In February of this year, the EEOC filed suit against a nationwide pharmacy chain alleging that it utilized “an overly broad, misleading and unenforceable” separation agreement and release that interfered with employees’ free exercise of their Title VII rights.

The EEOC took issue with several elements of the form of separation agreement in question – some of which are fairly standard terms - including:

  1. a cooperation clause which required the employee to notify the employer’s General Counsel of any inquiries received in furtherance of, among other things, an administrative investigation, including from any investigator, attorney or other third party;
  2. a non-disparagement clause which required the employee not to make any disparaging statements about the employer, without qualification;
  3. a non-disclosure clause which required the employee not to disclose confidential information, including information on wages and benefit structures, information concerning affirmative action plans, and other information to any third party;
  4. a general release of claims which included the release of the chain from “charges” and “any claim of unlawful discrimination of any kind”; and
  5. a covenant not to sue which included “any complaint” and required the employee to agree “not to initiate or file, or cause to be initiated or filed, any action, lawsuit, complaint or proceeding” asserting any of the released claims and further requiring the employee to reimburse the chain for any legal fees associated with same.

Notwithstanding a qualification that provided nothing in the covenant not to sue was “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 any such agency,” the EEOC claimed the separation agreement interfered with an employee’s right to file a charge with the EEOC or state agencies, or participate in their investigations.

The EEOC sought a permanent injunction enjoining the pharmacy chain’s use of the separation agreement and requiring it to reform its allegedly unlawful terms. It also sought a “corrective communication” from the chain to any employee (entered into by more than 650 employees in 2012) who had entered into the form Separation Agreement or similar release notifying them that they had 300 days to file a charge.

Ultimately the Court tossed the EEOC’s claims on procedural grounds, ruling the EEOC was not authorized to file suit because it had not first attempted a pre-suit conciliation procedure required by statute. This case nevertheless shows the EEOC’s cards and signals that the agency is eager to challenge releases it deems overly broad.

Action Item:

Employers should review and consider revising if necessary their template severance and release agreements to include qualifications that explicitly preserves and clarifies an employee’s right to file a charge with the EEOC or FEPAs and to participate and cooperate with an investigation conducted by these agencies.