Time to Reassess Your Severance Agreements?

It might be, if the EEOC wins a lawsuit that claims CVS Pharmacy's separation agreements interfere with employees' right to file discrimination charges and communicate with the agency. Experts say an EEOC victory would compel other employers to take a hard look at their own agreements.  

Tuesday, March 25, 2014
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The Equal Employment Opportunity Commission has taken aim at CVS in a lawsuit that experts say could shake up how companies approach severance agreements.

According to an EEOC statement announcing EEOC v. CVS Pharmacy Inc. had been filed in Illinois federal court, CVS "conditioned the receipt of severance benefits for certain employees on an overly broad severance agreement set forth in five pages of small print. The agreement interfered with employees' right to file discrimination charges and/or communicate and cooperate with the EEOC."

For example, the suit claims, CVS used a separation agreement that required employees to notify the company in the event they became part of an administrative investigation, and obligated them to promise not to disparage the company, its officers, directors or other employees.

Other restrictions, according to the suit, included a nondisclosure agreement, a release of claims and a covenant not to sue. The EEOC alleges the agreement included only a single qualifying line saying that nothing in the agreement was meant to interfere with employees' right to participate in legal proceedings or cooperate with an agency's investigation.

The EEOC seeks a permanent injunction that would prevent CVS from using the current version of its separation agreement, and to stop the Woonsocket, R.I.-based pharmacy services provider from taking other action engaging in any form of resistance to employees' rights to file charges. The EEOC also requests the court provide former employees who were subject to the agreement up to 300 days to file a discrimination charge with the EEOC or other agencies.

The provisions in the CVS separation agreement coming under scrutiny are "common in many severance and other employment-related agreements," says A. John Harper III, a partner in the labor and employment practice group in the Houston office of Haynes and Boone.

In the past, the EEOC has targeted language in such agreements that the agency believed would lead an employee to forego his or her right to file a charge of discrimination, says Harper.

The CVS agreement, however, "contained specific language guaranteeing an employee's right to file and pursue such charges," he says. While it's "difficult to predict the outcome of any litigation, CVS's agreement took steps to comply with the EEOC's prior guidance in this area."

As such, says Harper, "the court could press the EEOC to thoroughly explain its position before siding with the agency."

Indeed, the odds of the EEOC winning on all of its claims are not high, says Robert Hale, a Boston-based partner and chair of Goodwin Procter's labor and employment practice.

The agency, he notes, has challenged six different provisions of CVS's form of severance agreement, along with arguing that some qualifying language in the agreement is not sufficient.

"I am not aware," says Hale, "of any decision holding that any release provisions like those involved in this case [are] violations of anti-discrimination laws.

"I think CVS has good arguments to support each of the provisions the EEOC has challenged," he continues, "particularly in light of the qualifying language."

Nevertheless, a court may have concerns with some of the language found in the agreement, "particularly those aspects of the agreement that more directly relate to legal enforcement. That's because a court may view the EEOC as having a legitimate interest in provisions that could be read to deter employees from assisting with enforcement efforts."

The National Labor Relations Board has similarly criticized policies and agreements that employers have developed to prohibit disparaging comments and disclosure of confidential personnel information, "regardless of the real purpose of such provisions," says Hale. 

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"If the EEOC wins here, that would make it difficult for employers to reach agreements that prevent former employees who accept severance pay to agree not to make disparaging statements or disclose personnel information that many employers understandably view as confidential."

Despite such concerns, he says, a decision in EEOC's favor would compel employers to closely evaluate their severance agreements.

"In the meantime," says Hale, "HR should work with counsel to take a hard look at existing severance agreement forms to determine whether any steps should be taken to reduce the risk that a decision in this case would make those existing agreements more vulnerable to legal challenge."

An EEOC victory in this case would "drastically change" the playing field in employment law, adds Philip Voluck, a Blue Bell, Pa.-based managing partner at labor-and-employment law firm Kaufman Dolowich & Voluck.

"The typical severance agreement so many businesses use as a matter of rote will be gutted of provisions -- specifically identified by the EEOC in its suit -- that are ordinarily material inducements for the employer to settle in the first instance," he says.

In terms of evaluating the enforceability of the organization's severance agreements, "it's strictly a legal analysis," with no role for the HR practitioner, says Voluck. Rather, he says, HR should carry out the functions leading up to the signing of agreements -- analyzing the employee demographic involved, providing protected class information, and determining who is not being asked to sign agreements, for example.

Harper says employers should take heed of the CVS complaint and, in the event of a win by the EEOC, "employers should carefully evaluate the decision to determine what additional language should be added, and [assess] any other changes that should be made to their standard severance agreements in order to comply with the court's decision."



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