The government has taken issue with a severance agreement that it considers too restrictive, in a suit that is shaping up to be a test case on a widely used employment practice.
The terms of a standard severance agreement are filled with legalese such as “general release of claims,” “nondisparagement” and “covenant not to sue.” Employers rely on these contracts to end the threat of lawsuits.
But this month in Chicago federal court, the U.S. Equal Employment Opportunity Commission (EEOC) sued CVS Caremark, the nation’s second-largest drugstore chain, for having an “overly broad” and “misleading” severance contract, also known as a separation or termination agreement.
The federal agency’s interest in a private contract stems from its extensive mandate to enforce laws against workplace bias. This includes targeting policies and practices that discourage people from exercising their rights under job discrimination laws or that impede the agency’s enforcement efforts.
One of those rights is that employees who sign separation agreements can still file a complaint with the EEOC if they believe they were discriminated against during their employment or wrongfully terminated. In addition, a severance pact can’t prohibit a discharged employee from participating in an EEOC investigation.
The EEOC claims that CVS interferes with a worker’s rights to bring charges with the agency. But CVS said the EEOC’s suit is “unwarranted” because its severance agreement includes language “to state that it does not prohibit employees from doing so.”
“We are disappointed that the EEOC has taken this aggressive action,” said the company.