The EEOC may make severances go away!

by Michael Haberman on March 4, 2014 · 0 comments


 

A potential decision in an EEOC lawsuit could endanger the practice of severances.

A potential decision in an EEOC lawsuit could endanger the practice of severances.

A recent lawsuit filed by the EEOC against CVS has employment lawyers and knowledgeable HR people in a bit of a tizzy. The EEOC does not like CVS’ severance agreement and they want it radically changed. Let me explain.

Severances

First you need to understand that severances are not required under law. No company is obligate to provide any employee a severance package. They are generally used to accomplish two things. First is to take the “pain” out of having to let the employee go. Generally this is used when you are letting employees go, especially long-term employees, for non-performance reasons. It promotes good will and hopefully sends those employees off with a bit more positive view of the company.

The second reason severance is offered is in situations where the company is letting an employee or a group of employees go and they want to help prevent those employees from suing the company for discrimination or some other actionable reason. The severance is used an inducement to sign the agreement. If the employee wants the severance they need to sign the agreement. No signee, no checkee. The requirement for getting someone to sign such a waiver is that they need to be offered “consideration” or something of value, aka severance. There are details that have to be attended to in this process, such as dealing with workers over 40 being asked to waive their rights under the ADEA (age discrimination) or if there is a mass layoff. But that is not what the EEOC was upset with in the CVS case.

The point of contention

According to Beth Zoller of XpertHR, according to the EEOC “… CVS unlawfully violated employees’ rights by conditioning the receipt of severance benefits on an ‘overly broad, misleading and unenforceable’ separation agreement that could deter employees from filing discrimination charges or voluntarily communicating with the EEOC.” According to Jon Hyman, attorney and author of the Ohio Employers Law Blog, “The provisions with which the EEOC has taken issue — a general release, a covenant not to sue, cooperation, confidentiality, non-disparagement, and the payment of attorneys’ fees upon a breach — are crucial for employers.” Jon says that you would be hard pressed to find such an agreement without these provisions, indeed the one I have clients use, contains just such language.

Generally these agreements do not prohibit employees from pursuing lawsuits against employers, in fact that is illegal to do, but by having such an agreement it does reduce the number of potential suits that may result from a termination. Jon points out that the CVS agreement did not contain any such language and in fact expressly stated that employees had that right.

Apparently what the EEOC disliked was that the protection was not specific enough, was buried in the multiple pages of the agreement and did not expressly reference every law that the company was trying to get a release from. Jon suggests a remedy for that problem that you can find here.

The outcome?

The future of this case bears watching according to by Hymn and Zoller. The decision may certainly alter how severance agreements are currently worded. Potentially the decision may radically alter the value of such agreements. Companies may decide it the waiver really offers no value in protecting the company then there will be no reason to offer a severance. The unintended consequence of the EEOC action may be the elimination of severance entirely.


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