy Inc.’s standard release agreement which contained terms more expansive in favor of employees than the EEOC’s own interpretive guidance, and agreements held enforceable by in key court decisions. The EEOC v. CVS case was eventually dismissed on procedural grounds because the EEOC had not met its obligation to conciliate the claims filed in that case, so failed to provide additional guidance on the EEOC’s aggressive theories. Unfortunately, it also failed to quell the EEOC’s thirst to pursue similar claims, as evidenced by the EEOC’s complaint against CollegeAmerica Denver, Inc. that alleges the private college’s separation agreements improperly prevented employees from filing age discrimination complaints — claims similar to those the EEOC made against CVS.

On December 2, 2014, Judge Lewis Babcock of the U.S. District Court for the District of Colorado granted in part the defense motion to throw out the EEOC’s lawsuit. The decision in EEOC v. CollegeAmerica Denver, Inc., Case No. 14-CV-1232, 2014 U.S. Dist. LEXIS 167333 (D. Colo. Dec. 2, 2014), is well worth a read for corporate counsel.

Background To The Case

The CollegeAmerica action arose when the Charging Party, Debbi Potts, resigned her employment and afterwards entered in to a single settlement agreement with CollegeAmerica in which Potts agreed to:

(1.) … refrain from personally (or through the use of any third party) contacting any governmental or regulatory agency with the purpose of filing any complaint or grievance that shall bring harm to CollegeAmerica ….

(3.) To not intentionally with malicious intent (publicly or privately) disparage the reputation of CollegeAmerica….

Following execution of the individual agreement, CollegeAmerica notified Potts that it considered emails she exchanged with another former employee to be in violation of the non-disparagement provision, and it demanded repayment of consideration paid to her. Potts responded by filing three charges of discrimination with the EEOC. After the first charge was filed, CollegeAmerica filed a state court action against Potts alleging breach of the agreement’s non-disparagement clause.

The EEOC investigated the claims, and issued a Letter of Determination that CollegeAmerica had violated the Age Discrimination in Employment Act (ADEA).  After the letter of determination was issued,  CollegeAmerica provided the EEOC with four Separation and Release Agreements (“Separation Agreements”) that it routinely used, for the purpose of clarifying that the settlement agreement signed by Potts was not CollegeAmerica’s “form” severance agreement, as the EEOC mistakenly believed.  All of those agreements included a release of claims provision and a non-disparagement clause.  After receiving copies of the “form” agreements, the EEOC did not revise or supplement its findings or otherwise notify CollegeAmerica that the scope of the investigation had expanded beyond Potts’ individual agreement. The parties’ efforts to resolve the issues set forth in the Letter of Determination through conciliation were thereafter unsuccessful.

The EEOC then filed a lawsuit, asserting three claims: (1) that Potts’ settlement agreement denied her the full exercise of her rights under the ADEA and interfered with the agency’s ability to investigate charges of discrimination under the ADEA; (2) through the “form” standard separation agreements used with employees other than Potts, CollegeAmerica denied employees full exercise of their rights under the ADEA; and (2) CollegeAmerica retaliated against Potts by filing the state court action alleging breach of her settlement agreement’s non-disparagement clause.

Ruling On Motion To Dismiss

CollegeAmerica sought dismissal of all the EEOC’s claims and, in an Order issued this week, the Court agreed with a majority of the defense arguments.

CollegeAmerica first argued that there is not justiciable controversy over the first claim because it has never asserted, and would never assert, that Potts waived her ADEA rights via the individual settlement agreement. In support, CollegeAmerica provided evidence that it did not assert such a waiver in connection with her EEOC’s charges, or state court action, and provided an affidavit stating that the employer did not and would never assert that the individual settlement agreement constitutes a waiver of ADEA rights. The Court concluded that the claim was moot.

CollegeAmerica also argued that the Court lacked jurisdiction over the second claim because the EEOC failed to provide it with notice that the “form” separation agreements purportedly violate the ADEA or to engage in conciliation with respect to those Agreements. In response, the EEOC argued that notice and conciliation are not jurisdictional prerequisites to suit under the ADEA, trotting out the oft-cited case Arbaugh v. Y&H Corp., 546 U.S. 500 (2006), in which the Supreme Court addressed whether Title VII’s definition of “employer” was an issue of subject matter jurisdiction or an essential element of Title VII.  (For those employers who have litigated this issue with the EEOC, this case is and old standby for the EEOC, overly relied upon, and easily distinguishable in many instances). For obvious reasons, the Court distinguished Arbaugh, and recognized that that the Tenth Circuit has held that exhaustion of administrative remedies, including conciliation, is a jurisdictional prerequisite to filing suit.  It then found that — because the EEOC was unaware of the existence or terms of the “form” separation agreements before it issued its findings in the Letter of Determination — it could not serve as notice to CollegeAmerica that the EEOC was alleging that the “form” agreements violated the ADEA. The Court also found that the EEOC failed raise concerns about the “form” separation agreements at the conciliation meeting; thus, the EEOC failed to conciliate the issue. As a result, the Court dismissed the second claim for lack of jurisdiction.

Finally, CollegeAmerica was unsuccessful in its bid to dismiss the third cause of retaliation. The Court found that the EEOC pled sufficient facts to support a reasonable inference that CollegeAmerica filed the state court action in response to the first charge of discrimination.

Implications For Employers

Employers are well advised to review the separation agreement terms at issue in the EEOC v. CollegeAmerica and EEOC v. CVS cases. While these employers were successful in dismissing claims on procedural grounds, the EEOC appears focused on continuing to litigate terms of individual and/or form separation agreements. In doing so, the EEOC’s position attempts to significantly alter existing authority governing terms of severance agreements, regardless of the Agency’s own guidance and leading case law interpreting such terms.

Readers can also find this post on our Workplace Class Action blog here.