Court offers 3 clauses you’d be wise to include in severance agreements
by Christian Schappel January 6, 2016
The 7th Circuit Court of Appeals just threw out an EEOC lawsuit against CVS that attacked some pretty common language found in severance agreements. But in doing so, it applauded three clauses CVS used.
We’ll get to those clauses in a second. But first, it’s important to know why the EEOC took issue with CVS’ severance agreements.
The EEOC sued CVS, claiming the pharmacy chain’s severance agreements with employees contained a general release of claims and a covenant not to sue that illegally restricted worker’s rights to file charges or cooperate with the agency.
The lawsuit was fairly troubling to employers because the language the EEOC was attacking is fairly boilerplate — at least as far as severance agreements are concerned.
Here are two clauses of CVS’ agreements the EEOC was challenging (they should sound familiar):
General Release of Claims. “Employee hereby releases and forever discharges CVS Caremark Corporation … from any and all causes of action, lawsuits, proceedings, complaints, charges, debts contracts, judgments, damages, claims and attorneys fees against the Released Parties, whether known or unknown, which Employee has ever had, now has or which the Employee … may have prior to the date [of] this Agreement … The Released Claims include … any claim of unlawful discrimination of any kind …”
No Pending Actions; Covenant Not to Sue. “Employee represents that as of the date Employee signs this Agreement, Employee has not filed or initiated, or caused to be filed, or initiated, any complaint, claim, action or lawsuit of any kind against any of the Related parties in any federal, state, or local court, or agency. Employee agrees not to initiate or file, or cause to be initiated or file, any action, lawsuit, complaint or proceeding asserting any of the Released Claims against any of the Released Parties … “
CVS fought to get the lawsuit thrown out on two grounds:
- The EEOC failed to properly attempt conciliationprior to filing the lawsuit.
- Its severance agreements contained a carve-out that stipulated employees could participate in legal proceedings with federal, state and local agencies.
Here is that carve-out, which was attached to the Covenant Not to Sue section:
“[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”
The EEOC took issue with this carve-out, saying it didn’t do enough to let employees know they weren’t waiving these rights — because it was not repeated throughout the agreement and because a large chunk of the agreement, including the proceeding clauses, were in “fine print.”
As for the failure to attempt conciliation, the EEOC claimed that for a number of technical reasons, conciliation wasn’t required for this type of lawsuit.
What the court said
The court didn’t see eye-to-eye with the EEOC on the conciliation issue and dismissed the lawsuit because the agency didn’t first attempt conciliation.
But, in the footnotes of its ruling, the court expounded on the merits of the EEOC’s lawsuit and found the suit wanting.
It said the EEOC’s claims would fail because the agreement “makes it clear that it does not obstruct the signatory’s ability to file a charge with the EEOC.”
Elements to include
The court then went on to praise CVS for including three elements in its severance agreements:
- The carve-out mentioned above, which the court said made employees aware that they could still file a charge with the EEOC or participate in EEOC proceedings/investigations.
- A clause advising employees “to consult with an attorney” prior to signing the agreement.
- A requirement that the employee attest to “fully understanding and voluntarily accepting” the agreement’s terms.