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Seventh Circuit finds severance agreement enforcable and valid in case against CVS

By Hoang Tran | Jan 19, 2016

In a victory for employers, the Equal Employment Opportunity Commission (EEOC) lost its case against CVS Pharmacy when the Seventh Circuit ruled last month that an employment severance agreement, which the plaintiff signed, is both valid and enforceable in EEOC v. CVS.

“The EEOC made several allegations arising from a typical severance agreement,” said Emily J. Perkins, an attorney who practices in the area of employment and labor laws for Heyl Royster. “The EEOC claimed that the severance agreement, which the employee agreed to and signed, interfered with employees' right to file discrimination charges and/or communicate and cooperate with the EEOC despite the benefits the employee received in return.”

EEOC challenged that the severance agreement signed by terminated store manager Tonia Ramos interfered with her rights to file claims with, participate in, and communicate with the EEOC. Ramos claimed that she was fired due to her race and sex.

CVS requested the EEOC and Ramos engage in conciliation, but the EEOC refused and brought the claim to federal court

The U.S. District Court for the Northern District of Illinois ruled in favor of CVS and the Seventh Circuit upheld that ruling.

“The EEOC challenged several provisions—most notably the general release of claims provision—which is commonly included in standard severance agreements,” said Perkins. “The EEOC also claimed that the employer’s standard severance agreement, a five page single-spaced document, could be too long and complicated to be understood by the outgoing employee asked to sign the agreement.

"This Seventh Circuit upheld the lower court’s ruling, concluding that the severance agreement was valid and enforceable, despite the broad provisions contained within the agreement. This ruling is important because the severance agreement in question conforms with standard industry practice and furthers Title VII’s goal of promoting voluntary resolution of employment-related claims.”

Ramos filed the claims with the EEOC roughly one month after signing the CVS severance agreement, which included a clause that she could not sue the company. CVS, in return, agreed to provide Ramos with severance pay, subsidized health insurance, and outplacement assistance.

The Seventh Circuit stated that the EEOC failed to state a claim against CVS and ruled that conditioning benefits or promises not to file charges with the EEOC does not violate Title VII.

Perkins believes that the ruling is beneficial to both employers and employees as this gives them a steady and fair ground on which to negotiate.

“Employers are now assured that general release provisions included within severance agreements are valid and enforceable. Both the employer and employee may continue to enter into agreements at the end of the employment relationship in which they each obtain something of value— typically compensation in exchange for the agreement to release all claims,” said Perkins. “I would consider this case a big win for employers and employees alike. The court essentially reaffirmed the parties’ right to contract privately in order to resolve their employment differences.”

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