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Are Waivers Under Severance Agreement Enforceable? - Part 2

By Jeffrey S. Klein, Nicholas J. Pappas and Jodi L. Stillman 

In Part I of this two-part series on the enforceability of waivers in severance agreements - published in the summer issue of the Employer Update - we surveyed current case law regarding waivers of ADEA claims. The recent decisions in this highly litigated arena illustrate the importance of employer compliance with the strict requirements of the Older Worker Benefit Protection Act of 1990 (“OWBPA”) to avoid subsequent invalidation of such waivers. In this article, we continue our discussion by analyzing releases of claims under the Family and Medical Leave Act, § 29 U.S.C. 2601 (“FMLA”), and the EEOC’s efforts to protect the rights of discharged employees to file charges of discrimination. The discussion is quite timely, as a recent appellate decision highlights the current circuit split as to whether the U.S. Department of Labor (“DOL”) regulations prohibit both a prospective waiver of rights by a current employee as well as a retroactive release of the right to sue to remedy past FMLA violations. 

The Family and Medical Leave Act (FMLA) 

The statutory language of the FMLA neither explicitly provides for nor precludes the waiver of claims. Although we have not found legislative history speaking directly to the issue of waiver, Congress did direct the Secretary of Labor to issue such regulations as are “necessary to carry out” the statute. 20 U.S.C. § 2654. Under this statutory authority, the Secretary of Labor issued § 825.220(d), which addresses waivers, stating that “[e]mployees cannot waive, nor may employers induce employees to waive, their rights under FMLA” (emphasis added). Nevertheless, there has been a disagreement among the courts as to the meaning of this regulation: should this language be interpreted as prohibiting an employer from obtaining a release of the right to file a claim to remedy a past violation in addition to precluding the prospective waiver of substantive FMLA rights? 

In Faris v. Williams WPC-I, Inc., 332 F.3d 316, 320 (5th Cir. 2003), the Fifth Circuit held that § 825.220(d) precluded the prospective waiver of FMLA substantive rights, such as rights to leaves and reinstatements, but it did not apply to the retrospective settlement of extant causes of action such as in a release accompanying a severance agreement. As such, a departing employee’s waiver of claims and agreement not to sue his employer for past FMLA violations was valid and enforceable. 

The plaintiff in Faris was discharged and in exchange for the equivalent of one month’s salary, she signed a release agreement purporting to waive her rights to, inter alia, “all other claims arising under any other federal state or local law or regulation.” Id. at 318. When the employee subsequently pursued a lawsuit against the company asserting her rights under the FMLA, the employer sought to bar such claims based upon the release agreement. Id.1

According to the Court, several factors supported its interpretation that the phrase “rights under FMLA” in § 825.220(d) extends only to substantive rights and not to post-dispute causes of action. First, the Court noted that the regulation uses the term “employee” rather than “former employee,” and references situations that would only be applicable to one currently employed with a company. Thus, the Court reasoned that the statute did not reach retaliation claims brought by former employees. Id. at 319. Second, the court examined the use throughout the statute of the terms “rights under the law” or “rights under the FMLA.” Id. at 321. The Court concluded that these phrases are used to refer to statutory rights to leave, certain conditions of that leave, and restoration. Id. In contrast, the Court characterized the cause of action as a “protection for FMLA rights,” rather than a substantive “right” itself, and as such, a cause of action fell outside the regulation’s prohibition against waivers. Id. (emphasis in original). The Court viewed its ruling to be bolstered by the fact that waivers of rights under the ADEA are not void as against public policy and are enforceable so long as they satisfy the conditions under the OWBPA. Id. The Court concluded that there was, therefore, no valid public policy objection to waivers under the FMLA. 

The Fourth Circuit, however, arrived at a different conclusion when interpreting the same regulation in Taylor v. Progress Energy, Inc. (Taylor I), 415 F.3d 364, 375 (4th Cir. 2005), vacated, No. 04-1525, slip op. (4th Cir., June 14, 2006). The Court held in Taylor I that all claims arising under the FMLA, including post-dispute claims, cannot be waived or settled through private agreements between an employee and employer. Id. Rather, settlement of FMLA claims require the prior approval of either the DOL or a court. The employee in Taylor I was discharged as part of a reduction in force based upon past poor performance evaluations and a greater than average use of her sick time. Id. at 366-67. The employer rejected the employee’s claim that her health-related absences were FMLA-protected and continued with the elim-ination of her job. She was offered enhanced severance of $12,000 if she signed a release and separation agreement in which the employee released the employer from all claims and waived all rights arising under several specific federal statutes as well as “any other federal … law.” Id.2 

Reversing the district court’s interpretation of § 825.220(d), which had relied upon the narrower interpretation of the regulation in Faris, the Fourth Circuit held that the regulation’s plain language, specifically the word “waive,” prohibits both the retroactive and prospective waiver or release of an employee’s FMLA rights. Id. at 370. Relying upon traditional dictionary definitions, the Court found that there was no inherent quality of the term “waive” that should limit its application to one or the other. Id. Furthermore, the Court held that “an employee who seeks redress for an employer’s FMLA-related discrimination retaliation is ‘otherwise asserting FMLA rights,’ id. § 825.220,” and, therefore, “she is asserting ‘rights under [the] FMLA’ that cannot be waived, id. § 825.220(d).” Id. 

This decision prompted numerous objections from employers and led to a split amongst the circuit courts. But what made this case a bit different was the fact that the employer’s petition rehearing en banc was supported not only by employer organizations such as the U.S. Chamber of Commerce, but also by the DOL, which filed an amicus brief urging that the court had misinterpreted § 825.220(d). The Fourth Circuit granted rehearing to consider the position raised by the DOL, which had not been a party to Taylor I. The DOL asserted that its own “reasonable interpretation of its own regulation - is controlling,” and supports the position taken by the Fifth Circuit in Faris, that § 825.220(d) does not restrict the retrospective settlement of FMLA claims. Rather, the regulation prohibits only the prospective waiver of substantive rights by a current employee. The DOL noted that the regulation had not been interpreted by the DOL as barring private settlements of extant FMLA claims. Brief for the Secretary of Labor as Amicus Curiae in Support of Defendant-Appellee’s Petition for Rehearing En Banc at 5-6. 

Despite the DOL’s efforts to persuade the court as to its interpretation of § 825.220(d), the court on rehearing reinstated its holding in Taylor I that without prior DOL or court approval, § 825.220(d) bars the prospective and retroactive waiver or release of rights under the FMLA, including the right to bring an action or claim for a violation of such Act. Taylor v. Progress Energy Inc. (Taylor II), No. 04-1525, slip op. at *7 (4th Cir. 2007). The Court concluded that there are three categories that compose the “rights under FMLA,” substantive, proscriptive and remedial rights. Id. at *1. The remedial right is an employee’s right to bring a claim against an employer that violates the FMLA. Therefore, by the regulation indicating “rights under FMLA,” it refers to all rights under the FMLA including remedial rights. Id. The Court supported its analysis of this phrase by stating that this use of the word “rights” is consistent with its common usage, citing other case law where “rights’ is referenced in this way and Black’s Law Dictionary’s definition of a “legal right.” Id. at *2. Further, the Court noted that there is nothing in the text of the regulation that permits an interpretation of a distinction between prospective and retrospective waivers. The word “waive” is used by many courts, including the Supreme Court having both prospective and post-dispute or retrospective connotations. Id. at *3. 

The Fourth Circuit rejected the DOL’s position, concluding that the DOL’s interpretation of § 825.220(d) is controlling only if its interpretation is not “plainly erroneous or inconsistent with the regulation.” Taylor, No. 04-1525, slip op. at *1. The Court held that the DOL’s interpretation is not in agreement with the regulation’s text or stated purpose at its time of promulgation. When the regulation was being introduced, the DOL rejected proposed amendments that would have permitted the DOL’s current interpretation. Id. at *5-6. The U.S. Chamber of Commerce, along with several corporations, recommended that the regulation explicitly allow for waivers and releases regarding the settlement of FMLA claims as a part of severance packages. In response, the DOL stated that the proposal was carefully considered but rejected because “prohibitions against employees waiving their rights and employers inducing employees to waiver their rights constitute sound public policy under the FMLA, as is also the case under other labor standards statutes such as the FLSA.” Id. 

The Fourth Circuit further found the Fair Labor Standards Act (“FLSA“) model persuasive in that it prohibits the unsupervised waiver or settlement of claims in order to provide a “minimum floor of protection” for an employee receiving less than the statutory minimum through a settlement agreement. Id. at *4. Because the FMLA’s legislative history provides that the FMLA “fits squarely within the tradition of the labor standards law that … preceded it” such as the FLSA, the court found that the same reasoning for the FLSA’s prohibition of waivers was applicable. Id. The FMLA provides a “minimum floor of protection” for employees by guaranteeing that a minimum amount of family and medical leave will be available. Id. To allow employers to induce settlements that would reduce this protection would go against this legislative purpose. Therefore, § 825.220(d) follows preceding labor standards law, particularly the FLSA model, by prohibiting the waiver of all FMLA rights. 

By reinstating the holding of Taylor I that both prospective and retroactive waivers of all rights under the FMLA are prohibited by § 825.220(d), the Fourth Circuit recreated the rift between the circuit courts that have confronted the issue of interpreting this regulation. Nevertheless, this decision does make authoritatively clear that, at least in the Fourth Circuit, it is not possible for employees to waive or employers to settle FMLA claims without prior approval of a court or the DOL. 

Because of the DOL’s direct involvement in the recent decision of Taylor II, other courts have followed closely the Fourth Circuit’s consideration of this issue. The Fourth Circuit’s opinion is likely to be considered by courts in other circuits. A district court in the Third Circuit, which originally followed the Fourth Circuit’s reasoning in Taylor I vacated its decision a few months before the ruling on Taylor II in order to adopt the position of the Fifth Circuit in Faris because of the position taken by the DOL in its amicus brief to rehear Taylor I. Dougherty v. Teva Pharmaceuticals USA (Dougherty I), No. 05-2336, slip op. (E.D. Pa. 2006), vacated (Dougherty II), No. 05-2336, slip op. (E.D. Pa. 2007). 

The Pennsylvania district court in Dougherty I reviewed the legislative history of the regulation noting that the DOL specifically rejected outside objections to the “no waiver of rights” provisions and clarified that such prohibitions were consistent with the FMLA’s policy objectives. Id. at *20 and fn. 9. By creating an enforcement scheme similar to the FLSA, the FMLA was deemed to involve rights similar to those under the FLSA - which are not limited solely to the prospective waiver of the rights to leave and reinstatement. Id. at *21-*22. Thus, the court held that the plain language of the regulation prohibits an employee from waiving the right to sue for FMLA violations through a severance agreement.3 

In its reconsideration, the Pennsylvania district court vacated its original holding and instead ruled that § 825.220(d) does not prohibit an employee from waiving any claims for past violations of the FMLA. Dougherty, No. 5-2336, slip op. at *1 (E.D. Pa. 2007). Relying on the DOL amicus brief to rehear Taylor I, the Court rejected the reasoning relied upon in its prior opinion and the reasoning relied upon by the Fourth Circuit in Taylor I. The Court noted its previous mistake of conflating the notion of “right” as stated in the regulation with that of a “claim.” Id. at *5. The Court reasoned that these concepts are not interchangeable and therefore, the Court erroneously concluded that an employee may not waive claims for past violations of the FMLA although the statutory language is limited to the term “rights.” Thus, the Pennsylvania district court took a position aligned with the Fifth Circuit in Faris. However, with Taylor II now decided and the DOL’s position that the Pennsylvania court relied upon rejected, it remains to be seen whether other courts in the Third Circuit will follow Dougherty or revert to an alignment with the Fourth Circuit in Taylor I. 

The Right to File a “Charge” with the EEOC 

Although courts have held that certain waivers of claims are valid and enforceable so long as certain conditions are satisfied, they have been far more resistant to permitting waivers of the right to file an EEOC charge.4 A number of courts have held that a waiver of the right to file an EEOC charge5 renders an agreement void as against public policy. See, e.g., EEOC v. Cosmair, Inc., L’Oreal Hair Care Div., 821 F.2d 1085, 1090 (5th Cir. 1987) (“[a]llowing the filing of charges to be obstructed by enforcing a waiver of the right to file a charge could impede EEOC enforcement of the civil rights laws.… The purpose of a charge … is not to seek recovery from the employer but rather to inform the EEOC of possible discrimination”).6 However, courts have reached different conclusions as to whether an employer unlawfully retaliates by withholding severance benefits from employees who refuse to sign agreements that either prohibit them from filing EEOC charges or require them to withdraw a pending EEOC charge. 

In EEOC v. Lockheed Martin Corp., 444 F. Supp. 2d at 414, 416 (D.C. Md. 2006), the EEOC challenged a severance agreement that prohibited the employee from pursuing any “claims or charges” seeking monetary relief or other remedies. The employee was discharged following the company’s merger and declined to sign the proffered severance agreement containing this language. Id. Subsequently, she filed a charge with the EEOC alleging that her dismissal was discriminatory. She then sent a letter to the company asserting her right to receive severance benefits and claimed that the release was retaliatory. Id. The company responded by reiterating its former offer, whereby if the employee signed the agreement as currently written - thereby requiring her to withdraw her filed EEOC claim - she would receive the related benefits. Id. 

The Court first held that conditioning severance benefits on an employee’s withdrawal of an EEOC claim constituted retaliation. Lockheed, 444 F. Supp. 2d at 419 - 20. The Court rejected defendant’s argument that this could not have been a retaliatory action because the employee had been presented with the severance agreement before she had filed her EEOC claim. Id. Instead, the Court characterized the “retaliatory act” not as the actual presentation of the release as the defendant argued, but the denial of severance benefits itself, which occurred after the charge had been filed. Id. at 419. In response to defendant’s other argument that its action was legal because the employee had no entitlement to severance benefits, the Court stated that while defendant “might well have been free to offer severance benefits to no one, [it] cannot provide them only to employees who refrain from participating in protected activity.” Id. at 419. Thus, the Court held that the company’s unlawful interference with the employee’s right to engage in the protected activity of filing an EEOC charge constituted retaliation. Id. at 419 - 20. 

The Court also examined the EEOC’s alternative argument, namely that the severance agreement itself was facially retaliatory. Lockheed, 444 F. Supp. 2d at 420. The Court noted that the question of whether and when a release can be facially retaliatory was one of first impression in the Fourth Circuit. Id. The Court then based its ruling largely on district court’s decision in EEOC v. Sundance Rehabilitation Corp., 328 F. Supp. 2d 826, 838 (N.D. Oh. 2004), rev’d, 466. F.3d 490 (6th Cir. 2006), where the court held “the provision of [a separation agreement] conditioning severance payments on an employee agreeing not to file a charge with the EEOC is facially retaliatory in violation of the ADA, ADEA, EPA, and Title VII.” The Court noted that its case was “indistinguishable” from the Sundance case and therefore held the agreement to be facially retaliatory. Lockheed, 444 F. Supp. 2d at 421. 

Since the Maryland district court confronted this particular issue, the district court’s decision in Sundance upon which it relied was reversed. See EEOC v. Sundance Rehabilitation Corp., 466 F.3d 490 (6th Cir. 2006). The Sixth Circuit Court of Appeals held that defendant’s “mere offer of the Separation Agreement does not amount to retaliation under ADA, ADEA, EPA, or Title VII, either as a facial violation of those statutes’ antiretaliation provision or under the conventional burden-shifting analysis.” Sundance, 466 F.3d at 502. The Court did not rule on the enforceability of the Separation Agreement itself, but noted that the Sixth Circuit has “noted approvingly the Fifth Circuit’s rule that a waiver of the right to file a charge with the EEOC is void as against public policy.” Id. (citing EEOC v. Frank’s Nursery & Crafts, Inc., 177 F.3d 448, 556 (6th Cir. 1999), which held that “an individual may not contract away her right to file a charge with the EEOC”).7 In doing so, the Court emphasized the importance of an employee’s ability to file charges and participate in EEOC proceedings, noting that they are “instrumental to the EEOC’s fulfilling its investigatory and enforcement missions.” Id. at 499. 

Thus, while many courts have held that a waiver of the right to file a charge with the EEOC will be unenforceable, there is still some debate regarding the relationship between this principle and retaliation claims. On one hand, courts may conclude that an employer’s denial of severance benefits to an employee who refuses to waive the right to file an EEOC charge is unlawful retaliation. However, recent cases suggest that courts may not consider the agreement itself facially retaliatory, despite the fact that it may nevertheless be against public policy and, therefore, unenforceable. 

Conclusion 

These recent decisions reveal that a number of courts continue to reach varying conclusions regarding the enforceability of waivers. Employers in jurisdictions outside the Fourth Circuit should consider very carefully whether private settlements of FMLA claims and accompanying releases are valid and effective under governing case law. Such settlements and waivers are no longer enforceable in the Fourth Circuit at least until the Supreme Court or an en banc panel reverses the decision in Taylor II. Employers also should consider carefully with counsel whether their agreements to allow for the waiver of certain employee rights puts them in the worst of all situations: paying for a release of FMLA claims, which may be invalid and provide funds to finance a subsequent litigation.

  1. Although the agreement did not specifically mention the FMLA, the court found that it fell within the catchall phrase “any other federal … law or regulation.” Faris, 332 F.3d at 318.
  2. Although the agreement did not specifically mention the FMLA, the Court noted that it would be included in this catchall phrase. Taylor, 415 F.3d at 367.
  3. The Court, noted, however, that the entire agreement was not necessarily void solely because it attempted to waive FMLA rights. Because the defendant did not address the question of severability, the Court refrained from addressing this issue, particularly because the agreement did not contain any severability provision or savings clause. Dougherty, No. 05-2336, slip op. at *26 (E.D. Pa 2006).
  4. While the EEOC acknowledges that employees can validly waive “claims” under the employment discrimination laws, it has advocated that waivers of “charges” should be treated differently. Enforcement Guidance on Non-Waivable Employee Rights under EEOC Enforced Statutes, EEOC Notice 915.002, at III.C (Apr. 10, 1997), available athttp://www.eeoc.gov/policy/docs/waiver.html.
  5. For clarification, it should be noted that a “charge” is distinguished from a “lawsuit.” A charge filed with the EEOC puts the EEOC on notice of a potential violation. The EEOC then investigates the alleged violation and pursues remedies on behalf of all victims, which may include filing lawsuits for damages or seeking injunctive relief.
  6. Notably, while courts have doubted an individual’s ability to waive the right to file an EEOC charge, courts also have noted that an employee may validly waive the right to recover monetary relief in the employee’s own lawsuit, as well as in a suit brought by the EEOC on the employee’s behalf. See EEOC v. Cosmair, Inc., L’Oreal Hair Care Div., 821 F.2d 1085, 1091 (5th Cir. 1987).
  7. The Court also recognized that while the First Circuit declined to decide whether a charge-filing ban was void as against public policy in a Title VII case, EEOC v. Astra, 94 F.3d 738, 746 (1st Cir. 1996), the First Circuit subsequently cited a case for the proposition that an employee could not waive the right to file a charge with the EEOC. See American Airlines, Inc. v. Cardoza-Rodriguez, 133 F.3d 111, 118 n.7 (1st Cir. 1998) (citing EEOC v. Cosmair, Inc., 821 F.2d 1085, 1090 (5th Cir. 1987)); Sundance, 466 F.3d at 500.

Reprinted with permission from August 3, 2009 edition of the New York Law Journal © 2009 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.

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