A federal district court in Ohio has invalidated a provision in a separation agreement that required an employee to waive the right to file a charge with the Equal Employment Opportunity Commission (EEOC) in exchange for severance payment, finding the provision to be unlawful retaliation. Equal Employment Opportunity Commission v. Sundance Rehabilitation Corp. (N.D. Ohio, 2004).
In Sundance, the employee was terminated in a company-wide reduction in force. She was told that she would receive 80 hours of severance pay if she stayed through her termination date and signed a separation agreement and general release. The release required the employee to agree that she would not pursue any claim in any administrative, judicial, or other forum with respect to any events that occurred before she signed the release. The release also provided that if the employee violated the terms of the agreement, the company could seek injunctive relief and damages, including return of the entire severance payment. The employee refused to sign the release and filed a charge with the EEOC, claiming, among other things, that the release was unlawful.
The EEOC determined that the separation agreement did not meet the requirements of the Older Workers’ Benefit Protection Act and could have a chilling effect on employees and create a disincentive for them to cooperate with the EEOC. After making this determination, the EEOC filed suit against the employer, which was now bankrupt, claiming the separation agreement constituted retaliatory discrimination in violation of Title VII, the Equal Pay Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act.
In court, the EEOC argued that the separation agreement constituted impermissible retaliation on its face because employees who signed the agreement could not file a discrimination charge without risk of being sued for the return of the severance payment. The court agreed with the EEOC, finding that under the terms of the separation agreement, the employee lost the contractual right to severance pay if he or she filed a charge of discrimination. The court found that this potential loss of a contractual right was unlawful retaliation. The court also noted that there is a difference between waiving the right to file suit in court, which involves waiving the employee’s right to recover from the employer and is permissible, and waiving the right to file a charge with the EEOC, which serves to inform the EEOC of possible discrimination and, according to the court, is not permissible.
The court granted summary judgment in favor of the EEOC, enjoined the employer from implementing or maintaining the provision requiring employees to waive the right to file a charge with the EEOC, and ordered the company to pay severance to all employees who had been denied severance pay because of the retaliatory provision.
Employer Notes: While this decision is not binding on employers outside the jurisdiction of the Ohio federal court that issued the opinion, employers would be well-advised to review their separation agreements to determine whether they contain provisions similar to that invalidated by the court. Language requiring employees to waive the right to file an administrative charge, which may be included with language waiving other rights, such as the right to sue the employer, may render the entire separation agreement unenforceable, rather than, as the court found here, only the prohibition on filing charges with the EEOC. Even if the court finds only the waiver provision unenforceable, as the court in Sundance did, and not the entire agreement, the resulting litigation can be expensive and time-consuming for the employer. Employers with questions regarding separation agreements and waivers should contact experienced employment counsel.
Submitted by John-Edward Alley, Partner, Ford & Harrison LLP, Tampa, Fla. You can contact Mr. Alley at jalley@fordharrison.com.
Reprinted from Council’s Personnel Law Update newsletter. Click here to order a free trial or subscribe.
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