Client Bulletin #528
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A few weeks ago, we issued a client bulletin by David Phippen entitled, "Can Your Employment Policies Survive the NLRB?" Now it appears that severance agreements will have to survive the Equal Employment Opportunity Commission as well.
As you may know, various EEOC offices are challenging employers' severance agreements, contending that certain terms in the agreements interfere with employees' right to file charges and to communicate with the agency and participate in agency proceedings.
It is not at all clear whether the EEOC's position has any legal merit, but if you do not want your company to be a "test case," here are the areas in typical severance agreements that seem to be drawing the EEOC's attention.
Plain English. Is your agreement drafted in plain English, and is it concise? Will an employee of average intelligence and sophistication be able to slog through it? Will an employee of average intelligence and sophistication understand it, even assuming he or she manages to read it? Or, on the other hand, is it 10 single-spaced pages of legalese?
Release Language. Does your release language make an exception for EEOC charges, or other administrative charges that the employee has an absolute right to file?
"Cooperation" Language. What does your agreement say about the employee's duty to cooperate with legal proceedings in which your company is involved? Is the employee required to be on the company's side? Does the employee have to tell you whenever he or she is contacted by a government representative? It may be better to say that the employee has a duty to "cooperate" by providing truthful information and documents in connection with the proceeding.
"Non-Disparagement" Language. Does your agreement say that the employee cannot say anything negative about the company or its employees -- no ifs, ands, or buts? Does it make an exception for truthful information provided in response to a subpoena or other valid legal process? Does it make an exception for truthful information provided in connection with a government investigation?
Confidentiality. If your confidentiality clause is focused on confidential and proprietary business information, such as customer lists, business plans, and trade secrets, you are not likely to be challenged. But if your confidentiality clause prohibits disclosure of information pertaining to employees, or company HR policies, or employee compensation, then your confidentiality clause could be vulnerable.
Also, be careful if your severance agreement incorporates by reference a confidentiality or non-compete agreement that the employee signed before the termination. Review the old agreement in light of the EEOC's current position. If the old agreement seems vulnerable to an EEOC challenge, consider releasing the employee from his or her obligations under the old agreement and binding the employee only to the updated confidentiality provisions in the severance agreement.
Covenant Not to Sue. These provisions generally require the employee to "warrant" that he or she does not have any actions pending against the company. It is not clear what happens to an employee who may have had, for example, an open EEOC charge at the time that he or she was told about the separation. If you feel that this language must be included in your severance agreement, you should consider adding that if an EEOC charge (or other administrative complaint or charge) is pending, the employee agrees that he or she will be limited to non-monetary relief.
The EEOC appears to be taking the position that it is too confusing to have the "warrant" of no pending actions, followed by a recitation of the company's remedies in the event of a breach, followed by a "disclaimer" saying that none of the above applies to government agency investigations. This is common to many severance agreements, and, again, it is not at all clear that the EEOC's view will prevail. But if you want to avoid EEOC litigation, you may want to amend your covenant not to sue to make it easier for employees to understand that they still have the right to participate in government charges, complaints, or investigations.
If you would like for your severance agreement to be reviewed in light of the EEOC's current litigation position, please contact any member of our Litigation Practice Group, or the Constangy attorney of your choice.
About Constangy, Brooks & Smith, LLP
Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 140 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.