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A Look At Employment Practices and Employee Severance Packages


A Look At Employment Practices and Employee Severance PackagesReview Severance Agreements for Possible Discriminatory Practices

Severance agreements are typically viewed as a win-win for both employer and employee when parting ways. They include enhanced financial benefits in exchange for a broad release of claims and promises not to sue. Most recently, however, severance agreements have come under scrutiny. In February, for example, Equal Employment Opportunity Commission (EEOC) hit CVS Pharmacy with a lawsuit, citing that its severance agreement violated the employees’ right to file charges with the federal agency as well as state Fair Employment Practices Agencies (FEPA).  The EEOC alleges that a separation agreement tendered by CVS to departing employees was “overly broad, misleading and unenforceable,” and “interfered with employees’ rights to file charges” with the agency and the FEPA. More than 650 employees signed the severance agreement in 2012, according to the EEOC’s complaint.

The EEOC cited several problem areas in the CVS severance agreement, which include:

  • Cooperation: Requiring an employee to notify CVS general counsel upon receipt of, among other things, an administrative compliant;
  • Non-Disparagement: Prohibiting an employee from making disparaging statements against CVS or its officers, directors or employees;
  • Non-Disclosure of Confidential Information: Prohibiting employees from disclosing personnel information;
  • General Release of Claims: Requiring an employee to agree to broad release, including discrimination claims.
  • No Pending Claims; Covenant Not to Sue: Prohibiting an employee from filing action against CVS, and explicitly carved out the employee’s right to participate in, or cooperate with, state or federal discrimination proceeding or investigation.
  • Attorney’s Fees Provisions: Requiring an employee to agree to reimburse CVS for attorney’s fees included by employee’s breach of agreement.

Among other things, the EEOC seeks injunctive relief barring CVS from engaging in a pattern or practice of resistance to employees’ rights to file charges, participate and cooperate with the EEOC and state FEPA, including enjoining the company from using the severance agreement at issue. The agency also wants the court to give any former employee subject to the severance agreement, or any substantially equivalent release, a 300-day window within which to file a discrimination charge with the EEOC or a FEPA.

While the court may ultimately decline to grant the EEOC any or all of the relief it seeks, in light of this case, all employers should review their standard separation and severance agreements.  Employers need to ensure that agreements unequivocally preserve the employee’s right to communicate with state and federal agencies, and do not prohibit or actively discourage an employee from pursuing federally protected rights to file a charge or participate in any manner with EEOC. Additionally, it’s recommended that there is a provision within severance agreements that specifically states that nothing within the severance agreement interferes with these non-waivable rights of employees and outlines the rights to employees to take action with EEOC.

As specialists in providing Employment Practices Liability Insurance (EPLI), Axis Insurance Services will keep you updated on the developments in the EEOC case against CVS. We provide businesses with EPLI coverage to protect against employee-related issues such as allegations of discrimination, sexual harassment, and wrongful termination, among others. Give us a call at (877) 787-5258 to find out how we can help protect your business with sound and robust insurance solutions.

Sources: EEOC, MONDAQ, Corporate Counsel, Society for Human Resource Management

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Blogged on: May 21, 2014 by Mike Smith
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