EEOC Lawsuit Challenges Commonly Used Language In Severance Agreements

by Nexsen Pruet, PLLC
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On February 7, 2014, the Equal Employment Opportunity Commission (EEOC or Commission) sued CVS Pharmacy Inc. in federal court in Chicago to invalidate the company’s standard severance agreement. The lawsuit raises concerns because it attacks language that employers commonly use in severance agreements.

Employers frequently offer such agreements to departing employees, agreeing to provide severance pay in exchange for a waiver of the right to file any type of claim against the employer, a covenant not to sue, and other promises. Usually the amount of severance is much less than what it would cost to defend an employment lawsuit.

Court decisions have made clear that severance agreements cannot prohibit employees from filing a charge of discrimination. Also, a severance agreement should not suggest that an employee cannot cooperate with the EEOC or a comparable state agency in connection with an investigation.

But in the CVS lawsuit, the Commission goes further, claiming the severance agreement is illegal because it could be read to “deter” an employee from filing a charge or participating in an EEOC investigation. The Commission took issue with the following provisions:

  • A paragraph titled “Cooperation” stating the employee will notify the company if he or she is contacted by an investigator regarding an administrative investigation;
  • A non-disparagement clause;
  • A prohibition on disclosure of confidential information;
  • A general release of claims provision stating the employee gives up “any claim of unlawful discrimination of any kind”; and
  • A paragraph titled “No Pending Actions; Covenant Not to Sue” stating the employee represents that he or she has not filed “any complaint” with “any … agency” and will not file such a complaint.

The “No Pending Actions; Covenant Not to Sue” paragraph contained a qualifying sentence noting that “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with” the EEOC or comparable state agency, “nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”

The Commission’s lawsuit raises a potentially significant issue for employers because, as noted above, clauses like these are found in many severance agreements, and the agreement makes clear that employees retain the right to file a discrimination charge and cooperate in an agency investigation.The EEOC is asking the court to, among other things:

  • Enjoin CVS from using its current severance agreement;
  • Require CVS to revise its policies and to send all employees a “corrective communication”; and
  • Extend the statute of limitations for any former employee who signed the agreement to file a discrimination charge.

Regardless of the final outcome of the EEOC’s lawsuit against CVS, employers should review, or have legal counsel review, their standard severance agreement terms, and realize that arguably overly broad terms may attract close scrutiny from the EEOC and even litigation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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