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Hoping That the High Court Will End the Risky Business of FMLA Claims Waivers

January 8, 2008
Related Topics: Employee Leave, Featured Article
Parting may be sweet sorrow in Shakespeare, but thanks to a 2007 ruling from a federal appellate court in Richmond, Virginia, it’s also become riskier business for companies wishing to secure a broad release of employment-related claims from departing employees. But the Supreme Court could decide as soon as Friday, January 11, to review that ruling, and restore some degree of clarity and uniformity to what has become an unsettled area of employment law. [Update: The Supreme Court on Monday, Jan. 14 invited the U.S. Solicitor General's Office to file a brief stating the federal government's position on whether the court should take the case. That brief is expected to be filed sometime this spring.]

At issue in the case of Progress Energy, Inc. v. Taylor is the enforceability of releases of employee claims under the Family and Medical Leave Act. The broad, general release of claims has become a staple of the American workplace, allowing employers to obtain protection from future litigation by departing employees in exchange for payments of extra compensation. And while hundreds of thousands, if not millions, of releases of FMLA claims have been obtained from employees since the act went into effect in 1993, last summer’s decision in Progress Energy declares them invalid in the five states covered by the 4th Circuit Court of Appeals—Maryland, Virginia, West Virginia and North and South Carolina—and leaves employers in the rest of the country uncertain as to how to proceed.

Although the case has followed a meandering path through the federal courts, its facts are actually fairly straightforward.

Carolina Power & Light, a subsidiary of Progress Energy, hired Barbara Taylor in 1993 to work as a document management technical aide at its North Carolina nuclear plant. Taylor took a variety of leaves in 2000 and early 2001 relating to a health condition, and in mid-2001 she was told that her position was being eliminated as part of a reduction in force. She accepted "transition pay" totaling $11,718 in extra compensation, in exchange for signing a general release of "all claims" and waiver of "all rights" under any "federal, state or local law."

Two years later, Taylor sued Progress Energy, asserting a variety of FMLA claims: that the company had failed to fully inform her of her rights and obligations under the FMLA; improperly denied her request for FMLA leave; failed to designate her health-related absences as FMLA; and had selected her for the reduction in force based on FMLA-qualifying medical absences and in retaliation for her exercise of FMLA rights.

Progress Energy sought to have the case dismissed, arguing that the broad release that Taylor signed barred her from suing based on her FMLA claims. Opposing that request, Taylor cited one of the U.S. Department of Labor’s FMLA regulations, 29 C.F.R. 825.220(d), and its statement that "[e]mployees cannot waive, nor may employers induce employees to waive, their rights under the FMLA."

The U.S. District Court in Wilmington, North Carolina agreed with Progress Energy that the regulation applied only to bar the prospective release of substantive FMLA rights—for instance, where an employer and employee entered into a "contract" at the start of employment in which the employee agreed to waive her FMLA rights in exchange for $100—and that the regulation did not preclude post-dispute settlement of a claim alleging that substantive FMLA rights previously were violated.

The court noted with approval the decision of the 5th Circuit Court of Appeals (which covers Texas, Louisiana and Mississippi) in Faris v. Williams WPC-I, Inc., 332 F.3d 316 (5th Cir. 2003), and observed that adoption of Taylor’s view would render the FMLA unique in federal employment law and "eviscerate" parties’ ability to settle any FMLA disputes. The only way such claims could be resolved, the court noted, would be for one of the parties to file suit and obtain court approval of a consent judgment.

Taylor appealed, and in 2005 a three-judge panel of the 4th Circuit reversed the lower court and reinstated her lawsuit, holding that the Department of Labor’s regulation indeed rendered invalid her release of FMLA claims. The department’s regulation not only barred both prospective and retrospective releases, the court held, but also applied to "proscriptive" FMLA rights—an employee’s right to be free from FMLA-based retaliation and discrimination—as well as to substantive rights.

Citing the preamble to the Labor Department’s January 1995 comments to its final FMLA regulations (which analogize the FMLA’s enforcement scheme to that of the Fair Labor Standards Act), the court held that the Labor Department essentially had adopted the FLSA’s requirement of prior court or the department’s approval of releases.

Progress Energy sought re-hearing, this time joined by the Labor Department, which filed a friend-of-the-court brief in which it disagreed with the panel’s interpretation of the regulation. After re-argument, the panel issued a 2-1 decision in July 2007 reaching the same outcome and expressly rejecting the Labor Department’s current interpretation the regulation as inconsistent with the regulation itself (Taylor v. Progress Energy, Inc. [On Rehearing], 493 F.3d 454 [4th Cir. 2007]).

Progress Energy has filed a petition for review with the U.S. Supreme Court, asking the court to take the case and resolve the split between the 4th and 5th Circuits as to the enforceability of FMLA releases. A broad array of employer groups have filed amicus briefs in support of the company (including, in the interest of disclosure, one filed by my firm on behalf of the Society for Human Resource Management and the College and University Professional Association for Human Resources, two of the nation’s largest and most influential associations of human resource professionals). Progress Energy and its supporters point to a wide range of concerns that will result if the Supreme Court declines to take the case, and leaves the status quo unaltered:

  • Diminished use of broad releases of employment claims. In the third quarter of 2007, employers nationwide undertook a total of 3,279 "mass layoff events," which the Bureau of Labor Statistics defines as a layoff involving 50 or more workers, affecting a total of 336,682 employees. If, as the U.S. Chamber of Commerce noted in its amicus brief, even 10 percent of those events involved severance agreements with general releases—a conservative estimate—that means more than 33,000 such releases were entered into in the third quarter of 2007, and more than 100,000 in all of last year. General release agreements therefore are widely used now, yet if employers cannot be certain that the release for which they are paying will include employees’ FMLA claims, they will be less likely to enter into such agreements, and that is a development that will negatively impact employers and employees alike.

  • Removal of a significant safety net for employers. The FMLA has huge impacts on workplaces. In 2005, 76.1 million employees were eligible for FMLA leave, and a 2007 survey by SHRM found that fully 95 percent of HR professionals had dealt with at least one FMLA leave in their organization in the preceding year. Nearly two-thirds of respondents—63 percent—rated the FMLA "somewhat difficult" or "very difficult" in terms of overall ease of compliance. FMLA releases are a key means by which employers minimize the risk of being taken to court by ex-employees, years down the road, for even minor acts of noncompliance with this complex act and its regulations.

  • Continued uncertainty about the legality of FMLA releases for employers in the 42 states (and District of Columbia) outside the 4th and 5th circuits. While the plaintiff, Barbara Taylor, in opposing Progress Energy’s request, urges the Supreme Court to wait until some of the nation’s other 11 circuit courts of appeals weigh in on the topic, employers during that period would be subjected to great uncertainty. Survey after survey indicates that corporate HR staffs consistently view FMLA issues as among the most difficult and nettlesome ones they face. Not knowing whether releases of such claims can be obtained going forward, or whether past ones will be held invalid, will only increase the uncertainty.

  • Continued uncertainty for employers in the five states covered by the case as to how to properly obtain valid FMLA releases. The Labor Department currently has no mechanism or procedure established for the approval of FMLA releases outside of its civil administrative enforcement process. For the time being, employers and employees in Maryland, Virginia, West Virginia and the Carolinas who wish to enter into a release of past FMLA claims appear to be limited to initiating federal litigation for the sole purpose of obtaining judicial approval. Though the 4th Circuit in its opinion expressed confidence that both the Labor Department and the trial courts would "work diligently to deal with these cases in a prompt and efficient manner," such a result is not at all certain. Nor, for that matter, is it clear that employees will be willing to go to the time and expense of litigation, or that employers will rush to put their name on a federal complaint opposite a soon-to-be-former employee.

  • Creation of a contradictory set of rights and obligations for employers with operations in both the 4th and 5th circuits when it comes to obtaining a release of FMLA claims. Because most rational employers in that situation likely will conform their practices to the most restrictive rule (that of the Taylor case) in the interest of prudence, that in essence will extend the mischief caused by the case to employees and operations outside the states of the 4th Circuit.

Progress Energy has asked the Supreme Court for expedited consideration, and if four of the court’s nine justices agree to take the case, it could be argued and decided before the court’s current term ends June 30. Elimination of the uncertainty caused by the current conflicting appellate-court rulings should come as welcome news to all FMLA-covered employers.

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