By Condon McGlothlen and Holger Besch

The federal district court in Chicago last week issued its much-awaited opinion in EEOC v. CVS Pharmacy, Inc., No. 1-14-cv-00863 (N.D. Ill. Oct. 7, 2014). The decision was anticlimactic. Given the issues at stake, however, as well as some pro-employer signals from the court, every employer that provides severance in exchange for a release should take note. At bottom, the decision means EEOC can and will continue attacking heretofore routine separation agreements.

What’s At Issue

As has been widely reported, EEOC argues in the case that CVS’s standard separation agreement not only is unenforceable, but also violates Title VII’s anti-retaliation mandate. Specifically, EEOC claims: (i) the agreement’s general release language chills individuals from filing charges with the agency (and is not saved by language protecting the “right to participate in a proceeding with any federal … agency enforcing discrimination laws” and to “cooperat[e] with any such agency in its investigation”), and (ii) the agreement’s non-disclosure and non-disparagement language further prevents individuals from filing charges and otherwise exercising Title VII rights.

Employer advocates view EEOC’s position as extreme, to say the least. Virtually every separation agreement contains something EEOC might find objectionable. CVS’s agreement may have contained more such passages than some, but it’s hardly extraordinary. Thus, many employers’ agreements may be in jeopardy unless and until: (i) enough courts reject EEOC’s attenuated theories, such that the agency decides against further pursuing them in litigation; (ii) EEOC issues reasonably clear guidance in this space, so employers know what EEOC views as acceptable; and/or (iii) the balance of viewpoints represented on the 5-person Commission shifts in employers’ favor.

Court Rules Against EEOC For Failure To Conciliate

Without addressing the substantive “retaliation” questions under Title VII, the court (Judge Darrah) instead granted summary judgment for CVS on the ground that EEOC had failed to attempt conciliation before filing suit. The agency admitted it had engaged in no conciliation procedure whatsoever before the lawsuit. It argued conciliation is not required before a pattern or practice suit under Section 707(a) of Title VII. Because this power had previously been vested in the Attorney General, who was not required to bring a charge or engage in conciliation, and because that authority was later transferred to EEOC, the agency argued it too was exempt from Title VII’s usual conciliation requirements. Judge Darrah, however, read Section 707(a) as authorizing EEOC to bring charges alleging a pattern or practice of discrimination, and not as creating a separate Title VII cause of action (more specifically, one altogether exempt from administrative prerequisites to suit).

In reaching this conclusion, the CVS court relied in part on Mach Mining, LLC v. EEOC, 738 F.3d 171 (7th Cir. 2013). That case is pending before the Supreme Court. There, the Seventh Circuit considered EEOC’s duty to conciliate in good faith before suing an employer. The appeals court held that EEOC’s failure to conciliate is not an affirmative defense to the merits of an employment discrimination suit, provided EEOC pleads and can prove some attempted conciliation. Because EEOC refused to make even this minimal showing in the CVS case, Judge Darrah gave it the judicial boot.

Agency Taken To Task On the Merits

Beneath what some view as a technical ruling, the district court derided EEOC’s case on merits. Like many lawyers, Judge Darrah put the good stuff in the footnotes. He first explained that any Title VII retaliation claim, including one filed by EEOC under Section 707(a) pattern or practice theory, must involve “some retaliatory or discriminatory act.” By this, Judge Darrah clearly signaled that CVS’s standard form separation agreement and practice lack the requisite retaliatory act. He next noted the caveat to CVS’s general release language – the passage protecting the individual’s right to participate in agency proceedings. That language, Darrah reasoned, plainly encompasses the right to file charges – the right with which CVS purportedly interfered.

Regrettably for employers, these passages are dicta – points unnecessary to the court’s holding, and thus not binding (or even very persuasive) authority. Still, they are a start: the first judicial retort to EEOC’s efforts to unsettle the repose for which corporate America every day pays millions of dollars in severance.

Looking Ahead

Next up: EEOC’s lawsuit in Denver against CollegeAmerica, a company that likewise insisted on non-disparagement as a condition of paying severance. CollegeAmerica further required that employees represent they have no pending claims (including administrative actions) against it. That seems only fair, if it was to pay severance to avoid the cost of defending against such claims. To EEOC, however, that provision too inevitably “chills” employees from filing charges. (Ironically, the charging party in CollegeAmerica filed three charges after she had signed the putatively chilling agreement.) That didn’t keep EEOC from holding her out as a victim of retaliation. Which means EEOC will likely find more such victims, and thus file more such suits.

Hard to say whether EEOC will appeal against CVS. They might, just in case the Supreme Court upholds the Seventh Circuit’s Mach Mining decision, and in so doing provides some support for EEOC’s “no need to conciliate” stance in CVS. But as Judge Darrah recognized, the latter does not follow from Mach Mining. One thing is certain: we haven’t heard the last from EEOC as regards separation agreements; while the agency is all for employees receiving the “quid” upon terminating from employment, it doesn’t much like the [pro] “quo” most employers want in return.

For more, contact the authors or your Seyfarth attorney.