As we reported in February 2014, the U.S. Equal Employment Opportunity Commission sued CVS Pharmacy in federal court in Chicago on a novel theory that the company’s standard separation agreement unlawfully deterred departing employees from later filing discrimination charges or participating in EEOC investigations. CVS’s severance agreement contained a common clause that required departing employees to agree they had not and would not sue the company. But the agreement also went on to state that it was not intended to prevent or interfere with an employee’s “right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws” and that the agreement will not “prohibit employees from cooperating with any such agency in its investigation.”

The severance agreement included several other common provisions:

  • Cooperation – employees agreed to notify CVS if they were contacted by an administrative agency (like the EEOC)
  • Non-disparagement – employees would not make any statements that disparaged the company
  • Non-disclosure clause – employees would not disclose confidential information
  • General release clause – employees released CVS from all possible causes of action related to their employment
  • Attorneys’ fees – several clauses of the agreement provided that if the employees breached the agreement, then they had to pay CVS’s attorney’s fees spent in connection with the breach

In the lawsuit, the EEOC took the position that even though the separation agreement included language specifically permitting employees to participate in EEOC proceedings, the agency alleged the agreement—when considered as a whole—interfered with a departing employee’s right to file discrimination charges and participate in agency investigations. Therefore, according to the EEOC, the company’s severance agreements violated Title VII of the Civil Rights Act of 1964.

Yesterday, as reported by the Chicago Tribune (including commentary from Franczek Radelet partner Jeff Nowak) and other media outlets, the court dismissed the EEOC’s case against CVS and said, albeit in a footnote in the opinion, that the company’s severance agreements did not violate Title VII. The court found it unreasonable to construe the language of the severance agreement as somehow preventing a former employee from filing an EEOC charge. And even if such a reading were possible, it would be unenforceable anyway and, therefore, could not constitute a violation of Title VII. However, the bulk of the court’s reasoning in the CVS case focused on a technical, procedural aspect of EEOC litigation and whether the agency had an obligation to engage in the conciliation process before filing its lawsuit. EEOC conciliation is required under Title VII when the EEOC intends to pursue “pattern and practice” litigation and basically involves pre-suit settlement negotiations with the agency as a last ditch effort to resolve the dispute short of litigation. The court determined that the EEOC had an obligation to engage in conciliation with CVS and because it did not do so, the court dismissed the EEOC’s case.

While certainly the trial court’s decision in the CVS case marks a victory for employers on the severance agreement issue, the EEOC may appeal the decision given that it sought to break new ground with the lawsuit. The court’s decision in this case also does not prevent the EEOC from pursuing litigation against other employers and different judges could easily view this sort of severance agreement language differently. Employers should therefore review the terms of their standard severance agreements and consider revisions in light of the risk of EEOC litigation.