Severance Agreements: Are They Working For or Against You?

We at Employers Council regularly get requests from members to review or prepare severance and release agreements when the member company finds itself in the position of having to terminate an employee. The main benefit the employer is usually seeking is obtaining a full release of all legal claims the departing employee has or may have against the company. Obtaining such a release, although not a 100 percent guarantee the employee will never sue the company, provides the company with confidence that they are unlikely to receive a legal claim from the employee.

Once our members receive the severance and release agreements we’ve prepared, they often ask us why we included certain language informing the employee that, notwithstanding their signing the agreement, they still have the right to file a discrimination charge with the Equal Employment Opportunity Commission (EEOC), along with related language. We explain to the member that, without that language included, the member runs the risk that the employee, or the EEOC itself, may later challenge the agreement as unenforceable because it unlawfully interferes with the EEOC’s right to enforce various federal anti-discrimination laws as well as the employee’s right to assist the EEOC in doing so.

One company recently learned this lesson the hard way when a former employee filed a Charge of Discrimination alleging discrimination under the Americans with Disabilities Act (ADA) with the EEOC. After the EEOC completed its investigation, it found that the company had violated the ADA, but not by discriminating on the basis of a disability. Rather, it found that the company violated the anti-retaliation and anti-interference provisions of the ADA by conditioning employees’ rights to receive severance pay on what the EEOC deemed an overly broad severance agreement. That agreement, in the EEOC’s words,  “interfered with employees’ rights to file charges and communicate with the EEOC,” and also “precluded employees from accepting any relief obtained by the EEOC.” The company and the EEOC then entered into negotiations that ultimately led to a settlement. As part of the settlement, the company agreed to hire an outside equal employment opportunity (EEO) consultant to review its severance agreements to ensure they complied with the law. The company also agreed to revise past agreements and to notify former employees who had signed those past agreements, specifically between 2013 and 2015, that they could file a charge with the EEOC and the company would not raise the untimeliness of such a charge as a defense. The EEOC will monitor the company’s compliance with these terms.

This case was handled out of the EEOC’s Phoenix, Arizona, District Office, which has jurisdiction over Arizona, Colorado, Utah, Wyoming, and parts of New Mexico. In a public statement released after the settlement, the EEOC’s Phoenix Regional Attorney said, “Increasingly, we are seeing employers, whether intentionally or not, including overbroad language in their separation agreements that interferes with signatories’ rights to participate in EEOC processes or that impedes the EEOC’s ability to enforce federal anti-discrimination laws as it deems necessary.”

This is not the first case of the EEOC going after an employer for allegedly overbroad release agreements. And it’s consistent with the EEOC’s 2017-2021 Strategic Enforcement Plan, which listed “preserving access to the legal system” as one of its top priorities. The EEOC has stated that in furtherance of that priority, it will take an active interest in employers’ use of overly broad release agreement language that restricts employees’ rights to file charges or communicate with the EEOC.

Severance and release agreements can be a valuable tool for employers seeking to minimize legal risks when terminating employees. But, as this case illustrates, a carelessly drafted agreement may not only fail to achieve that goal, but may also invite its own unwanted EEOC attention – hardly money well spent!

Employers Council can help. If you’re unsure whether your severance and release agreements pass muster, let us know and we’ll be happy to review, and, if necessary, revise them.