Producers can use CVS case as guidance when engaging in workforce reductions

Feb. 10, 2015
Unconventional production companies contemplating workforce reductions could gain guidance on how to avoid legal hazards from a case involving a pharmacy.

Robert S. Nichols
Rebecca L. Baker

Bracewell & Giuliani LLP

Unconventional production companies contemplating workforce reductions could gain guidance on how to avoid legal hazards from a case involving a pharmacy.

While oil-related enterprises generally will be impacted by prolonged low prices, shale producers are likely to be particularly hard hit given their higher costs.

Some workforce reductions already have begun, and, if oil prices remain stagnant, many shale businesses, along with their service and product providers, will be compelled to eliminate jobs.

This downturn comes at a time when federal agencies, such as the Equal Employment Opportunity Commission (EEOC), are controlled by appointees who tend to be zealously protective of employee rights as opposed to business rights.

To avoid inadvertently creating costs while in the process of implementing cost-cutting measures, employers should examine the compliance of their workforce reduction practices with current employment laws.

The EEOC's assault

The EEOC, as part of its Strategic Enforcement Plan, recently has been especially aggressive in challenging employment separations as non-compliant with discrimination laws.

One common aspect of workforce reductions receiving EEOC scrutiny is the manner in which separation agreements are drafted. In an effort to avoid wrongful discharge and discrimination litigation, many employers offer severance pay in exchange for a release of claims, pursuant to a severance plan or on an ad hoc basis.

In at least three recent lawsuits-most notably its 2014 lawsuit against CVS pharmacy-the EEOC has begun to challenge common provisions often included in form separation agreements. While the CVS suit was dismissed late in 2014 over a procedural issue unrelated to the substance of the lawsuit, the case highlights the agency's concerns with certain provisions, previously assumed to be benign, regularly included in separation agreements.

For instance, the EEOC objected to CVS's "Non-Disparagement" clause, which prohibited the individual from making "any statements that disparage the business or reputation of [CVS]." The agency contended this provision effectively prevented communication with "the EEOC about wrongdoing by company officials."

The EEOC also challenged the "Non-Disclosure" provision in the CVS agreement, pointing out that the clause prevented employees from disclosing information about "wages and benefit structures," "duties of [CVS] employees," "information pertaining to ...charges," "information that could affect [CVS's] business," and "personnel." The EEOC complained that these confidentiality requirements are "so broad that they cover essentially all information that could ever be relevant to an EEOC investigation."

Additionally, the agency objected to a "covenant not to sue" provision and broad release language based on the notion that employees might believe they are prevented from filing an EEOC charge. The EEOC's attack on the broad release language is especially disconcerting because a comprehensive release of claims is the key to any separation agreement.

The EEOC also challenged CVS's "Cooperation" clause, which compelled the individual to "promptly notify the Company's General Counsel by telephone and in writing" if the employee received any inquiry or request "relating to any ... administrative investigation."

While CVS's cooperation clause is unusually aggressive, the other provisions in the CVS agreement challenged by the EEOC are typical of what many companies utilize.

Notably, in addition to attacking these specific provisions of the agreement, the EEOC also objected to the length and format of the release-pointing out the document was five pages long and single-spaced. The EEOC suggested, as a result, the agreement was unacceptably difficult for employees to comprehend.

Despite the dismissal of the CVS suit based on a procedural argument, agency leadership has made it clear that its challenges to separation agreements will continue. Accordingly, employers are well advised to take the following steps related to their form agreements:

• Include a disclaimer clearly stating that no provision of the agreement is intended to prevent the employee from filing a charge with the EEOC or any other agency or otherwise exercising legal rights that the employee cannot waive. At the same time, that disclaimer should inform the employee that he is waiving his right to any monetary or other personal relief arising out of a charge.

• Keep the agreement short, utilizing font and spacing that are easy to read. Avoid the use of legalese. Simplicity is especially important for a shale business or other enterprise with field employees who may have limited education.

• Be cautious about including aggressive post-employment covenants like those that (i) arguably limit or regulate the former employee's contact with government agencies, (ii) broadly prohibit the individual from discussing matters related to his former employer, or (iii) prohibit, in an unqualified fashion, any negative comments about the former employer.

Employers must heed ADEA requirements

To obtain a release of federal age discrimination claims, an employer must comply with unique requirements under the Age Discrimination in Employment Act (ADEA).

Even in the case of a single employee termination, often referred to as a "one-off," the ADEA imposes requirements for a release of age claims. Those requirements include informing the employee in writing that the waiver includes claims under that statute, advising the employee in writing to consult with an attorney, and confirming in writing the employee has 21 days to review the agreement and 7 days to revoke it.

In the case of the termination of two or more employees, the requirements for an age waiver become more complicated.

First, the period of time provided to review the release must be 45 days instead of 21. Second, at the time the employees are given the release, the employer must also provide specific written disclosures about the termination program, including a description of the "decisional unit"-which is "the portion of the employer's organizational structure from which the employer chose the persons who would be offered consideration for the signing of a waiver."

Those disclosures also must include a description of any eligibility factors and time limits for the program, as well as a listing of the job titles and ages of all individuals in the same job classification or organizational unit who are and are not eligible or selected for the termination program.

The EEOC regulations, as well as court decisions, have provided only limited guidance as to how these disclosures are to be composed, and troubling ambiguities and complexities often arise. Employers are strongly advised to rely on an experienced labor attorney to draft the ADEA disclosures because the view of the courts is that an error in the disclosures may result in the release of age claims being unenforceable, which can be particularly costly in the context of a large-scale workforce reduction.

The WARN Act

An employer with more than 100 total employees must analyze whether terminations will trigger the notification requirements of the Worker Adjustment and Retraining Notification (WARN) Act.

That law requires employers provide written notice to employees and certain government officials at least 60 calendar days in advance of a "plant closing" or "mass layoff."

Generally stated, a "plant closing" occurs when the employer closes a "facility" or discontinues an "operating unit" permanently or temporarily, affecting at least 50 employees, at a "single site of employment." A plant closing also occurs when the employer closes an operating unit that has fewer than 50 employees but that closing also involves the layoff of enough other employees to make the total number of layoffs 50 or more at a "single site of employment."

A "mass layoff" occurs when there are layoffs of more than 500 workers at a "single site of employment" or layoffs of 50 to 499 employees, and these layoffs constitute 33% of the employer's total active workforce at the "single site of employment." The actual rules for determining when a "plant closing" or "mass layoff" occurs are complex.

Particularly with unconventional operations that have decentralized field operations, questions as to what constitutes a "facility," "operating unit" or "single site of employment" can become difficult legal issues.

Also, importantly, some states, like California, New York, and Illinois have stricter state WARN-like notification requirements, and other states, such as Alabama and Ohio, have additional requirements that are not necessarily parallel to WARN but that govern group workforce reductions.

For companies looking toward making workforce reductions, the key takeaway for shale plays and other energy-related enterprises is that careful advance planning and consultation with experienced labor counsel are critical to avoiding substantial legal liability.

The authors

Robert "Bob" Nichols, a partner with Bracewell & Giuliani LLP, has devoted the last 25 years of his practice exclusively to representing employers in labor and employment matters. He has been board certified in Labor and Employment Law by the Texas Board of Legal Specialization for 21 years. Nichols advises businesses on a wide range of employment and occupational safety matters. Additionally, he represents employers in federal and state courts and in investigations and proceedings of the Occupational Safety and Health Administration, EEOC, National Labor Relations Board, Wage and Hour Division of the US Department of Labor, and various other federal, state and local employment-related agencies. Nichols also devotes a substantial part of his practice to advising businesses and transactional attorneys concerning labor and employment issues associated with the sale and merger of businesses.

Rebecca Baker has been an attorney with Bracewell & Giuliani LLP for more than 8 years. She is board certified in labor and employment law by the Texas Board of Legal Specialization. Baker counsels and represents employers in all areas of labor and employment law. She advises employers involved in federal and state court litigation, as well as administrative claims before agencies such as the EEOC, the Texas Workforce Commission, and the Department of Labor. She has extensive experience in reductions-in-force and matters related to employment separations, including under the Worker Adjustment and Retraining Notification Act and the Older Workers Benefit Protection Act. Baker's experience also includes matters involving discrimination, harassment, retaliation, wage and hour, non-competition, breach of contract, and whistleblower violations under such laws as Title VII, the Americans with Disabilities Act, the ADEA, the Fair Labor Standards Act, the Family and Medical Leave Act, the Sarbanes-Oxley and Dodd-Frank Acts, and various other federal and state laws. In addition, she advises clients regarding labor and employment matters in the context of business sales and acquisitions.