Suit against CVS could be test case for severance agreements
CHICAGO - When corporate America downsizes, the pink slips usually come with a lot of fine print.
The terms of a standard severance agreement are filled with legalese such as "general release of claims," "nondisparagement" and "covenant not to sue."
Employers rely on these contracts to end the threat of lawsuits. For giving up their rights to sue, departing employees receive money or benefits.
But the Equal Employment Opportunity Commission has taken issue with the fine print in one large corporation's severance agreement. And the lawsuit is shaping up to be a test case on a widely used employment practice.
Last month in Chicago federal court, the EEOC sued CVS Caremark, the nation's second-largest drugstore chain, for having an "overly broad" and "misleading" severance contract, also known as a separation or termination agreement.
The federal agency's interest in a private contract stems from its extensive mandate to enforce laws against workplace bias. This includes targeting policies and practices that discourage people from exercising their rights under job discrimination laws or that impede the agency's enforcement efforts.
One of those rights is that employees who sign separation agreements can still file a complaint with the EEOC if they believe they were discriminated against during their employment or wrongfully terminated. In addition, a severance pact can't prohibit a discharged employee from participating in an EEOC investigation.
The EEOC claims that CVS interferes with a worker's rights to bring charges with the agency. But CVS said the EEOC's suit is "unwarranted" because its severance agreement includes language "to state that it does not prohibit employees from doing so."
"We have been cooperating with the agency and remain willing to cooperate; we are disappointed that the EEOC has taken this aggressive action," said the company, based in Woonsocket, R.I.
Because the EEOC brought the suit even though CVS expressly protected employees' rights under discrimination laws, the case is being closely watched.
Chicago-based law firm Winston & Strawn sent an alert to its corporate clients via email summarizing the suit.
It concluded that "employers should consider re-evaluating their separation agreements to ensure that they will not become the EEOC's next litigation target."
Linda Friedman, a Chicago lawyer who represents workers in employment matters, said she is pleased the EEOC is scrutinizing the severance agreement because such contracts can be confusing to employees who are stressed after just losing their jobs.
Termination agreements usually prevent departing employees from disparaging their former employers or disclosing confidential information.
"How can you participate (in an EEOC matter) when you don't have the right to disparage?" Friedman said. "What companies give with one hand, they take away with the other."
According to the suit, CVS used the severance agreement in question for employees who didn't work at its drugstores.
CVS told the EEOC that more than 650 workers signed the contract in 2012, the suit said.
The EEOC acknowledges in the suit that CVS' separation agreement includes a carve-out under the section "No Pending Actions; Covenant Not to Sue" that doesn't stop employees from participating in an EEOC proceeding.
But the agency took issue with the carve-out because it said it was buried in the five-page contract.
It is a "single qualifying sentence that is not repeated anywhere else in the agreement," the suit said.
Other parts of the contract, the EEOC said, bar employees from cooperating with an attorney or investigator unless they notify the company, and from disclosing information about the company's personnel and its wage and benefit structures.
The agreement gives departing employees the general impression that they should "keep their mouths shut" and don't dare even consider complaining about CVS' workplace to any federal or state agency, said John Hendrickson, regional attorney at the EEOC's Chicago office.
"If you have one pound of rights buried in 50 pounds of prohibitions, people are going to react to the prohibitions," Hendrickson said. "That's why we did this."