Settlement agreements and general releases long have been an important tool for employers to protect themselves against disgruntled employees who settle one claim but then look for other avenues to sue their former employer. However, certain types of employment claims simply cannot be waived by employees without prior approval of the Department of Labor (“DOL”) or a court. Any release provision purporting to waive such claims is invalid. A federal appellate court recently added to this category of “unwaivable” employment claims—those under the Family Medical Leave Act of 1993 (“FMLA”).
In Taylor v. Progress Energy, Inc., 493 F.3d 454 (4th Cir. 2007), Barbara Taylor, an employee of a Progress Energy subsidiary, missed several days of work in 2000 to undergo medical testing to determine the cause of extreme pain and swelling in Taylor’s right leg. Her employer refused Taylor’s request to designate this time as FMLA-qualifying. In 2001, Taylor received a lower than average pay raise and a poor performance rating due to her attendance problems, including her health-related absences. Later that year, Taylor was terminated pursuant to a reduction-in-force in which performance was among the selection criteria. As part of her termination, Taylor received a $12,000 severance package in exchange for a general release of all claims. Taylor later sued Progress Energy, claiming it had violated the FMLA by, among other things, terminating her because of her medical absences and her complaints about the company’s supposed FMLA violations. Taylor claimed that her release was invalid based on an FMLA regulation providing that “Employees cannot waive, nor may employers induce employees to waive, their rights under the FMLA.” 29 C.F.R. §825.220(d). Taylor did not return the $12,000 when she filed this action.
The trial court granted summary judgment to Progress Energy, holding that the release was valid because §825.220(d) prohibited only waivers as to future violations of “substantive” FMLA rights (e.g., the right to take leave). Accordingly, Taylor’s 2001 release of Process Energy’s past FMLA violations and her release of non-substantive FMLA rights, including the right to be free from discrimination and retaliation for the exercise of substantive FMLA rights, were valid.
The Fourth Circuit appellate court reversed. The appellate court found that §825.220(d) prohibits any waiver of rights under the FMLA—including both substantive rights and non-substantive rights—unless DOL or a court has previously approved the waiver. The appellate court further held that this broad prohibition against FMLA waivers applies “regardless of whether the waiver is executed before or after the employer commits the FMLA violation.” Additionally, the fact that Taylor kept the $12,000 was held immaterial because FMLA claims are not waivable by private settlement agreement and thus they are likewise unwaivable by Taylor’s “ratifying” the release when she kept the consideration she received in exchange for signing it. Therefore, Taylor was allowed to pursue her claims against Process Energy.
On a rehearing of the appellate court’s decision, DOL—the agency responsible for creating and implementing §825.220(d)—filed an “amicus” brief (as a “friend of the court”), arguing against the appellate court’s expansive interpretation. Like the trial court, DOL contended that the regulation permits waivers of only past FMLA violations (like in Taylor’s release) given DOL’s “well-accepted policy … encouraging settlement of claims, in employment law.”
The appellate court, for the second time, disagreed. The appellate court reasoned that the policy encouraging settlement of claims is not favored for claims under certain types of employment statutes like the FMLA which, unlike discrimination statutes, seek to provide certain uniform minimum standards for all employees and thereby, increase the cost of labor for employers. Like the Fair Labor Standards Act (“FLSA”), which provides minimum compensation standards for non-exempt employees, the FMLA provides minimum leave standards for family and medical reasons. The court reasoned that private settlements of FLSA and FMLA claims undermine the objective of these kinds of statutes because they incentivize employers to deny these minimum benefits if the employer can settle a violation claim for less than the cost of providing these benefits. Additionally, employers settling these claims at a discount may “gain a competitive advantage over employers complying with [these] minimum standards.” To avoid these problems, the appellate court reasoned, regulation §825.220(d) was written to prohibit such settlements unless there is prior approval by DOL or a court.
Other Unwaivable Employment-Related Claims
As the Taylor decision indicates, FMLA claims are not the only claims that cannot be waived without prior approval of DOL or a court. FLSA claims regarding wage-hour disputes also cannot be waived by employees. As discussed in Taylor, the FLSA aims to provide certain minimum compensation benefits and private settlements frustrate this purpose. Thus, only settlements that are approved by a court or an administrative agency are permissible under the FLSA. Additionally, certain other employment-related claims cannot be waived privately by an employee because the employee is not the proper owner of the claim. For instance, retirement plans providing specific benefit rights to an employee’s spouse do not confer a right to sue for these benefits on the employee. Rather, such a claim is “owned” by the employee’s spouse, and therefore, only he or she can waive such a claim. Likewise, claims arising under a collective bargaining agreement cannot be waived by an employee because they are owned by the union, and unemployment claims similarly cannot be waived because they are owned by the state.
Any settlement and release provision purportedly waiving any of these kinds of “unwaivable” claims is unenforceable as to the “unwaivable” claim. The employee will be able to assert such a claim regardless of the waiver and often regardless of whether the employee retains the money provided as consideration for such a release. Employers should be careful when using settlement and release agreements not only to avoid these invalid provisions, but also because such provisions could be found to invalidate the entire agreement or provide employees a longer time period in which to file their claim. If you would like additional information about the Taylor case or guidance concerning strategies for settling “unwaivable” claims in particular cases, please contact your primary attorney at Wildman Harrold or David Weinstein at (312) 210-2685, head of Wildman Harrold’s Employment & Labor Practice.