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August 29, 2014

Are Your Separation Agreements Unlawful?

Summary:

An EEOC suit challenges companies' right to use agreements to keep employers from filing charges or cooperating with investigations.

Photo Courtesy of ssalonso

Employers entering into separation agreements (also called “settlement” or “severance” agreements) has become commonplace. By way of these agreements, employers generally provide a monetary benefit to outgoing employees, or employees who have asserted claims. In exchange, the employees waive certain legal rights to which they otherwise may have been entitled.

Some of the most common provisions that bind employees are:

  • confidentiality (prohibiting the employee from disclosing the amount of severance money received, and other terms)
  • non-disparagement (prohibiting the employee from making unfavorable comments about the employer)
  • releases (the employee forever agrees not to file claims against the employer)
  • cooperation (the employee agrees to notify the employer if she receives information about an investigation or claim against the employer).

In light of a recent complaint filed by the U.S. Equal Employment Opportunity Commission (EEOC), the legality and enforceability of existing signed separation agreements could be subject to challenge.

The EEOC recently filed a lawsuit against CVS, a national provider of prescriptions and health-related services, in a federal district court. The EEOC alleges that CVS entered into more than 650 unlawful separation agreements with employees. Specifically, the EEOC alleges that the separation agreements, which contained the common provisions described above, unlawfully made severance pay depend on:

  • prohibiting the employees from filing charges at the EEOC
  • interfering with the employees’ ability to cooperate with investigations by the EEOC and other federal agencies.

According to the EEOC’s complaint, the separation agreements violate Title VII of the Civil Rights Act of 1964.

The lawsuit is pending, and the federal district court has not issued any ruling on the merits. Nevertheless, in light of the EEOC’s complaint, employers should be mindful of existing and future separation agreements and should review such agreements with their employment counsel to ensure that they comply with the law.

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About the Author

Laura Zaroski is the vice president of management and employment practices liability at Socius Insurance Services. As an attorney with expertise in employment practices liability insurance, in addition to her role as a producer, Zaroski acts as a resource with respect to Socius’ employment practices liability book of business.

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