Fourth Circuit Decides That An Employer Cannot Obtain A Waiver of An Emplotee's Informal FMLA Complaint

In Taylor v. Progress Energy, (4th Cir., July 20, 2005), [http://pacer.ca4.uscourts.gov/opinion.pdf/041525.P.pdf] the Fourth Circuit held that an employer cannot obtain a release of claims under the Family and Medical Leave Act of 1993 (FMLA), 29 U.S.C. § 2601 et seq. Reversing a district court's grant of summary judgment to the employer, the appellate court held that the Department of Labor's (DOL) FMLA regulations bar such releases in the absence of prior DOL or court approval of the agreement.

Taylor's Termination Agreement

Taylor arose 20 months after the plaintiff quit work as a technician at a facility operated by Carolina Power & Light. While employed, Taylor missed work due to various medical problems. Taylor complained, both internally and to the DOL, that some of her absences had not been treated as required by the FMLA. After a negative performance appraisal and what appears from the opinion to be a generally deteriorating employment situation, the company negotiated a voluntary separation agreement with Taylor in July, 2001. The agreement included a $12,000 severance payment. Taylor signed a general release as part of the package. Although the release did not mention the FMLA by name, it contained general catchall language stating that it covered claims arising under “other federal law.”

Taylor contacted DOL again following her termination to make an additional complaint about the company's failure to designate her absences as FMLA leave. In May 2003, Taylor sued her former employer for violating what the court referred to as both her substantive and prospective FMLA rights. According to the Fourth Circuit, the latter refers to the right to be free from discrimination and/or retaliation in connection with the exercise of the substantive right to take FMLA leave. The employer moved for summary judgment on the basis of the release. Taylor argued the release could not bar her FMLA claims, relying on Section 825.220(d) of the DOL's FMLA Regulations. That regulation states, in pertinent part, that “[e]mployees cannot waive, or may employers induce employees to waive, their rights under [the] FMLA.” 29 C.F.R. § 825.220(d).

The district court, relying on Faris v. Williams WPCI, Inc., 332 F.3d 316 (5th Cir. 2003), held that this regulation prohibits only the prospective waiver of substantive FMLA rights. Thus, according to the district court, the regulation did not apply either to (1) the retrospective waiver or release of FMLA claims or (2) the waiver or release of claims that an employer has discriminated or retaliated against an employee for the exercise of her substantive FMLA rights. Viewing the release as covering these matters, the district court granted the employer's motion for summary judgment.

THE FOURTH CIRCUIT'S DECISION

The Fourth Circuit reversed the district court. Judge Michael explicitly rejected the district court's reliance on the Fifth Circuit's decision in Faris:

We disagree with the district court's interpretation of § 825.220(d). 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). Finally, the DOL, by recognizing that the FMLA's enforcement scheme is analogous to that of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., has indicated that § 825.220(d) permits the waiver or settlement of FMLA claims only with the prior approval of the DOL or a court.

In reaching this outcome, the Fourth Circuit panel applied the familiar administrative law analysis articulated in Chevron U.S.A. Inc. v. Natural Resources Defense Counsel and concluded that the regulation is a permissible construction of the FMLA and thus not arbitrary and capricious. The court also rejected the employer's waiver by ratification argument, which was based on Taylor's refusal to pay back the $12,000 severance payment.

IMPLICATIONS FOR EMPLOYERS

Taylor may end up creating a split in the circuits. The language of the DOL regulation suggests additional litigation on this issue is likely. It by no means clear that the Fourth Circuit's deferential approach to the DOL regulation would be sustained in the event this issue were to get to the Supreme Court.

In the absence of additional clarification, employers with operations in the Fourth Circuit should approach informal FMLA complaints with heightened sensitivity. Taylor effectively holds that FMLA claims must be treated in the same manner as FLSA (and workers compensation) claims for purposes of a release, and unlike claims arising under Title VII and/or the ADEA.

Taylor, combined with the Sixth Circuit's recent decision in Thomforde v. International Business Machines Corp., suggests that employers should review their standard release and waiver agreements. In considering how best to respond to Taylor, affected employers should:

•  Understand that the catchall language in many release agreements purporting to waive all claims may not bar subsequent claims of discrimination and/or retaliation in violation of the FMLA.

•  Consider adding more specific severability language in release agreements. In situations involving multiple claims, it may make sense to include a recitation of the allocation of the company's payment in exchange for release of the various claims.

•  Evaluate whether to include an explicit disgorgement provision to the release agreement, by which the employee promises to return the severance payments in the event he/she disavows the release and brings an FMLA claim. Employers considering this option should carefully review the ADEA/OWBPA waiver regulations.

•  Consider whether to seek DOL approval for pre-litigation settlements of FMLA (and FLSA) claims.

Court decisions often have perverse consequences. In hindsight, it may have been prudent for the employer in Taylor to refuse to settle this dispute informally and force the employee to bring suit; the DOL regulation at issue in Taylor does not apply in settlements of claims that have been brought to litigation. In some cases, employers may be well-advised to force a dispute of this sort to litigation, in order to be able to obtain an enforceable release.