thCATMS9YBBy Gerald L. Maatman Jr. and Howard M. Wexler

As we previously blogged about, most recently here and here, the EEOC has gone on the offensive challenging employer severance agreements. In one such case, the EEOC attacked 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’s case against CVS 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.

The EEOC appealed its well-publicized defeat in the CVS case and on December 17, 2015 the U.S. Court of Appeal for the Seventh Circuit issued yet another stinging rebuke of the EEOC’s “shoot first aim later” litigation tactics and rejected the EEOC’s appeal.

Case Background

In its Complaint, the EEOC alleged that certain provisions of CVS’s standard severance agreement violated Title VII because they interfere with an employee’s right to file charges, communicate voluntarily with the EEOC and other state agencies, and participate in agency investigations.  Id. at 3.  The case arose out of a former CVS pharmacy manager who was discharged in July 2011. Id. at 2.  She filed a charge with the EEOC, alleging that CVS terminated her due to her sex and race.  Id.  On June 13, 2013, the EEOC dismissed the charge, but it then sent CVS a letter saying that it had reasonable cause to believe that CVS was engaged in a pattern or practice of resistance to the full employment of rights secured by Title VII by virtue of the severance agreements that the charging party and others signed at their terminations. Id. at 4. Specifically, the EEOC claimed that the agreement deterred the filing of charges and interfered with the employee’s ability to communicate voluntarily with the EEOC and other federal and state agencies.   Id.

The District Court dismissed the EEOC’s case on purely procedural grounds, as it was undisputed that the EEOC did not engage in any effort to conciliate prior to bringing suit. Id. at 6. The EEOC argued that it was not required to engage in conciliation procedures because it was not bringing a garden-variety pattern or practice claim under section 707(e), but rather was alleging a pattern or practice of resistance to the full enjoyment of rights created by Title VII.  Id.  That “resistance” claim was brought under section 707(a), which does not mandate the same pre-suit procedures as are required under section 707(e).  Id.

Seventh Circuit’s Decision

On appeal, the EEOC alleged that the District Court “got it wrong” because: (1) Section 707(a) authorizes the agency to bring actions challenging a “pattern or practice of resistance” to the full enjoyment of Title VII rights without following any of the pre‐suit procedures contained in Section 706, including conciliation; (2) CVS’s use of a severance agreement that could chill terminated employees from filing charges or participating in EEOC proceedings constitutes a “pattern or practice of resistance” for purposes of Section 707(a); and (3) a reasonable jury could conclude that the Agreement deterred signatories from filing charges with the EEOC because of its length, small font, and the fact that it is drafted in “legalese,” thus making summary judgment for CVS improper.  Id. at 7.  The Seventh Circuit summarily rejected the EEOC’s first argument, and therefore, did not address the additional grounds set forth by the EEOC in support of its appeal.

With respect to the Commission’s contention that it was not required to engage in any pre-suit procedures, the Seventh Circuit rejected “the EEOC’s … novel interpretation of its powers under Section 707(a) that extends beyond the pursuit of unlawful unemployment practices involving discrimination and retaliation, and that frees the EEOC from engaging in informal methods of dispute resolution as a prerequisite to litigation,” as it   “cites to no case law….nor has any case been found that supports the distinction between the two sections as argued by the EEOC.”  Id. at 11.

Moreover, because the Seventh Circuit found no difference between a suit challenging a “pattern or practice of resistance” under Section 707(a) and a “pattern or practice of discrimination” under Section 707(e), it reasoned that the EEOC must comply with all of the pre‐suit procedures contained in Section 706, including conciliation.  Id. at 12.  As the Seventh Circuit noted, “[i]f we were to adopt the EEOC’s interpretation of Section 707(a), the EEOC would never be required to engage in conciliation before filing a suit because it could always contend that it was acting pursuant to its broader power under Section 707(a). In other words, the EEOC’s position reads the conciliation requirement out of the statute.”  Id. at 14-15.

Implications For Employers

While this stinging defeat for the EEOC in its attempt to attack carefully drafted severance agreements in line with the EEOC’s own interpretive guidance, employers are nonetheless well advised to review their separation agreement terms at issue in this case. While CVS may have won the battle for now,  the EEOC appears to be ready for war and focused on continuing to litigate terms of individual and/or form separation agreements. In doing so, the EEOC’s position attempts to alter existing case law 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.