Decision: The US Circuit Court of Appeals for the Third Circuit, in EEOC v. Allstate Ins. Co., rejected the EEOC’s attempt to invalidate Allstate’s program to terminate its insurance agent employees and reengage them as independent contractors. In 2000, Allstate decided to restructure its relationships with its insurance agents and announced that it was terminating all employee agents. It offered the terminated agents an opportunity to continue selling insurance for Allstate as independent contractors if they signed a release waiving any pending legal claims against the company, including claims regarding their termination. The EEOC filed a civil action seeking a declaratory judgment invalidating the releases on the ground that Allstate illegally retaliated against its employee agents by allowing them to continue their careers with the company only if they waived any discrimination claims. The Third Circuit affirmed the trial court’s grant of summary judgment to Allstate, ruling that “Allstate followed the well-established rule that employers can require terminated employees to waive existing legal claims in order to receive unearned post-termination benefits.” According to the Third Circuit, “[t]he EEOC here fails to articulate any good reason why an employer cannot require a release of discrimination claims by a terminated employee in exchange for a new business relationship with the employer.”
Impact: The Third Circuit’s ruling will make it less risky for companies to convert groups of employees to independent contractor status. The ruling is helpful in treating the provision of a new independent contractor relationship as non-retaliatory, just as any other offer of enhanced post-termination benefits may be conditioned on a waiver of discrimination claims. It is important to remember, however, that while courts generally will find a release of claims in exchange for unearned post-termination benefits not retaliatory, releases must meet other requirements in order to validly waive discrimination and other employment-related claims. Employers should consider having their release agreements reviewed by counsel to ensure compliance with those other requirements.