Legal Affairs

by Jeff Feuquay, Associate Editor

Settlement Gag Clauses and Purgatorial Investigations

Many, very many, allegations of discrimination are resolved through settlement agreements. Most readers know from my previous columns that I see the settlement of spurious claims as extremely damaging to an organization and as having tremendous hidden costs. But, know also that organizations which "fess up" to legitimate problems and errors, and correct them as soon as practicable, tend to be the most credible and litigation-free. Settlement of legitimate complaints serves a legitimate end. But, one of the most powerful motivations for employers to enter into settlement agreements, so called "keep quiet" or "gag" clauses, may be at risk.

You know how settlements work -- employers and aggrieved individuals agree to settle a case for a certain sum of money or other consideration. In exchange for that consideration, the individual agrees to drop all related causes of action.

Employers generally also insist on the inclusion of a gag clause, a clause in the agreement that prohibits the individual from discussing the basis of the allegations and the terms of the settlement. The obvious organizational value of a gag clause is that the employer escapes with its reputation intact and other individuals are not given additional motivation to pursue similar claims.

However, the EEOC recently successfully argued that gag clauses are, at least in part, a violation of public policy and unenforceable.

In the case of EEOC v. Astra U.S.A., Inc., a federal district judge in Massachusetts, recently decided that a gag clause was invalid to the extent that it interfered with EEOC's mission, i.e., aggrieved individuals must be allowed to talk to federal investigators and to file their complaints with the EEOC even after settling. The trial court, however, did support the efficacy of gag clauses in preventing discussions with others outside EEOC. In reaching its decision, the court struggled to balance two competing interests: the policy favoring private settlement of employment disputes versus the public's interest in the enforcement of Title VII. But, while gag clauses may have less value, be aware that the court supported the settlement agreement's clause prohibiting the individual from receiving monetary damages from any lawsuit. That is, the person can sue (or the EEOC can sue for the person), but the person recovers no money damages. On a practical level this means that although the EEOC, itself, might still bring an action, much of the motivation for an individual lawsuit is gone.

Astra has appealed the decision to the First Circuit Court of Appeals. By the time this is published, that appeal may be concluded -- unlikely, but it may be. Although the First Circuit's decision will have direct applicability only in Maine, Massachusetts, New Hampshire and Rhode Island, employers should pay close attention to the outcome and recognize how fragile any settlement clause may be that limits an aggrieved individual's right to pursue federally prescribed remedies.

The above case leads to several anecdotal comments concerning resolution of discrimination complaints. I have been approached by numerous potential plaintiffs. The vast majority came to see me largely because they felt their organization had paid slight or no attention to concerns they raised. Most had followed their organizations' policies concerning the reporting of harassment or discrimination, but their complaints had been put off or ignored -- at least from the individuals' perspectives. When they initially raised their concerns with their companies, most simply wanted to be heard, simply wanted management to deal effectively and quickly with bad situations. But, by the time I saw them, they were usually out of work, angry and seeking both vindication and revenge.

(Obviously, there are also quite a few who simply don't know what hit them, and see me as a way to get answers. And, there are a number who I think the employer should have gotten rid of years earlier.)

The "simple" solution for employers seeking to avoid litigation is to pay attention -- thoroughly and promptly investigate complaints and deal with problems immediately and appropriately. A recent case, Dees v. Johnson Controls World Services, Inc., 1996 WL 494324 (8/20/96 S.D. Ga.), strongly supports this intuitively obvious conclusion. The Dees court noted that a plaintiff may establish a prima facie case of hostile work environment sexual harassment by demonstrating the existence of five well-known factors: (1) the person belongs to a protected group; (2) the person has been subjected to unwelcome sexual advances; (3) the harassment was based on sex; (4) the harassment was sufficiently severe and pervasive that it altered the work environment and/or created an abusive workplace; and (5) the employer knew or should have known of the harassment, but failed to take remedial action. If a plaintiff fails to establish these basic elements, a case can be disposed of on summary judgment for the employer, as it was by the Dees court.

Extremely important in Dees was that the employer did not dispute the existence of the first four factors. Instead, World Services' defense rested on the fact that it had conducted an immediate, thorough investigation upon becoming aware of the complaint, and, as a result, fired two male employees, placed another on probation and reprimanded a third. The court, in dismissing the case, noted that it could not "imagine a quicker or more prompt response to a harassment complaint than the actions taken by World Services." Wise employers have taken this case, or at least its underlying philosophy, to heart. I have been retained by a fairly large company to fly in and investigate harassment and discrimination complaints across a seven-state region. The company wants an independent recommendation and intends to take immediate action to resolve all valid complaints. I bring this up not to solicit other investigation contracts, but to emphasize how crucial prompt, thorough and independent investigations are being seen by many large organizations . . . crucial not only to their defense should a lawsuit ensue, but also to maintaining a productive workplace, free of sexual intimidation. As a recent client and victim of sexual harassment told the opposing attorney, "I didn't want to sue [the company], but nobody would listen to me and make [my co-worker] keep his hands off me." The company paid its attorney thousands of dollars to learn that it could have avoided the lawsuit by investigating, acknowledging and dealing with the problem -- simply paying attention.

See you in court. Jeff Feuquay

Jeff may be reached at P.O. Box 646, Perry, OK 73077-0646, Phone: (405) 336-4145, Fax: (405) 336-5377, Net: jeff@feuquay.com