Employers Should Exercise Caution in Light of the EEOC’s Recent Action Against Separation Agreements

Megan J. Muoio, June 19, 2014

The Equal Opportunity Employment Commission has recently filed multiple claims challenging employers’ standard separation agreements. On February 14, 2014, the EEOC filed suit against CVS Pharmacy in the United States District Court for the Northern District of Illinois. The EEOC alleged that CVS’s standard separation agreement deters employees from exercising their rights to file discrimination charges and participate in EEOC investigations. The separation agreement in question contained standard, boilerplate language common to separation agreements and provisions that are commonly used by employers nationwide. The case, Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., is notable because the EEOC previously only restricted employers from utilizing separation agreements that prohibited former employees from filing charges of discrimination with the EEOC or participating with an EEOC investigation. In the CVS case, by contrast, the EEOC claimed that these common provisions contained within CVS’s severance agreement deterred employees from filing EEOC charges or participating in an EEOC investigation, even though it did not prohibit those actions outright.

Employers have long presented departing employees, either those who have been terminated, laid off, or asked to retire early, with separation agreements at the conclusion of their employment. The purpose of these agreements is to provide the employer with a measure of protection against future employment-related litigation brought by a disgruntled former employee who has accepted and received severance pay. To that end, most separation agreements ask the former employee to waive his or her right to file a lawsuit and recover monetary damages based on various civil rights laws such as the Civil Rights Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, or the Equal Pay Act in exchange for severance pay. The EEOC had long condoned the use of these agreements if they contained language such as: “Nothing in this agreement shall be construed to prohibit you from filing a charge with or participating in any investigation or proceeding conducted by the EEOC or a comparable state or local agency.” However, in 2012, the EEOC issued its FY 2013-2016 Strategic Enforcement Plan, in which the EEOC stated that it intended to “target policies and practices that discourage or prohibit individuals from exercising their rights under employment discrimination statutes, or which impede the EEOC’s investigative or enforcement efforts…includ[ing] 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.” The EEOC’s Strategic Enforcement Plan and the cases the EEOC has commenced recently mark an aggressive new stance on the part of the EEOC.

The EEOC attack on CVS’s separation agreement has created a fear among employers because the challenged provisions are commonplace in most standard post-employment agreements. The CVS separation agreement was presented to non-store employees at the time of separation and required an employee’s signature in order to receive severance pay. The EEOC alleged that CVS’s agreement violated Title VII of the Civil Rights Act of 1964 on the grounds that it is overbroad and interferes with employees’ rights to file charges, communicate voluntarily and participate in investigations with the EEOC. The provisions that the EEOC flagged as violating Title VII are as follows:

  •  A cooperating clause that required the employee to notify CVS’s General Counsel of contacts relating to legal proceedings, including administrative proceedings by an investigator, attorney or third party.
  • A non-disparagement clause prohibiting the employee from making disparaging statements about CVS, its officers, directors or employees.
  • A non-disclosure clause prohibiting the disclosure of confidential information to any third party without prior written permission from CVS’s chief human resources officer.
  • A general release of claims that requires the employee to release CVS from all causes of action, lawsuits, proceedings, complaints, charges, debts contracts, judgments, damages, claims and attorneys fees, including any claim of unlawful discrimination of any kind.
  • A covenant not to sue clause, in which the employee represents that there are no pending complaints, claims, actions or lawsuits in any federal or state court or agency; that prohibits the filing of any action, lawsuit, complaint or proceeding; and that requires the employee to reimburse CVS for breach of this covenant.
  • A breach by the employee provision which, if the employee breaches the agreement, entitles CVS to injunctive and other relief, including attorneys’ fees.

The EEOC alleges the single qualifying sentence that nothing in the separation agreement was intended to interfere with the employee’s right to participate in a proceeding with an agency enforcing discrimination laws in the CVS separation agreement nonetheless denied employees the full exercise of their Title VII rights. The EEOC additionally noted that the agreement was five single-spaced pages, indicating that a single sentence preserving an employee’s rights within a long document was insufficient to protect the employees.

As a result of the EEOC’s recent aggressive stance, employers should reevaluate their separation and post-employment agreements with employment law counsel. Employers should first review their separation agreements to consider whether to highlight provisions regarding the employee’s right to file administrative charges and participate in investigations commenced by agencies enforcing any laws, not just employment laws. Employers may want to specifically refer to each paragraph containing a possible restriction of an employee’s rights with qualifying language such as “except as otherwise stated in paragraph x” to ensure that it is clear that nothing in that section limits the employee’s rights. Second, employers should consider setting off statements regarding employee’s rights in a separate paragraph and possibly in larger or bold font so that the employee’s rights are clearly discernible, and make sure that the agreement clearly states that no other provisions of the agreement limit the employee’s right to engage in protected activity. Third, employers can continue to require that employees waive their right to monetary damages even though they retain the right to file a discrimination charge. Fourth, employers should reevaluate provisions in their agreements that require cooperation with the employer in light of the EEOC’s recent focus on such issues and be prepared to modify such provisions. Finally, employers should also review the length and readability of their form separation agreements in order to ensure that they can be easily comprehended by employees.


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