Articles Posted in Severance Agreements

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Daniela Adao

In order to minimize the risk of potential litigation, one common practice by employers is to offer departing employees additional severance benefits in exchange for a waiver of rights and release of liability for all claims the employee may have against the employer. Such claims include those arising under federal or state and local laws protecting employees from employment discrimination.

A waiver of rights and release of claims in a Severance Agreement forms a contract between the employer and the departing employee that limits the employee’s rights to bring suit against the employer for matters arising out of the employment relationship. If an employee signs a Severance Agreement containing a waiver and release of claims and later files a lawsuit against the employer alleging discrimination, the employer will argue that the court should dismiss the case because the employee waived his right to sue by signing the agreement.

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On February 7, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed a suit against CVS in the U.S. District Court for the Northern District of Illinois, Eastern division, regarding employees’ right to file discrimination charges and communicate with the EEOC. This action seeks redress on behalf of CVS employees under Title VII of the Civil Rights Act of 1964, as amended (“Title VII“) to correct a pattern or practice of resistance to the full enjoyment of the rights secured by Title VII in violation of Section 707(a) of Title VII – which authorizes the EEOC to seek immediate relief and does not require the agency’s suit arise from a discrimination charge. CVS is the largest pharmacy group in the United States and provides prescription and other health-related services.

In its complaint, the EEOC specifically alleged that CVS violated Title VII because it conditioned the receipt of severance benefits on FLSA exempt non-store employees’ agreement to a Separation Agreement that deters the filing of charges and interferes with employees’ ability to communicate voluntarily with the EEOC and the Fair Employment Practices Agencies (“FEPAs“). Specifically the Separation Agreement contains a General Release of Claims clause stating that the: “employee hereby releases and forever discharges CVS Caremark Corporation… from any and all causes of actions, lawsuits, proceedings, complaints, charges, debts contracts, judgments, damages, claims, and attorneys’ fees against the Released Parties, whether known or unknown, which Employee has ever had, now has or which the Employee… may have prior to the date of this Agreement… The Released Claims include… any claim of unlawful discrimination of any kind…” Besides, the Separation Agreement includes another clause stating that: “employee agrees not to initiate or file, or cause to be initiated or file, any action, lawsuit, complaint or proceeding asserting any of the Released Claims against any of the Released Parties…”

The EEOC is seeking a permanent injunction enjoining CVS from engaging in a pattern or practice of resistance to the right to file a charge and participate and cooperate with investigation by the EEOC or FEPAs. Furthermore, the EEOC is also requesting that CVS reforms its separation agreement in order to be consistent with Section 707 of Title VII and asks the Court to order CVS to institute and carry out policies, practices and programs that provide for the full exercise of the right to file a charge and participate and cooperate with the EEOC and FEPAs. Finally the EEOC requests that each former CVS employee who signed the disputed Separate Agreement gets a three hundred days period to file a charge of discrimination with the EEOC or any FEPAs if they have any.

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In August 2011, former law firm associate John H. Ray III filed suit against his former employer, Ropes & Gray LLP and thirteen of its partners for racial discrimination and retaliation for filing a complaint with the Equal Employment and Opportunity Commission (“EEOC”). Ray, a Harvard trained lawyer with over twelve years of complex corporate litigation experience, alleges that he was not promoted to partner after eight years of work with the firm because he was African American.

Ray submitted a complaint to the EEOC, claiming that his hours were reduced after he complained to partners and others about a partner’s alleged request that he serve as the “token black associate,” and that he serve as a “black face” during a client meeting. Ray also had complained about an inappropriate racial joke using the word “nigger.” Ray alleged that his billable hours from June to December 2008 were cut to 882.2, compared to 1,111.75 during the same timeframe in 2007 because he complained about being subjected to racial discrimination.

Furthermore, Ray claims that his employer continued to retaliate after he presented his complaint before the EEOC. On December 2008 Ray was informed that he would not become partner, and was given six months to find another employment because the law firm had an “up or out” policy, which established that associates who fail to become partners cannot remain at the firm after a severance period. Ray also alleges that individual partners refused to write recommendation letters, which they had agreed to provide, once they knew that he had filed the complaint. The parties unsuccessfully attempted to resolve the dispute through mediation.

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With the recent economic downturn, millions of American’s find themselves struggling to cope with the realities of losing their employment. The number layoffs in certain areas are unprecedented and terminations are becoming common in all sectors of the job market. Being terminated from a job is stressful, daunting and presents a host of problems previously unconsidered. However, you are not alone and frequently options remain available.

Upon termination, an employee may be presented with a severance package or separation agreement, particularly if the employer is offering severance pay. However, most employees are not aware of their full range of options available to them when presented with an agreement. For instance, employees are entitled to have an attorney review any severance or separation agreement. Furthermore, employees have the right to negotiate the terms of any agreement presented to them and are under no obligation to sign the agreement on the spot. By negotiating the terms of their severance and separation agreements, an employee has the opportunity to maximize her compensation in the event of a termination. An employee must understand that by signing a separation agreement, she may be waiving many important rights.

One such waiver could be a release of claims. A release of claims usually accompanies a severance package wherein an employee relinquishes her right to sue if a severance package is accepted. An individual should carefully review the terms of an agreement with an attorney to consider all available options. You may also want to seek counsel regarding contracts signed upon beginning new employment, such as non-compete agreements, non-solicitation agreements, or contracts regarding confidentiality.