July 18, 2007

Employees Cannot Waive FMLA Rights In Private Settlement Agreements or Severance Packages in the Fourth Circuit

Holland & Knight Alert
Loren Lee Forrest Jr.

In a decision that injects great uncertainty into the process of obtaining severance agreements and releases, the United States Court of Appeals for the Fourth Circuit recently ruled that employees may not waive their rights under the Family and Medical Leave Act of 1993 (FMLA), even as to past acts and claims, unless the waiver is approved by either the United States Department of Labor (DOL) or a court. Taylor v. Progress Energy, Inc., 2007 WL 1893362 (4th Cir. July 3, 2007). Ironically, the DOL – the very agency whose approval the court ruled was necessary – had told the court it did not have to approve waivers concerning FMLA claims based on past acts. This decision sharply limits the ability of employers in the states covered by the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina and South Carolina) to use severance agreements to obtain protection against FMLA lawsuits by departing employees.

The case arose from the circumstances of former Progress Energy employee Barbara Taylor. Taylor had various health-related absences, which she claimed that Progress Energy wrongly failed to designate as FMLA leave, leading to a negative performance evaluation and eventual termination of her employment. In return for severance benefits, Taylor signed a release waiving all rights or claims she had with respect to her employment and her termination of employment from Progress Energy. However, Taylor later changed her mind and sued Progress Energy for FMLA violations, arguing that her waiver of the right to sue for FMLA violations was invalid.

The dispute in the case involved a portion of the DOL’s regulations implementing the FMLA that states that “employees cannot waive, nor may employers induce employees to waive their rights under FMLA.” See 29 C.F.R. § 825.220(d). The DOL became involved in the case to tell the court what it believed its own regulation meant. It told the court that the regulation only prohibits employees from waiving their FMLA rights “prospectively,” for example, by signing a document at the outset of employment waiving the right to sue for any FMLA violations that might occur in the future. The regulation does not prohibit severance agreements in which employees gave up the right to sue over past FMLA issues, such as Taylor’s agreement, the DOL said.

But the Fourth Circuit refused to accept the DOL’s interpretation of its own regulation because it believed that in the past, the DOL had said that the same regulation meant something different. It instead offered its own interpretation, ruling that “the plain language of section 220(d) precludes both the prospective waiver and retrospective waiver of all FMLA rights, including the right of action (or claim) for a past violation of the Act” unless either the DOL or a court approves the waiver. The court claimed that its interpretation would not interfere with employers’ efforts to voluntarily resolve FMLA claims, noting that for nearly 60 years, DOL or court approval has been required for employees to waive their rights under the Fair Labor Standards Act.

For employers in Maryland, Virginia, West Virginia, North Carolina and South Carolina, the Taylor decision creates substantial uncertainty. Those employers now face the risk that employees who have already signed releases in return for severance payments may be able to turn around and sue

for FMLA violations – using their severance money to finance the lawsuit. It also means those employers cannot get valid waivers of potential FMLA claims from departing employees without involving the DOL or a court – something no employer wants to do. Thus, again, employers face the risk of either paying severance and later facing FMLA claims they thought they paid to avoid, or opening their employment decisions to scrutiny by either the DOL or a court.

Employers in the Fourth Circuit must now assume that even if an employee signs a release in return for a severance payment, his or her FMLA claims will remain valid. As a result, employers should seek legal advice before paying severance and seeking a waiver from any departing employee, and should exercise even greater caution before paying severance to and seeking a release from an employee who has taken any kind of medical leave and may have potential FMLA claims.

The circumstances outside of the Fourth Circuit are less clear. Courts outside the Fourth Circuit are not bound by the Taylor decision, and a District Court in Pennsylvania, as well as the United States Court of Appeals for the Fifth Circuit, have agreed with the DOL that FMLA rights concerning past incidents may be waived without DOL or court approval. Other courts may, however, decide to follow the Taylor decision.

Two factors suggest that other courts may not follow Taylor, however. First, a recent Supreme Court decision, Long Island Care at Home, Ltd. v. Coke, --- S.Ct. ----, 2007 WL 1661472 (June 11, 2007), undermined the Taylor court’s refusal to accept the DOL’s interpretation of its regulation because the DOL had changed its mind. The Supreme Court ruled that the mere fact that the DOL had changed its mind about the meaning of one of its regulations is not a sufficient basis for a court to reject its current interpretation. Rather, as long as the DOL’s changed interpretation does not create an “unfair surprise,” a court is bound by the DOL’s current interpretation. A dissenting Judge in the Taylor case relied on Coke to argue that the DOL’s position on waivers of FMLA claims should be followed, and other courts may do likewise.

Second, and more importantly, the DOL has issued a notice that it is considering amending its regulation to unambiguously state that FMLA rights can be waived with respect to past acts. If the DOL does so, it would then be clear that severance agreements can waive FMLA claims based on past events.

Nonetheless, in light of Taylor, employers throughout the country would be wise to review their severance agreements and exercise caution before offering severance to an employee who may have an FMLA dispute. We will keep you updated on additional developments regarding this issue.

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