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Legal Workviews Trapped by Releases

July 27, 2007
Related Topics: Miscellaneous Legal Issues, Discrimination and EEOC Compliance, Termination, Featured Article
Companies undergoing reductions in force or otherwise ending employment relationships routinely obtain releases requiring that employees waive their right to sue in return for severance pay or benefits. There are extensive and detailed regulations that describe the process for obtaining such releases.

    Prudent employers follow the regulations so that if the releases are challenged, employers can show that employees signed them knowingly and voluntarily—and thus the releases are permissible under the law. Recent actions by the Equal Employment Opportunity Commission, suggest, however, that this routine practice may be fraught with risks even for companies with stellar diversity programs and positive EEO track records.

EEOC seeks out systemic cases
    Last year, the EEOC announced it would make investigating and litigating systemic, class-wide discrimination cases a top priority. These were defined as "pattern or practice, policy and/or class cases where the alleged discrimination has a broad impact on an industry, profession, company or geographic location."

    As a result, the EEOC will be looking for issues where a class of individuals could be affected by a companywide policy or practice. For example, in its guidelines to its field offices implementing this new policy, the EEOC suggests that a systemic focus area could include "[a]n industry or set of employers where media reports and other information suggest employment practices are likely to affect a particular group of employees. An example might be layoffs adversely affecting older workers in a particular industry." Waivers and releases, long considered routine and standard, fall squarely within this area of focus.

    Perhaps as a result of this systemic focus, the EEOC has increased challenges to releases. It asserts that releases prohibiting an employee from filing a charge with the EEOC and/or assisting others in pursuit of their claims are contrary to public policy.

    In fact, the EEOC has long declared that the mere presence of such language—even if never enforced—constitutes per se retaliation and voids the entire release. If the courts uphold this expansive position, companies with hundreds and even thousands of former employees who signed such waivers and received severance benefits could face millions of dollars in potential liability.

Recent enforcement
    The EEOC has sued several companies throughout the country under this theory. In an action against Lockheed Martin, a federal court in Maryland in 2006 granted summary judgment for the EEOC on the grounds that a waiver prohibiting the employee signing it from filing an EEOC charge is per se retaliatory.

    In that case, an employee of a company that merged into a Lockheed subsidiary was laid off as a result of the merger and was offered severance benefits, but only in exchange for signing a release of claims. The court reasoned that the release illegally required that an employee forgo the right to pursue legally protected activity, such as filing a charge with the EEOC, in exchange for an employment benefit.

    Similarly, in September 2006, the EEOC filed a suit against Land O’Lakes alleging that it required former employees to waive their rights to bring discrimination claims against the company in exchange for severance pay or benefits.

    And in October 2006, the EEOC challenged Sara Lee Corp.’s employment releases for similar reasons. Court records reveal EEOC consent decrees with other companies that have settled cases on the same bases, including provisions that appeared to discourage employees from assisting other employees with their EEOC claims.

    My own experience with a major employer is instructive. In that case, the company underwent a series of restructurings over several years that resulted in the departure of thousands of employees, who received severance benefits in exchange for signing waivers and releases. One such individual later filed a charge with the EEOC alleging racial discrimination.

    Following an investigation, the EEOC concluded that the race discrimination charge could not be supported. However, during its investigation, the EEOC had reviewed the waiver and release documents, which were not an issue in the race claim, and concluded that they violated the law and EEOC policy.

    As a result, the company was confronted with an expanded investigation alleging systemic, class-wide discrimination, all because of the language contained in the standard release that it had used for a number of years and with thousands of separated employees. The EEOC initially demanded tens of millions of dollars to resolve the case, calculating its demand by multiplying the number of separated employees by several thousand dollars for each.

    Fortunately, the case was settled without the payment of monetary damages but with a consent decree that required the company to perform training, post notices and communicate with separated employees, as well as revise its release forms.

    Only one court decision could be found that undermines the EEOC’s policy interpretation. It came at the end of 2006, when a federal appeals court held that a company’s mere offer of a separation agreement did not amount to retaliation under the various workplace anti-discrimination laws. In that case, the EEOC had sued Sundance Rehabilitation Corp. because an employee who was to be terminated because of a reduction in force was offered 80 hours of severance pay if she signed a separation agreement and general release, which included a ban on filing charges with the EEOC.

    Although it ruled in favor of Sundance, the court specifically noted that its holding was narrow, given that Sundance had not attempted to enforce the provisions of the severance agreement. The court observed that "[t]he language of the separation agreement probably does not prevent mere participation in EEOC proceedings, and is unenforceable if it does. And, as we have noted, 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."

    It appears that the EEOC will continue to assert its long-held position that as a matter of public policy employers may not interfere with an employee’s right to file a charge or assist or participate in an investigation or proceeding conducted by the agency or a similar state or local agency. There is a long line of cases going back 20 years that supports the EEOC’s position.

    And, 10 years ago, as EEOC chairman and on behalf of the commission, I issued a policy guidance, "Enforcement Guidance On Non-Waivable Employee Rights Under EEOC Enforced Statutes" (April 10, 1997), that extended this public policy principle to all federal EEO laws, including Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act and the Equal Pay Act.

Minimizing risk
    In fiscal year 2006, the EEOC received 13,569 charges of age discrimination, resolved 14,146 such charges and recovered $51.5 million in monetary benefits for charging parties and other aggrieved individuals, not including monetary benefits obtained through litigation. With the graying of the workforce and the focus on systemic issues, these numbers will not likely decrease in the foreseeable future. Employers can take steps to minimize the risks of the high costs and potential negative publicity arising from a challenge by the EEOC.

    First, they should review their standard release language as it pertains to an employee’s filing of EEOC charges as well as assistance to and cooperation with a government-related investigation. Second, they should confirm the presence of a severability provision, i.e., one that says that an invalid provision does not render the entire agreement invalid and unenforceable. The courts have upheld the validity of such provisions in this context, even as recently as the Sundance case.

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