GT Alert

Fourth Circuit Rules that Employees Cannot Waive their FMLA Rights without Court or DOL Approval

July 2005

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Last week, a federal appeals court handed down an important ruling about employees’ rights under the Family Medical Leave Act. In Taylor v. Progress Energy, Inc., the United States Court of Appeals for the Fourth Circuit held that an employee who signed a separation agreement containing a full release and waiver of all claims could still bring a lawsuit under the FMLA against her employer.

Employers frequently ask departing employees to sign separation agreements releasing the employer from any and all claims that the departing employee may have, in return for severance pay or some other form of consideration. When an employer announces a reduction-in-force, the use of separation agreements containing a release of claims is almost a certainty. But last week, the Fourth Circuit cautioned that a release of all claims does not prevent a former employee from asserting an FMLA claim. The court reached that conclusion even though the former employee did not return any portion of the approximately $12,000 she had received from the employer in return for her release of claims. Federal regulations and precedent under the Fair Labor Standards Act guided the court to this result, but many employers will be surprised to learn that — at least in the Fourth Circuit — paying an employee for a release of all claims does not bar that employee from later suing for violations of the FMLA.

The Facts of the Taylor Case

In Taylor v. Progress Energy, Inc., No. 04-1525, (4th Cir. July 20, 2005), Barbara Taylor, a then seven-year employee of the utility company, began suffering leg pain in April 2000. Medical testing and complications related to some of that testing forced her to have a number of health-related absences over the next four or five months. After her doctor discovered and surgically removed an abdominal mass in December 2000, she missed an additional six weeks of work. The company credited her with four weeks of FMLA leave for this latter leave.

Taylor’s health-related absences led to a poor productivity rating at her next performance evaluation in February 2001. The following month the company announced that it would be conducting a reduction-in-force and that past performance would be a factor in selecting employees for reduction. Taylor asked the company to correct her evaluation in light of the FMLA-covered absences. A human resources official denied her request, and in May 2001, the company advised Taylor that her employment would terminate as part of the reduction-in-force.

At the time of the layoff, the company offered Taylor monetary compensation if she signed and returned a general release and severance agreement within 45 days. Taylor accepted that contract, agreeing that she:

. . . HEREBY RELEASES [THE COMPANY] . . . FROM ALL CLAIMS AND WAIVES ALL RIGHTS [SHE] MAY HAVE OR CLAIM TO HAVE RELATING TO [HER] EMPLOYMENT WITH [THE COMPANY] . . . including, but not limited to, front pay, back pay, compensatory damages, punitive damages, injunctive relief, attorneys’ fees and costs or any other remedy, arising under . . . any other federal, state, or local law.

(The release did not specifically mention the Family Medical Leave Act, but according to the court’s reasoning that omission did not appear to be an important fact.)

Despite signing this release, Taylor later sued her former employer for FMLA violations. In response, the company moved for summary judgment, claiming the release barred her claim. The federal district court agreed with the employer and granted judgment in favor of the company.

The Fourth Circuit’s Decision

Taylor appealed to the Fourth Circuit claiming that, with respect to her FMLA claim, a federal regulation invalidated the release she previously signed. Specifically, Taylor argued that, under 29 C.F.R. § 825.220(d), “[e]mployees cannot waive, nor may employers induce employees to waive, their rights under the FMLA.”

The Fourth Circuit agreed with Taylor’s position. In doing so, it rejected the company’s efforts to interpret this regulation narrowly, ruling the regulation barred all types of FMLA waivers and rights:

The regulation’s plain language prohibits both the retrospective and prospective waiver or release of an employee’s FMLA rights. In addition, the regulation applies to all FMLA rights, both substantive and proscriptive (the latter preventing discrimination and retaliation).

With that reasoning, the appeals court reversed the judgment in favor of the company, permitting Taylor to pursue her claims even though she received a monetary severance in exchange for a release of all claims. For support, the court noted that the FMLA’s enforcement scheme parallels that of the Fair Labor Standards Act (the federal minimum wage and overtime law). The U.S. Department of Labor (“DOL”) enforces both statutes, and regulations under both laws authorize a waiver of the employee’s rights if the agreement is approved by the DOL or a court. Additionally, the Fourth Circuit noted the United States Supreme Court has previously recognized that the “rights guaranteed by the FLSA cannot be waived or settled without prior DOL or court approval” (citing Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 740, 745 (1981); D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114-116 (1946)).

Effect of Decision

Most employers will find little solace in the Fourth Circuit’s decision. Seeking approval from the DOL or court, particularly in the context of a reduction-in-force, is neither pragmatic nor efficient. The decision also presents hurdles to settling FMLA claims before litigation. An employer who agrees to settle a disputed FMLA claim with an employee short of litigation — even if the employee is represented by counsel — runs the risk that such a private settlement is invalid. In the event an employee takes the settlement money and turns around to sue for the same “settled” FMLA claims, the employer may have defenses of unclean hands, restitution, recoupment, and set-off, but given the ruling in Taylor, the claim is not barred by release or waiver. The Fourth Circuit suggested, however, that if a FMLA claim was resolved via arbitration, then that determination would be final.

Split in the Circuits — Supreme Court to Review Issue?

This ruling by the Fourth Circuit — the federal appeals court for Maryland, North Carolina, South Carolina, Virginia, and West Virginia — differed from a similar case handled by the Fifth Circuit Court of Appeals — covering Louisiana, Mississippi, and Texas. In Faris v. Williams WPC-I, Inc., 332 F.3d 316 (5th Cir. 2003), the Fifth Circuit held that 29 C.F.R. § 825.220(d) prohibited only prospective waivers of substantive FMLA rights. Thus, under the Fifth Circuit’s reasoning, an employer could still ask an employee to waive (i) FMLA rights retrospectively, and (ii) claims that an employer discriminated against or retaliated against an employee for exercising or attempting to exercise his or her rights to leave or reinstatement under the FMLA. This split between two circuit courts of appeal, particularly if other circuits take a stance on this issue, increases the likelihood that the Supreme Court will weigh in on this issue.

Protective Measures Employers Should Consider

It appears that the last word has yet to be written by the courts on this issue. Until this issue is resolved, employers should exercise caution when using releases. They should understand that waivers purporting to adjust or eliminate an employee or former employee’s FMLA rights are not enforceable in the Fourth Circuit, and may not be elsewhere. The following are some protective measures that employers might consider implementing when using releases:

• Recognize releases of all claims may not bar claims for FMLA and FLSA violations.
• Consider incorporating severability language in releases, authorizing a court to strike impermissible provisions.
• Consider incorporating a provision in releases whereby the employee agrees that he/she will disgorge the severance payments in the event he/she sues the employer or otherwise disavows the release.
• Consider whether to seek DOL approval for pre-litigation settlements of FMLA and FLSA claims.

This Alert was written by John F. Lomax, Jr. in the Phoenix office and John Scalia in the Tysons Corner office. Please contact Mr. Lomax at 602.445.8000, Mr. Scalia at 703.749.1300 or your Greenberg Traurig liaison if you have any questions regarding the subject matter of this Alert.

© 2005 Greenberg Traurig

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