Back To The Drawing Board For Your Employee Separation Agreement?

Written by Robert G. Brody and Alexander Friedman on September 30, 2014

In a move with potentially far-reaching implications, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against CVS Pharmacy, Inc. (a part of CVS Caremark Corporation) (“CVS”) alleging the company violated Title VII of the Civil Rights Act of 1964 based on language in a separation agreement CVS used for some of its employees.  The EEOC’s lawsuit asked the Court, among other things, to enjoin what it refers to as “a pattern or practice of resistance to the right to file a charge and participate and cooperate with investigations by the EEOC or [Fair Employment Practice Agencies]…”  The lawsuit claimed CVS violated Title VII because employees could not receive severance benefits unless they agreed to the separation agreement.  The Court recently dismissed the case.  While this means standard severance agreements are safe for the time being, the EEOC may appeal this case or continue pursuing this position elsewhere.

The EEOC’s lawsuit cited five problematic provisions.  One requires employees to notify CVS when they become involved in administrative investigations (among other kinds of legal proceedings) against CVS. Another prohibits employees from disparaging CVS or its employees. A third prohibits employees from disclosing non-public information about CVS to third parties without the company’s written permission. A fourth generally releases CVS from “charges” and other kinds of legal claims the employee may have against it.  Among the charges and claims specifically released are violations of the National Labor Relations Act, Title VII, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and “any claim of unlawful discrimination of any kind.”  A fifth provision states the employee will not file “any action, lawsuit, complaint, or proceeding” against CVS.  Although the provisions release CVS from numerous types of claims, such as civil and criminal lawsuits, the EEOC focused specifically on language which relates to administrative charges and proceedings.  It argued these provisions effectively interfered with employees’ rights to communicate and file charges with agencies and be involved in agency proceedings against CVS relating to employment discrimination and retaliation.  The EEOC emphasized that the agreement consists of 5 single-spaced pages, implying the Agreement is dense and employees who sign it may do so without fully understanding what rights they waive.

While the EEOC admitted the provision which prohibits the employee from bringing proceedings against CVS does state it is not intended to interfere with the employee’s right to “participate” in and “cooperate” with agency employment discrimination proceedings, it appears the EEOC believed this to be insufficient to preserve the employees’ right to file charges with an agency since it is not included in every paragraph.  The EEOC characterized this language as, “[A] single qualifying sentence that is not repeated anywhere else in the Agreement (though the other limitations are contained in separate paragraphs)…”  Thus, according to the EEOC’s theory, this sentence is inadequate and CVS’s agreement unlawfully inhibits employees’ rights in spite of it.

CVS filed a motion requesting that the EEOC’s lawsuit be dismissed.  CVS argued, among other things, that none of the provisions actually interfere with employees’ right to file charges or cooperate with agencies.  It also argued that, in any event, the use of the five provisions does not violate Title VII because, if the provisions were improper, a court could simply refuse to enforce them.  Further, because the EEOC has not alleged any actual discrimination by CVS, there is no “pattern or practice” of Title VII violations of which CVS can be properly accused.

In response, the EEOC argued that the “broad and ambiguous” language in the provisions makes it unclear to a reasonable employee whether the agreement restricts them from filing a charge or cooperating with the EEOC and other agencies.  Therefore, even if under a “sophisticated contractual analysis” the provisions are ultimately found not to limit employees’ rights in dealing with the EEOC, the risk that a court could find otherwise (and consequently require the employee to pay CVS damages) has a “chilling effect” which serves to “deter reasonable employees from fully exercising their Title VII rights.”  Because this was a standard separation agreement which CVS regularly used, the EEOC argued the use of the separation agreement was in and of itself a “pattern or practice” which violates Title VII, regardless of any substantive discrimination.

Due to the prevalent use of separation agreements with comparable provisions, this case could have impacted employers across the country.  After CVS asked the Court to dismiss the case, the Retail Litigation Center (“RLC”), a public policy organization which advocates on behalf of the retail industry, submitted an amicus brief in which it stated many employers have separation agreements with similar wording.  If CVS had ultimately lost the case, many other businesses which use similar agreements would have had to go back to the drawing board.  Instead, the Honorable John W. Darrah dismissed the case in mid-September.  Judge Darrah indicated he will issue a written opinion explaining his decision soon.  The EEOC may appeal his decision, or pursue this argument in a different case.  For the time being, however, severance agreements across the country are safe.

Brody and Associates regularly provides counsel on civil rights issues and employment laws in general.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.

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About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More

Alexander Friedman is an Associate with Brody and Associates, LLC. He works on both Labor and Employment Law matters. Learn More