August 19, 2013
Employers frequently ask departing employees to sign separation agreements releasing the employer from any and all claims that the departing employee may have, in return for severance pay or some other form of consideration. However, the Fourth Circuit Court of Appeals now cautions that even if a separation agreement provides for a release of all claims, this does not prevent a former employee from asserting a claim under the Family and Medical Leave Act (“FMLA”). The court held that former employees cannot waive or release their rights under the FMLA without prior approval by a court or by the U.S. Department of Labor (“DOL”).
Facts of Taylor Case
In Taylor v. Progress Energy, an employee who was discharged for absenteeism and job performance signed and returned a severance agreement which provided her with additional severance benefits in exchange for a release of all claims. The employee subsequently sued the company, alleging that it had violated the FMLA by denying her request for medical leave, terminating her employment because of medical absences and retaliating against her after she complained about the company’s violation of the FMLA. The company asked the court to dismiss the lawsuit because the employee had signed a release of all claims as part of a severance agreement. Although the lower court upheld the release, the Fourth Circuit reversed, holding that a DOL regulation cannot bar the prospective and retrospective waiver or release of the FMLA’s substantive and prescriptive rights.
This ruling places FMLA claims in the same boat as FLSA claims. While claims under Title VII and the ADEA may be waived by private agreements, including employee severance agreements, FLSA and FMLA claims cannot.
Effect Of Decision
Most employers will find little solace in this Fourth Circuit decision. Seeking approval from the DOL or a court, particularly in the context of a reduction in force, is neither pragmatic nor efficient. The decision also presents hurdles to settling FMLA claims before litigation. An employer who agrees to settle a disputed FMLA claim with an employee short of litigation, even if the employee is represented by counsel, runs the risk that such a private settlement is invalid. If an employer enters into a severance agreement containing a full release and waiver of all claims, and an employee takes the additional compensation and still sues the employer for the same FMLA claims, the employer has the defenses of unclean hands, restitution, recoupment and set-off. However, given the most recent ruling in Taylor, the claim would not be barred by release or waiver.
Courts Are Split On Issue
The Taylor case has created a split among the circuits on this issue, with the Fourth Circuit (including Maryland, North Carolina, South Carolina, Virginia and West Virginia) finding releases of FMLA claims unenforceable unless approved by the DOL or a court, while the Fifth Circuit (including Louisiana, Mississippi and Texas) has upheld such releases. In fact, the Fifth Circuit recently held that the DOL regulation prohibits only prospective waivers of substantive FMLA rights. Thus, in the Fifth Circuit, an employer can still ask an employee to waive FMLA rights retrospectively. This split between the courts increases the likelihood that this issue will be litigated in other parts of the country and perhaps eventually be addressed by the United States Supreme Court.
The Bottom Line For Employers
Employers should use caution when utilizing releases. Severance agreements containing releases of FMLA claims may be subsequently challenged and/or found to be unenforceable by certain courts. Employers implementing separation agreements and releases should consider the following:
- Even if a severance agreement and release contains a release of all claims this still may not bar employees’ claims for FMLA or FLSA violations;
- Consider including a severability clause in releases to minimize a finding that the entire release is unenforceable;
- Separately itemize the amount of consideration associated with the release of FMLA claims to aid in possible recoupment, or as set-off in the event that an employee sues for an FMLA claim;
- Consider whether to seek court or DOL approval in appropriate cases.
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