The Hidden Dangers of Severance Agreements

When an employee's term of service is ending, whether voluntarily or involuntarily, many employers offer those employees severance agreements in exchange for some form of compensation. Generally speaking, a severance agreement is a contract between the employer and the departing employee, where the employee receives money for agreeing to waive his or her rights to claims against the employer. This is much like the waiver and release language often included in settlement agreements. Not all severance agreements require release or waiver of claims, but instead are meant to be a financial gift in order to hold the employee over until he or she is able to find a new job.

The rationale behind the severance agreement that requires a waiver and release is usually to ensure the relationship is completely and forever severed, with each party moving on with no intention to deal with each other in the future. The most basic purpose, though, is to protect the employer from future lawsuits. However, based on the recent lawsuits filed by the EEOC regarding severance agreements, employers should beware of "overly broad" severance agreements.

The EEOC's stand on overly broad severance agreements

The Equal Employment Opportunity Commission is a federal law enforcement agency that regulates and imposes laws against workplace discrimination and illegal employment actions. Recently, the EEOC has engaged in several lawsuits addressing the inappropriateness of broad severance agreements that severely restrict employees' rights to file discrimination charges and to cooperate with the EEOC.

In one such case, EEOC v. CVS Pharmacy, Inc., filed in Illinois district court, the EEOC challenged the severance agreements used by CVS which "conditioned the receipt of severance benefits for certain employees on an overly broad severance agreement set forth in five pages of small print." Some of the language in the severance agreement which the EEOC objected to included:

  • A cooperation clause, which required the employees to notify CVS's general counsel upon receipt of an administrative complaint;
  • A non-disparagement clause, which prohibited employees from making any disparaging statements against CVS;
  • A confidentiality clause, which prohibited the employee from disclosing any personnel information;
  • A general release, which included any claims of discrimination; and
  • A covenant not to sue, which prohibited the employee from filing any complaints, actions, lawsuits, or proceedings against CVS

Why was this agreement objectionable?

According to the EEOC, charges of discrimination and communication between the EEOC and employees is critical to the EEOC's ability to enforce anti-discrimination laws. This communication is how the EEOC is informed of an employer's practices, which may be in violation of the anti-discrimination laws the EEOC is meant to enforce. By imposing these overly broad severance agreements, the employers are attempting to limit that communication and effectively buy an employee's silence about potential violations. That is illegal.

If you believe you have questions regarding a severance agreement offered by your employer or feel you may be a victim of workplace discrimination, please contact our firm either online or by calling us at (205) 265-1880.

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