Employment Law Blog: Severance Agreements - Clarity and Simplicity Are Best

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On February 7, 2014, the Equal Employment Opportunity Commission (EEOC) in Chicago brought suit against CVS Pharmacy alleging that the company’s severance agreements for employees interfered with those employees’ civil rights, including prohibiting the employees from filing EEOC charges where appropriate. The EEOC further alleged that the language of the agreements prohibited or otherwise “chilled” cooperation with the Commission in ongoing claims or future cases which could be brought independently by the Commission.

A question that sometimes troubles employers is precisely who does the claim belong too? If an employee feels that he or she was discriminated against does that require that the employee bring the claim, or can the EEOC or other agency simply institute a claim on its own? The second analysis, akin to the criminal court area where the state itself functions as the injured party is correct and is supported by law under the Waffle House standard.  

In this instance, the EEOC targeted several clauses in the agreement, many of which are common to agreements of this type throughout the country. These included:

  • An agreement by prior employees to promptly notify the company’s general counsel of any subpoena, deposition notice, interview request, or order relating to administrative investigation. This contact was required to be both “by telephone and in writing.”
  • A good faith or non-disparagement clause where the employee agreed not to make any statements about the business or reputation of the company which would negatively affect the company. This would apply even if the statements could be termed in the service of public policy such as a whistleblowing claim.
  • A non-disclosure of confidential information section which prohibited the employee from providing information on co-employees, wages, benefit structure, succession plans, or similar items without the prior written authorization of CVS’ Chief Human Resources Officer.
  • A general release of claims which would apply to any claim that existed at the time of the agreement, including “any claim of unlawful discrimination of any kind…”  
  • An enforcement clause which provided that in the event of a breach, the employee would be required to pay the company for legal fees and similar costs incurred by the company in enforcing the agreement.

The EEOC’s lawsuit is directed at the idea of encouraging participation by prior employees, including those who may have received valuable severance packages, in future EEOC processes, complaint investigations and prosecutions.

This move by the EEOC is mirrored by several recent actions with the Iowa Civil Rights Commission (ICRC) where the ICRC, rather than the plaintiff, decides what is acceptable in settlement. The ICRC has refused to enter into settlement agreements or conciliation processes unless such items can be made public. The ICRC has also indicated that certain language previously allowed in agreements is no longer acceptable, such as no future reapplication or rehire language and certain forms of confidentiality.

It is important to note that this case has not yet been determined and the Courts have not indicated that the EEOC actions in Chicago, which is a notoriously aggressive EEOC branch, will be supported by the law. However, it is important for employers to assess existing severance agreements in light of the EEOC’s current position in this case. Employees should not be prohibited from participating in lawful review and investigation of facts the employees may have had access to while employed. Any confidentiality clause should take this into consideration.  Non-disclosure and non-disparagement areas also need to be carefully assessed so they do not run afoul of the EEOC expectations as well as potential Section 7 NLRB concerns about the ability of employees and prior employees to discuss workplace conditions and employment practices. One way to address the issue of the EEOC’s concern that an employee always has a right to file a potential claim is language that reiterates that employees have the right to file or participate in any claim but that the severance agreement itself operates as a waiver to potential damages.

When dealing with employee communications, particularly where it is unlikely that employees will seek legal assistance, the documents should be clear, simple, easy-to-read and preferably short. One of the issues the EEOC specifically raises in the CVS Pharmacy case is the fact that the severance agreement is five single spaced pages which are both difficult to read and understand. Clarity and simplicity are important particularly as you assess any employee document. If it takes a legal degree to understand the terms you are probably in trouble.

Topics:  Contract Drafting, Corporate Counsel, CVS, EEOC, NLRB, Severance Agreements

Published In: General Business Updates, Labor & Employment Updates

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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