Team of Executives helping to re-open Austin’s Economy. Check out what we’re doing!

back to blog

Is Your Severance Agreement Illegal?

“Overly broad, misleading and unenforceable,” read the Equal Employment Opportunity Commission’s (EEOC’s) February 2014 critique of CVS Pharmacy’s severance agreement, asserting that six of the agreement’s provisions  unlawfully interfered with employees’ rights to file discrimination charges and/or communicate and cooperate with the commission. Experts say the lawsuit marks a new and aggressive position toward severance agreements by the EEOC.

“Under the Obama Administration, the federal agencies responsible for implementing national labor and employment policy have become particularly aggressive,” states Beaumont, TX, attorney Robert J. Hambright, Partner, Orgain Bell & Tucker, LLP. “EEOC’s ruling that CVS’s severance agreement violated the law is a good example.”

According to a press release issued by the EEOC, CVS violated Section 707 of Title VII of the Civil Rights Act of 1964, which prohibits employer conduct that constitutes a pattern or practice of resistance to the rights protected by Title VII. Regional Attorney John C. Hendrickson, who acted as the lead in the EEOC’s suit, explains, “The importance of employees’ ability to participate in the agency’s process, free from fear of adverse consequences, cannot be overstated.  It is always difficult for an employee to report employer discrimination to federal law enforcement officials.  Anything that makes that communication harder increases the risk that discrimination will go unremedied.”

In a response on SHRM.org, attorneys Kerry Notestine, Terri Solomon, and Dan Thieme of Littler Mendelson point out that while the EEOC identified six sections of the CVS agreement violated Title VII, the “restrictions are limited only by a ‘single qualifying sentence’ in the covenant not to sue and ‘not repeated anywhere else in the Agreement.’” However, that very sentence clearly stated—in language strikingly similar to that blessed by the EEOC in the Kodak Consent Decree—nothing in the covenant not to sue was ‘intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.’”

The Kodak Consent Decree mentioned above is at the center of this issue. Whether that document sounds familiar or not, it likely helped shape your own organization’s severance agreements today. In 2006, the EEOC entered into the consent decree with Eastman Kodak Company, stating exact language the company was required to use in future release agreements. Given the EEOC’s role in crafting the language itself, the decree remains the standard in many severance agreements. However, as noted above, any editing or wavering from that official language could land you in hot water, especially now.

“The law is settled that a separated worker can effectively enter into a severance agreement releasing all claims to recover individual relief against a former employer,” Hambright explains. “However, EEOC has long taken the position that a severance agreement is invalid to the extent it would prohibit the separated worker from filing an EEOC charge or otherwise exercising rights under Title VII. To address this concern, the CVS form stated that it was not intended to interfere with any former worker’s right to participate in any proceeding before any government agency enforcing the employment laws. In what is arguably a hyper-technical ruling, EEOC declared that individuals might nevertheless be discouraged from exercising Title VII rights because CVS’s language was unclear.”

In its Strategic Enforcement Plan for FY 2013-2016, the EEOC has vowed to target policies and practices that “include retaliatory actions, overly broad waivers, settlement provisions that prohibit filing charges with the EEOC or providing information to assist in the investigation or prosecution of claims of unlawful discrimination, and failure to retain records required by EEOC regulations.” In addition to the EEOC’s increased scrutiny regarding the Civil Rights Act of 1964, severance agreements are being increasingly questioned by the National Labor Relations Board and compared against the Age Discrimination in Employment Act. With so many sensitive issues at hand, it’s perhaps never been more important to have your severance agreements reviewed (or re-reviewed) by an attorney.

“Consider utilizing unambiguous carve-out language in order to ensure enforceability,” recommend the attorneys at Hodgson Russ LLP. “Employers should likewise avoid [burying the carve-out language in] another clause or otherwise suggesting its application is limited. In this way, employers should be able to minimize the likelihood of attracting the EEOC’s ire, while continuing to protect themselves through appropriately drafted severance agreements from unwanted legal surprises.”

HR Headaches—a blog for HR professionals, business owners, and in-house counsel—adds that, in addition to ensuring severance agreements are carefully scrutinized by experienced employment lawyers, “employers should be aware that a release may not ‘really’ be a release when it comes to discrimination claims.” If your severance agreement comes into question under any of the reasons discussed above, even employees who signed a release can still sue for wrongful termination. So remember, even if your severance agreements were drafted with the help of an attorney, it may be time to review them again.

“The moral to the CVS story,” concludes Hambright, “is that all employment documents should be drafted with care, and reviewed periodically, to avoid the long arm of the federal employment agencies.”

Main Image Copyright: flynt / 123RF Stock Photo

CVS Image Copyright: robwilson39 / 123RF Stock Photo