EEOC Takes Aggressive Position On Severance Agreements

The Equal Employment Opportunity Commission (“EEOC”) recently filed a lawsuit against one of the nation’s largest pharmacy chains, CVS, claiming its separation agreements violate Title VII of the Civil Rights Act. This action by the EEOC is surprising and significant, since the targeted provisions are ones that are commonly found in severance agreements. According to the lawsuit, the EEOC claims that CVS conditioned payment of severance benefits on execution of severance agreements that contained overly broad, misleading, and unenforceable language that unlawfully prevents employees from communicating with the agency or filing discrimination claims. In its lawsuit, the EEOC claims the following provisions of the agreement violate Title VII:

• A cooperation clause requiring employees to notify the company of contacts relating to legal proceedings;
• A non-disparagement clause;
• A non-disclosure of confidential information clause; and 
• A general release and covenant not to sue clause.
  

The EEOC is seeking a permanent injunction prohibiting CVS from restricting the rights of former employees to file charges or participate in agency proceedings, reformation of CVS’s separation agreement, and for CVS to provide 300 additional days for any former employee who signed the agreement to file administrative charges.

The EEOC claims that being able to bring charges and communicate with employees plays a critical role in the EEOC’s enforcement policy because it informs the agency of employer practices that may be unlawful. An employee’s right to communicate with the EEOC is protected under federal law, and therefore, the EEOC claims that when employers have language similar to that found in CVS’s severance agreements, it has the effect of buying an employee’s silence regarding discriminatory practices.

The EEOC’s claims are a departure from its prior position in which it previously determined similar language was in compliance with Title VII. In fact, CVS modeled its severance agreements with language the EEOC previously found compliant in an earlier lawsuit. This can be rightly viewed as an overreach by the EEOC to strike down provisions of severance agreements that are used almost universally by employers and have been previously approved by the agency.

If the EEOC is successful in this lawsuit, employers will need to revisit their severance agreements and make any necessary changes to comply with the court’s decision. However, unless the court strikes down the provisions in the case, or another court acts otherwise, we are not currently recommending a drastic departure from our prior severance agreements based on this lawsuit. While we believe it is unlikely that the EEOC will be successful on all of its claims against all provisions of CVS’s agreements, this new aggressive stance by the agency is a good reminder to employers to always revisit severance agreements to ensure they are legally compliant, and consider taking steps to avoid similar claims.

Nick Johnson is an attorney with Washington, DCbusiness law firm Berenzweig Leonard. He can be reached at njohnson@BerenzweigLaw.com.