Severance Agreement Upheld by Seventh Circuit Proves Big Win for Employers
On December 17, 2015, the Seventh Circuit upheld an important ruling from the United States District Court for the Northern District, holding that an employment severance agreement, which provided an employee with severance payments in exchange for a release of claims, was both valid and enforceable. EEOC v. CVS, No. 14-3653, 2015 U.S. App. LEXIS 21963 (7th Cir. Dec. 17, 2015).
In EEOC v. CVS, CVS terminated the employment of the store manager, Tonia Ramos, and offered her a severance agreement, which she accepted and signed. Under a typical severance agreement, an employee agrees to waive claims against the employer in exchange for consideration that the employee would not otherwise be entitled to, such as additional pay or benefits. The CVS severance agreement included a broad release of waivable claims relating to the Ramos's employment, including claims under Title VII. Also like a typical severance agreement, the CVS agreement included a covenant not to sue and a confidentiality clause. In exchange, CVS agreed to provide Ramos with severance pay, subsidized health insurance, and outplacement assistance.
Ramos filed a charge with the EEOC approximately one month after signing the agreement, alleging that CVS fired her because of her race and sex approximately. The EEOC alleged that the severance agreement interfered with Ramos's right to file charges with the EEOC, communicate with the EEOC, and participate in EEOC investigations. In response, CVS requested the EEOC engage in conciliation, but the EEOC refused and brought the claim to federal court.
The United States District Court for the Northern District granted summary judgment for CVS, holding that the EEOC was required to conciliate the claim before filing suit. The EEOC appealed to the Seventh Circuit Court of Appeals and argued, inter alia, that CVS's use of the severance agreement could chill terminated employees from filing EEOC charges or participating in EEOC proceedings. The Seventh Circuit disagreed with the EEOC's argument and concluded that the EEOC failed to state a claim against CVS. The Court ruled that conditioning benefits or promises not to file charges with the EEOC does not violate Title VII.
The Seventh Circuit's ruling provides employers with valuable guidance with respect to employment severance agreements.