In a recent defeat for the EEOC, a federal district court for the Eastern District of Pennsylvania reaffirmed the use of severance agreements as part of a company’s reorganization, or reduction in force, to obtain releases of potential federal claims against the employer, while shedding light on the EEOC’s continued and increased focus on such releases. 

In Romero v. Allstate Insurance Company, a case pending since 1999, Allstate announced that, as part of a new business model, it was reorganizing all of its employee agents into a single independent contractor program. As part of the program, Allstate terminated the employee contracts of more than 6,200 employee agents – approximately 90 percent of whom were over forty years of age – and offered those agents four severance options that included various benefits, including the right to continue to work as an independent contractor. Three of the four severance options were conditioned upon the agents’ agreement to execute a release, or waiver, of any potential claims they may have against Allstate under the Age Discrimination in Employment Act (“ADEA”) and other state and federal anti-discrimination laws. 

The EEOC subsequently brought its own lawsuit against Allstate, alleging that the company unlawfully retaliated against the employee agents, in violation of the ADEA and other federal statutes. The EEOC offered three theories in support of its arguments, all of which the Court rejected in granting summary judgment for Allstate on March 13, 2014. 

First, the EEOC argued that the release required as part of the severance options was facially retaliatory, because it was “reasonably likely to deter or disincentivize persons from engaging in future protected activity.” The Court disagreed, stating that the release of claims in connection with termination of employment is not, in and of itself, retaliatory. Indeed, in enacting the Older Workers Benefit Protection Act of 1990 (“OWBPA”), Congress expressly permitted such releases and defined the requirements necessary for them to be enforceable. Further, the severance options in question were conditioned on the employee’s execution of a release without regard to whether the employee may have had a potential ADEA claim, and the release did not categorize employees according to age or protected activity. 

Second, the EEOC contended that, for those employees who refused to sign the release, Allstate’s refusal to allow them to remain employed was a causally-connected adverse employment action. In other words, the refusal to sign the release constituted a protected activity for which the employee suffered retaliation. The Court found that, “[w]hile creative, the EEOC’s argument again rests on faulty assumptions and misplaced legal theories.” For instance, one of the fundamental requirements for establishing a retaliation claim is demonstrating that the employer knew of the protected activity before taking the adverse employment action. The “mere refusal to sign a release,” however, did not clearly signal to Allstate that the employee intended to challenge some form of discrimination. Moreover, even if the refusal to sign the release could be considered a protected activity, the EEOC failed to show that Allstate’s withholding of severance benefits to which the employees were not otherwise entitled constituted an adverse employment action. 

Third, the EEOC alleged anticipatory, or preemptive, retaliation as to those employees who signed the release, claiming that Allstate “clearly anticipated that agents would engage in protected activity and, as a result, forced agents to sign the Release and waive their rights” in order to continue working as independent contractors. While the court acknowledged the principle of anticipatory retaliation, it stated that the principle has only been applied where the employer “was made aware of or reasonably feared the employee’s specific intent to engage in protected activity and subsequently the employer engaged in the retaliatory activity.” Though Allstate may have feared that the large number of terminations would result in some litigation, nothing in the facts indicated that Allstate had “reasonably specific fears of federally-protected litigation,” such as discrimination lawsuits. Additionally, Allstate did not threaten some form of adverse employment action in the event the employees engaged in protected activity. To the contrary, the employee agents were terminated regardless of whether they signed the release. 

Though the Court concluded that Allstate’s releases did not violate federal anti-retaliation statutes, this case demonstrates the EEOC’s continued focus on practices that allegedly restrict employees' access to the legal system. Indeed, as stated in the EEOC’s 2013-16 Strategic Enforcement Plan, the EEOC has identified as a national priority policies and practices it believes “discourage or prohibit individuals from exercising their rights under employment discrimination statutes,” and recently filed a much-publicized lawsuit against a national drugstore chain on a theory that its releases impermissibly restricted employees’ access to the EEOC. Additionally, though the Court did not find a substantive violation of the federal anti-retaliation statutes, the court’s ruling did not address issues concerning the releases’ validity, such as whether the releases were truly executed knowingly and voluntarily – issues the Court had previously decided would be left to a jury’s determination. Given the EEOC’s continued focus on this area, employers should assess their releases or waivers to ensure they reflect the current state of the law and are best positioned to withstand EEOC challenge.