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How Should Employers Draft Severance Agreements Post-CVS?

    Client Alerts
  • October 31, 2014

Last month, a federal judge in Illinois dismissed a lawsuit brought by the Equal Employment Opportunity Commission contending that a standard release agreement used by the CVS drugstore chain violated the anti-retaliation provisions of Title VII. Specifically, the EEOC claimed that the release was too complex, and that an ordinary employee reading its terms could conclude that it prohibited them from making administrative complaints of workplace discrimination to the EEOC. The EEOC made this claim despite a clear carve-out in the release that explicitly advised employees of their continuing rights to file such charges.

As it turns out, the judge dismissed the lawsuit not on substantive grounds, but instead based on a procedural point involving the EEOC’s lack of conciliation efforts before filing the suit. This leaves open the agency’s ability not only to appeal the decision, but to bring an entirely new challenge to the release based on the same legal claims. Given this regulatory environment, how should employers seeking to use releases in standard employee separation situations react? As an initial matter, this litigation should not discourage employers from requiring releases when they pay meaningful severance or other post-employment benefits to employees. However, employers can reduce the likelihood of legal challenges to their releases by following a few general guidelines.

First, releases intended for use with employees who do not have an active dispute with the company, and are not represented by counsel, should be drafted using plain language wherever possible. In too many cases, employers use form releases prepared for resolving active litigation. While these forms may cover every conceivable contingency, their length and complexity leave the employer open to claims that they were drafted to mislead employees. Age discrimination laws specifically state that releases of such claims can be invalidated if they are not drafted in a manner that can be understood by an average employee.

Second, the release should directly state that its execution does not prohibit employees from filing EEOC charges. The release can remind employees that they cannot personally sue the employer or receive financial awards as a result of such charges, but it should not read as a possible prohibition against making a complaint to any government agency.

In many cases, a short (meaning two pages or less) release, prepared as a letter and not as formal legal document, provides the employer with ample protection against later claims, while removing concerns that the employee cannot understand its meaning. This alternative has the added benefit of not forcing employees to seek legal counsel merely because they do not understand the legalese contained in the proposed release. More complex language and protections may be appropriate when resolving litigation with a represented party, but for normal separations from employment, simpler may be considerably better.