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Avoid Pitfalls in Settlement and Severance Agreements

Amy Schmidt Jones, J.D.
October 2020
Three provisions to focus on when reviewing and re-evaluating settlement and severance agreements

Educational employers routinely use settlement and severance agreements to end employment relationships or resolve employment-related disputes, sometimes using templates drafted years ago. The Equal Employment Opportunity Commission (EEOC) has brought enforcement actions challenging common provisions in such agreements. As a result, your institution should review and re-evaluate settlement and severance agreements, particularly the provisions the EEOC focused on: the covenant not to sue; the nondisparagement clause; and the no-rehire provision.

Covenant Not to Sue

The covenant not to sue is part of a "belt and suspenders" approach to settlement that provides for a release of claims (the "belt") and a promise or covenant not to sue on those released claims (the "suspenders"). However, under the Age Discrimination in Employment Act (ADEA), covenants not to sue invalidate an otherwise enforceable release of an age discrimination claim. The EEOC takes the position that covenants not to sue are unlawful under all discrimination statutes within its jurisdiction, not only the ADEA.

Although courts have rejected some aspects of this argument, the EEOC's consistent stance against covenants not to sue calls into question their utility. Consider requiring only a release of claims instead of insisting that employees also promise not to sue on those claims. This approach should still accomplish the desired result without generating the risk that comes with including a covenant not to sue.

Nondisparagement Clause

Employers resolving a dispute or providing severance typically want the employee to promise not to speak negatively of the employer after the fact. In the EEOC's view, such provisions infringe on the employee’s right to report or provide information about unlawful discrimination. Include a carve-out for "communications required or protected by law" in any provision that restricts what an employee may say or disclose about an employer.

No-Rehire Provision

The no-rehire — or "never darken my doorstep" — provision requires that an employee not apply for future employment with the employer. Employers seek these assurances to obtain permanent peace. At least one regional EEOC office considers any no-rehire requirement retaliatory because it applies only to job applicants who previously filed a charge against or sued the employer.

Although courts have not uniformly agreed with that position, employers should have the employee acknowledge at the time of settlement that he or she understands the employer has decided the employee is not eligible for rehire and that the employee does not intend to apply for future employment. Including these provisions could help bring any later decision not to rehire within the scope of the original settlement agreement and avoid a retaliation claim by the employee.

The goal of any settlement or severance agreement is to obtain closure for all parties. Stay abreast of the EEOC's enforcement positions to help ensure that their severance and settlement practices meet this goal.