In past issues (January 2006, September 2006), we have reported on litigation by individuals successfully claming that releases they have signed are not legally enforceable. Typically, these claims are made after the individual has received severance pay and benefi ts from the employer in exchange for what the employer believes is a final and nonadversarial separation. Two recent court decisions may give employers more cause for concern.
On July 3, 2007, the Fourth Circuit Court of Appeals reconsidered and reaffi rmed its prior decision on the enforceability of agreements purporting to release claims under the Family and Medical Leave Act. Taylor v. Progress Energy, Inc., No. 04-1525, 2007 WL 1893362 (4th Cir. July 3, 2007). Rejecting the DOL’s position, the court held that parties to a private release agreement cannot waive claims under the FMLA. The court drew no distinction between claims for past conduct and future claims. Noting that neither past nor future claims under the Fair Labor Standards Act can be waived except with governmental or court supervision, the court characterized FMLA claims to be of the same type and purpose—prescribing minimum labor standards—and thus distinguishable from claims under employment discrimination laws, which can be waived retroactively. Under the court’s decision, parties in states covered by the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina and South Carolina) cannot waive claims under the FMLA by agreement unless the Department of Labor or a court approves the agreement.
In a further setback to the private resolution of employment claims, a federal district court in Minnesota recently invalidated the release of age discrimination claims in agreements signed by over 700 employees. Pagliolo et al. v. Guidant Corp. et al., No. 06-943DWFSRN, 2007 WL 1567617 (D. Minn. Apr. 4, 2007). The employees were selected for job elimination in a workforce reduction affecting 8,100 employees companywide. A plaintiff class successfully argued that Guidant’s release violated numerous requirements of the Older Worker’s Benefi t Protection Act, which sets forth technical requirements for age discrimination releases in both individual separation agreements and, in this case, group termination programs. Although the decision affects only the parties to the litigation, the defects in the release identifi ed by the court provide a road map for other employers to consider.
Avoid material misrepresentations. Guidant had identifi ed 196 employees selected for job elimination who were given the opportunity to fi nd and did fi nd other jobs in the organization. The court concluded that listing these individuals as eligible to participate in the severance program was a misrepresentation because their redeployment disqualifi ed them for severance.
Fully disclose “age” and “job classifi cation” data. The law requires the employer to identify, by age and job classifi cation, persons terminated and not terminated. Guidant had provided birth dates and job titles. The court concluded that it should have provided each person’s actual age (without saying whether the age should be as of the date of selection or the date of termination), and should have differentiated within job titles by job grades, since many job titles contained multiple grades that corresponded to different jobs.
Accurately describe the “decisional unit.” For employees being asked to sign a release, it is critical to identify the group of employees who are being terminated and those not being terminated within the employee’s decisional unit. Guidant had identifi ed the entire group of 8,100 employees considered for termination from six subsidiaries and 84 domestic locations. The court concluded that the failure to distinguish among different decisional units made the information useless to the average employee asked to sign a release.
Use selection criteria as the “eligibility factors.” The law requires the employer to inform employees of the “eligibility factors” for participation in the termination program. Guidant had simply identifi ed those employees whose jobs were being eliminated. The court found this to be inadequate, and held that “eligibility factors” means the criteria the decision-makers used to select the employees who would and would not be terminated.
Although the decisions discussed above have limited application outside their respective jurisdictions, they provide future litigants in other jurisdictions with ammunition to challenge release agreements on similar grounds. In this developing and complex area of the law, employers should proceed cautiously if they want to maximize the likelihood that the release agreements they enter into will provide the closure they seek.