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EEOC sues CVS for overbroad severance agreements March 21, 2014

fine_print-2The EEOC [1] has launched a massive lawsuit against CVS Caremark, the nation’s second largest drugstore chain, for requiring employees to sign overbroad, misleading severance agreements that interfere with the rights to file charges of discrimination and participate in proceedings to enforce the federal anti-discrimination laws.

The terms of a standard severance agreement are filled with legalese such as “general release of claims,” “non-disparagement” 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 CVS’s severance agreement. And the lawsuit is shaping up to be a test case on a widely used employment practice. Such lawsuits often accompany large financial funding [2] from the help of third parties.

The EEOC”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. 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.”

Because the EEOC brought the suit even though CVS attempted to carve-out employees’ rights under discrimination laws, the case is being closely watched.

The suit raised basic questions such as how can a former employee participate in EEOC proceedings the employer demanded strict confidentiality and non-disparagement? The EEOC says the CVS 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. The EEOC highlighted its objections to several aspects of the agreement, including these:

  1. The “cooperation” paragraph would require employees to notify CVS’ general counsel promptly by telephone and in writing if they were to receive an inquiry from an investigator with regard to an administrative proceeding related to the corporation.
  2. In the “general release of claims” section, the company includes language that states employees release “any claim of unlawful discrimination of any kind.”
  3. The “covenant not to sue” paragraph states that an employee agrees “not to initiate or file, or cause to be initiated or file, any action, lawsuit, complaint or proceeding” asserting any of the claims released in the agreement. If an employee violates the provision, the individual has to reimburse CVS for any legal fees.
“If you have one pound of rights buried in 50 pounds of prohibitions, people are going to react to the prohibitions,” EEOC attorney John Hendrickson [3] said. “That’s why we did this.”

The EEOC seeks to permanently stop CVS from using the separation agreement.  In addition, the EEOC asked the court to order CVS to take other corrective actions, such as informing employees that they retain the right to file a discrimination charge with the EEOC and cooperate with the agency without facing retaliation.

“One of our enforcement priorities is preserving access to the legal system,” Hendrickson said. “This agreement stands between people who signed these and any complaint they want to make. We want to take that barrier down and keep it down.”

[1] http://www.eeoc.gov/

[2] http://lawstreetcapital.com/settlement-funding/pre-settlement/

[3] http://www.eeoc.gov/eeoc/meetings/6-8-11/hendrickson_bio.cfm

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