5.3 Severance Pay
Library | Virginia Employment Practices and Forms (Virginia CLE) (2015 Ed.) |
5.3 SEVERANCE PAY
5.301 Severance Payments to Individual Employees.
A. General Release of Claims. Many employers, when terminating employees pursuant to a reduction in force or for other reasons that do not amount to "termination for cause," choose to offer severance pay to the employee as a means of "softening the blow." Unfortunately, some employees accept severance pay but simultaneously bring an action against the employer for claims arising from the termination. Consequently, employers who provide severance pay to employees should obtain a release of claims in exchange for the severance payments.
Courts generally will uphold severance agreements containing a release of claims if the employer can show that valid consideration was provided for the release, namely, the employee was given something of value to which he or she was not otherwise entitled. 22 In Todd v. Blue Ridge Legal Services, Inc., 23 the United States District Court for the Western District of Virginia enforced a severance agreement and release against an employee who alleged Equal Pay Act violations where the severance benefit provided was the cash equivalent of all of the employee's accrued leave, which company policy ordinarily limited to a set number of hours, in exchange for the release. The court found the release provisions of the agreement enforceable because the consideration, however "slight," was tendered in exchange for the agreement.
Similarly, in Eddie v. Auto Truck Transport Corp., 24 the court upheld the enforceability of a severance agreement signed by a truck dispatcher whose employment was terminated for misconduct. The severance agreement, which plaintiff signed nine days after being terminated, waived all claims against her employer, including those brought under the Americans with Disabilities Act (ADA). The plaintiff argued that the severance agreement was not valid because it was overbroad and a contract of adhesion, and because plaintiff was not in an appropriate mental state to enter into the contract when she signed it. The court granted summary judgment for the employer, holding that the plaintiff had waived her ADA claims by signing the severance agreement.
In Davis v. Old Dominion Tobacco Co., 25 the plaintiff had worked for forty years for Old Dominion Tobacco. In 2008, he was terminated for poor
[Page 346]
performance and excessive unaccounted absences. Shortly after his termination, the company and the plaintiff entered into a severance agreement giving the company a complete release. The plaintiff subsequently brought a number of claims in court, including a claim under the ADA that he was terminated on the basis of disability and failure to accommodate his disability. The plaintiff argued that the severance agreement did not preclude his ADA claim because it was entered into based on fraudulent concealment. The court held that the severance agreement was enforceable and the plaintiff's ADA rights were validly released.
B. Waiver of Claims Under Title VII and the ADA: The EEOC Speaks. For many years, at least as early as April 1997, the EEOC has taken the position that a private severance agreement and waiver of claims cannot preclude an employee from filing a charge of discrimination under the statutes it enforces, including title VII and the ADA, even though the employee may have surrendered his or her right to receive monetary compensation related to such a charge. 26 In July 2009, the EEOC reissued its guidance on severance agreements, reiterating that while employees can be required to waive their right to monetary relief, they cannot be compelled to surrender their right to file a charge, even after they have accepted the severance. 27
In 2013, the Chicago Field Office of the EEOC brought an action against an employer, Baker & Taylor, Inc., a distributor of print and digital content to libraries and retailers, alleging that that Baker & Taylor violated title VII by forcing employees to sign a severance agreement that interfered with the employees' right to file charges and communicate with the EEOC. 28 The matter was resolved through a consent order, but it set the stage for the EEOC's next big target, the national pharmacy chain, CVS.
In February 2014, the EEOC filed a complaint in the Northern District of Illinois against CVS Pharmacy, Inc. The complaint alleged that certain provisions of the severance agreement CVS used for exempt, non-store employees constituted "a pattern or practice of resistance to the full enjoyment of the rights secured by title VII in violation of Section 707(a) of title VII." EEOC alleged that CVS's "overly broad, misleading and unenforceable Separation Agreement" discouraged former employees from filing EEOC charges or participating in EEOC investigations. 29
[Page 347]
Specifically, the EEOC enumerated several attributes of the separation agreement that, taken together, allegedly interfered with former employees' title VII rights. First, the EEOC asserted that only one paragraph of the separation agreement included a "qualifying sentence" expressly stating that nothing in that paragraph of the agreement "is intended to or shall interfere with Employee's right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws." 30 Second, the EEOC asserted that a number of other clauses in the separation agreement, taken together, appeared to infringe upon former employees' title VII rights. These clauses included prohibiting former employees from making disparaging statements against CVS, prohibiting former employees from disclosing information about CVS's employees, wages, benefits, and affirmative action plans, requiring employees to reimburse CVS for attorney fees if CVS filed a lawsuit and obtained a judgment against an employee, and requiring former employees to cooperate with CVS by providing notice to CVS's general counsel if they were subpoenaed or asked to participate in an investigation by the EEOC or a state fair employment practices agency.
In October 2014, the judge in the CVS proceeding granted the defendant's motion for summary judgment and dismissed the EEOC's complaint due to the EEOC's failure to attempt conciliation before initiating the legal action. 31 Although the court noted that the EEOC engaged in "settlement negotiations" with CVS by telephone on two occasions, it was undisputed by the parties that "no conciliation procedure was implemented." Despite the EEOC's contention that such conciliation was not statutorily required when the agency pursues a "pattern and practice" claim as it had in this case, the court rejected the argument and dismissed the action for failure to conciliate. 32
Despite this non-substantive rejection of its claims, the EEOC will likely remain undeterred in pursuing these types of claims against employers.
[Page 348]
For example, the EEOC filed a similar case in May 2014 against a private college, CollegeAmerica, in which the Commission alleged similar violations of federal discrimination laws arising from the school's requirement that a former camput director sign a severance agreement that precluded her from filing a charge of discrimination against, or making disparaging comments about, the college. 33
C. How Employers Should Respond to the EEOC's Position. Most severance agreements contain a complete release of claims and either specifically establish that the employee cannot file any administrative claims against the employer or are silent as to whether the former employee can still file a charge. The EEOC's position is that the employer has an affirmative obligation to state, as part of any severance agreement, that the employee retains the right to file such a claim and, further, that the agreement must make it clear that the employee can cooperate with the EEOC in any investigation of a charge, whether initiated by the employee or a co-worker.
The authors of this book do not believe that employers should be required to affirmatively inform employees of their right to file a charge. A growing number of cases hold that an employee does indeed retain the right to file a charge and that any language which expressly states otherwise is facially invalid and perhaps retaliatory. 34 In order to avoid unnecessary scrutiny by the EEOC, the employer should include language that informs employees of their right to speak to or cooperate with the EEOC, and such language is included in the model agreement below.
D. Drafting Tips for General Severance Agreements. In drafting a severance agreement and release, counsel should consider the following points:
1. | The agreement and release should not be unnecessarily complicated. A heavily detailed legal document may discourage the employee from signing it and may induce the employee to unnecessarily seek legal counsel; | ||
2. | A severance pay release should be relatively short and set forth in plain language. The employee should be given a |
[Page 349]
reasonable opportunity to review the release and an opportunity to ask questions about it; and | |||
3. | In order to encourage the employee to sign the agreement and release, employers should consider including an incentive in addition to severance pay, such as allowing the employee to "resign" or offering to pay for some period of the employee's continued health care coverage under COBRA. |
The following form is a relatively simple example of a severance agreement and release of claims that might be used in an employment separation. Included at the end of the form agreement are several optional provisions that may be useful, depending upon the specific circumstances of the employee's separation.
[Form 40]
This Separation Agreement and Release of Claims ("Agreement") is made by and between _________________ ("Employee"), an individual, and [Company Full Name], a [corporation] [limited liability company] [limited partnership]...
To continue reading
Request your trial