By: Trenam's Employment Law Team
An employer faces many risks when it terminates an employee, including potential claims of discrimination. Having the employee sign a separation agreement that includes a release of claims in return for payment to which the employee would not otherwise be entitled is a good way to eliminate or reduce those risks. Many employers who have gone through the process of offering a separation agreement/release to a departing employee assume that a form of agreement used previously can still be used today, with a few simple changes to reflect the name of the employee, the amount to be paid, etc. Unfortunately, this is not the case, and an employer who uses an old form may find that its release is subject to challenge.
Over the past several years, the U.S. Equal Employment Opportunity Commission (“EEOC”) has been very aggressive in challenging separation agreements offered by employers, taking the position that common provisions protecting the employer make the agreements unenforceable. For example, employers have always wanted to avoid EEOC investigations and earlier versions of separation agreements often include a provision wherein the employee promises not to file a charge with or participate in an investigation by the EEOC. The EEOC says that such a waiver is impermissible and an agreement must expressly state it does not affect the employee’s right to file a charge of discrimination or it is unenforceable. Older separation agreements also often include non-disparagement clauses. According to the EEOC, such a clause constitutes interference with the employee’s right to file a charge of discrimination and may make the entire separation agreement void. The EEOC is scrutinizing whether requiring the departing employee to agree not to seek re-employment with the company constitutes illegal retaliation. The EEOC even brought suit against CVS, claiming that CVS engaged in a pattern and practice of discrimination by using a separation agreement that included a non-disparagement clause and a release of “any claim of unlawful discrimination of any kind.”
The EEOC is not the only government agency scrutinizing separation agreements. The Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) have expressed concerns regarding confidentiality provisions that may impede SEC investigations or FINRA investigations and enforcement actions.
We actively monitor the law and government agencies’ positions with regard to separation agreements and regularly revise our forms to reflect recent developments in this area. If you are thinking about terminating an employee, you should contact your counsel to discuss whether it makes sense to offer the employee a separation agreement/release. You should address the many strategic issues to be considered in connection with such an agreement – including inclusion or affirmation of trade secret protections and restrictive covenants, confidentiality, arbitration and/or waiver of jury trial, particular requirements for release of age claims, lump sum versus periodic payment, continuation of benefits and other issues. The members of the Employment Law Group of Trenam Law will be happy to discuss these issues with you and to prepare an agreement that is most likely to be enforceable and appropriate to your needs.