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Waiver of EEOC Charges in Severance Agreement Wasn’t Retaliation, Court Says

01.01.2007

Employers sometimes offer severance benefits to fired employees in exchange for their agreement to refrain from suing and release all potential claims. The agreements often contain a provision barring the employees from filing any charges with administrative agencies, including the Equal Employment Opportunity Commission (EEOC). Generally, the EEOC won’t enforce those agreements.

Two years ago, an Ohio federal court went beyond just refusing to enforce those kinds of provisions, ruling that an employer had committed illegal retaliation by including the waiver language – requiring affected employees to waive their right to file an EEOC charge as a condition of receiving benefits – in the severance agreement. Fortunately, the Sixth U.S. Circuit Court of Appeals (which covers both Kentucky and Ohio) recently reversed that decision and issued the following favorable opinion for employers.

Facts

Elizabeth Salsbury, a speech pathologist at SunDance Rehabilitation Corporation, lost her job in March 1999 during a reduction in force, For her consideration, the company offered a document titled “Separation Agreement, General Release and Covenant Not to Sue,” Which would provide 80 hours of severance pay in exchange for certain agreements on her part. In particular, it provided that she wouldn’t “institute, commence, prosecute or otherwise pursue” any proceeding, charge, or grievance against the company in any administrative, judicial, or other forum. If she violated the agreement, the company could recover the entire amount of severance pay, plus damages, including attorney’s fees and costs.

Salsbury apparently believed that SunDance had laid her off because of her gender and wanted to file a sex discrimination charge with the EEOC. She called the company’s HR department and asked if she could strike the provision that prohibited her from filing an EEOC charge and suing the company and then sign the agreement. The HR representative told Salsbury that she couldn’t alter the agreement, and she chose not to sign it.

Salsbury later filed two EEOC charges alleging sex discrimination and retaliation. Neither resulted in a “reasonable cause” determination. About a year after she filed the first charge, an agency representative told her that the separation agreement’s prohibition against charge filing was unlawful. At that point, Salsbury decided to sign the agreement to obtain the severance payment. By that time, however, the company had gone bankrupt.

On August 1, 2001, the EEOC filed suit against SunDance, alleging that the separation agreement’s provision requiring employees to forfeit their right to file a charge with the agency amounted to retaliation under the civil rights statutes that it administers (Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Equal Pay Act). The trial court agreed with the agency and issued a judgment in its favor without a trial. The employer then appealed to the Sixth Circuit.

Sixth Circuit’s decision

The EEOC argued that the separation agreement was retaliatory because it constituted a “preemptive strike against future protected activity.” According to the agency, the conditioning of severance pay on the fired employee’s promises not to file charges, coupled with SunDance’s ability to sue for return f payment if she engaged in protected activity, constituted a per se violation of the applicable retaliation provisions.

The Sixth Circuit didn’t agree. For an employer to retaliate against an employee, it must take some sort of adverse action, according to the court. In Salsbury’s case, SunDance had taken no adverse action. All it did was offer her a contract.

The Sixth Circuti observed that the waiver of the right to file an EEOC charge was probably void because it was against public policy and therefore unenforceable. That’s because filing charges and employee participation in EEOC proceedings are essential to the agency’s mission of investigating violations and enforcing the laws it administers. The court, however, noted the important distinction between enforceability and retaliation. While the waiver provision may well have been unenforceable, the only question before the court was whether offering it amounted to retaliation.

In finding that the offer of the waiver provision didn’t constitute retaliation, the Sixth Circuit observed that Salsbury and other SunDance employees hadn’t been deprived of anything. Those who chose to accept the separation agreement were better off because they received severance benefits. Those who rejected the agreement didn’t give up any rights. And those who accepted it could later argue that parts of it were unenforceable. Under those circumstances, the agreement wasn’t discriminatory on its face. EEOC v. SunDance Rehabilitation Corp., 2006 WL 3007322 (6th Cir., October 24, 2006)

Bottom line

This case closes a trap for unsuspecting employers that offer severance benefits to terminated employees in exchange for broadly worded releases and agreements not to sue or file administrative claims. In exchange for paying a significant sum of money, it’s only natural for an employer to seek to bar all claims and charges that a fired employee might potentially file against it.

Employers may very innocently offer a broadly worded covenant prohibiting an employee from filing any lawsuit, administrative claim, or other proceeding. That language would of course encompass any EEOC charges. As explained above, though, those kinds of waivers are likely unenforceable. A separation agreement, no matter how it’s worded, wont’ prevent an employee from filing an EEOC charge. But the mere inclusion of that kind of language won’t result in a viable retaliation charge against employers in Kentucky and other Sixth Circuit states (Michigan, Ohio, and Tennessee), according to this recent ruling.

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If you have any questions or need help, please contact any member of the Greenebaum Doll & McDonald Labor and Employment Department. 

Copyright 2007 M. Lee Smith Publishers LLC 
KENTUCKY EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Kentucky employment law.  Questions about individual problems should be addressed to the employment law attorney of your choice.

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