Earlier this month, the Equal Employment Opportunity Commission (EEOC) filed suit against pharmacy giant CVS Caremark, alleging that a severance agreement it provided to three employees unlawfully restricted their rights to file discrimination charges or cooperate with the EEOC. What is most troubling about the suit for employers is that the EEOC complaint takes issue with garden-variety severance terms that most employers likely use in their stock severance and settlement agreements. The suit could mean trouble on the horizon: if the EEOC prevails, employers could be stripped of much of the liability protection severance agreements are designed to offer.

In its complaint, the EEOC specifically took issue with the following provisions:

• A cooperation clause, which requires employees to notify the employer’s general counsel upon receipt of an administrative complaint;
• A non-disparagement clause, which prohibits employees from disparaging the employer’s reputation;
• A confidentiality clause;
• A general release, which in CVS’s agreement included any claims of discrimination;
• A covenant not to sue, which prohibited the employees from filing any lawsuits or other proceedings against CVS – but which explicitly exempted the employees’ right to participate in a state or federal discrimination proceeding; and
• An attorneys’ fees provision.
• These provisions are common among severance agreements and settlement agreements, and are an essential part of the bargain for employers. When an employer discharges or settles a dispute with a former employee, and writes that employee a check or provides other benefits, the employer expects certain things in return: among them, protection from future lawsuits, security of confidential information, and protection of corporate reputation. If the EEOC prevails and these standard severance/settlement provisions are found to violate anti-discrimination laws, employers everywhere could be stripped of important protections.

There may be something employers can do to bolster their own severance agreements until the EEOC suit is decided. The EEOC complaint highlights the fact that the agreement’s provision that the employee may still participate in discrimination proceedings was limited to only one sentence, and did not expressly apply to all of the challenged provisions. Thus, when drafting a severance or settlement agreement, it may be advisable to make it clear that the agreement is not intended to stop an employee from bringing a discrimination proceeding.

Needless to say, we will be following this case with interest, and will update this blog with any developments.