EEOC Sues CVS Pharmacy Claiming Its Separation Agreements Are Unenforceable

7.18.14

By John G. Sestak, Jr.

U.S. Equal Employment Opportunity Commission (EEOC) commenced litigation against CVS Pharmacy, Inc. alleging that its separation agreements unlawfully prevented employees from communicating with the agency (the EEOC) or filing discrimination claims.  Legal commentators have indicated that the form of separation agreement used by CVS is fairly standard for employers throughout the country.  However, the EEOC contends that the separation agreements interfere with the employee’s right to file charges with the EEOC and other agencies in violation of Title VII of the Civil Rights Act.

The separation agreements are settlement agreements with employees who are terminated.  In exchange for the employee signing a settlement agreement in which he or she waives claims, agrees not to sue, and releases the employer, the employer agrees to pay severance pay (and in many cases other benefits or compensation) which it is not legally obligated to pay.

The CVS separation agreement required the employees to notify the company if the employee became part of an administrative investigation and required that the employee promise not to disparage the company or its officers, directors or employees.  It also contained other restrictions, including a non-disclosure provision, release of claims, and a covenant not to sue.  Obviously payment of settlement compensation normally includes such releases and is designed to prevent lawsuits in exchange for the compensation and settlement payment.

The EEOC says that the separation agreement contained only one provision saying that nothing in the agreement was meant to interfere with the employee’s right to participate in any legal proceeding or cooperate with an agency’s investigation.  The EEOC said this provision is far too restrictive and constitutes a resistance to the full enjoyment of rights secured by Title VII because it interfered with the employee’s right to file a charge with the EEOC or any other employment agency and participate and cooperate with an investigation in to the employer’s practices.  The EEOC is seeking an injunction against CVS and CVS is vigorously defending the case.

The question is whether the EEOC is overstepping with the intent of virtually nullifying the essential purpose of the settlement agreement, which is to make a settlement payment in exchange for the employee agreeing to not take action against the employer.  It has long been held that such settlement agreements cannot prevent the employee from participating in EEOC or other agency investigations.  The case is expected to be litigated through all appeals.