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It is Risky Business for Employers to Use Off-the-Shelf Severance and Release Agreements

The widespread use of severance agreements and general releases in the departing-employee context has relaxed many employers into simply modifying the last release agreement their lawyer prepared for them and utilizing it again without seeking lawyer review. Constant changes in the law surrounding waivers and releases make that a risky proposition. Indeed, a recent Fourth Circuit case underscores this point by questioning the validity of any release that contains a waiver of rights under the Family and Medical Leave Act¹ (“FMLA”) without prior court or Department of Labor (“DOL”) approval.

In Taylor v. Progressive Energy, Inc.², (“Taylor II”), the court held that without prior court or DOL approval, 29 C.F.R § 825.220(d) bars the prospective and retrospective waiver or release of employees’ FMLA rights, including the right to bring a claim for a violation of the FMLA. The court’s decision reinstates its decision in Taylor v. Progress Energy, Inc.³, in which Barbara Taylor asserted that Progressive Energy, Inc. (“Progressive”), her employer’s parent company, had violated the FMLA with respect to her termination. Unsuccessfully, Progressive argued that Taylor had released her right to assert FMLA claims against it when she entered into a general release and severance agreement containing a catch-all release of claims (which did not specifically mention the FMLA).

In reaffirming its prior decision, the Taylor II court reasoned that allowing employees to prospectively waive their proscriptive and remedial FMLA rights would undermine the purpose of the Act, as well as section 220(d), and lead to circumstances in which it is less expensive for employees to settle claims than to comply with the FMLA. As well, at the time section 220(d) was promulgated, the DOL had clearly indicated that waivers should not be allowed in connection with the post-dispute settlement of FMLA claims. It was only after the court vacated its earlier decision that the DOL intervened in Taylor II and argued, in its amicus brief, that public policy disfavors prospective waivers of rights yet encourages the settlement of claims. Nevertheless, the court found that public policy should be excepted when it would thwart the legislative policy it was designed to effectuate. Moreover, when the court analogized the FMLA to the FLSA it found that both acts set forth minimum floors of protection for employees, and any separation agreement or release providing employees with less than the statutory minimum would frustrate Congressional purpose.

Although it is unclear how the U.S. Supreme Court or Seventh Circuit (which includes Indiana) would rule on this issue, other courts have concluded that the invalid waiver of certain rights, like the FMLA, may serve to nullify the entire release agreement. Hence, employers should avoid catch-all waivers in separation and release agreements and, instead, tailor the terms of the release to a particular dispute or claims an employee is likely to assert against the employer. Most importantly, the lesson is that employers would be well-served to consult with their employment law counsel for preparation or review of each severance agreement the employer contemplates or risk the consequences of making severance payments to former employees who will use the money to engage counsel to sue the employer in the face of an invalid release of claims.

For more information, please contact Dave Swider, (317) 684-5161, dswider@boselaw.com or Stephanie Penninger, (317) 684-5209, spenninger@boselaw.com.

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1}29 U.S.C. §2601 et. seq.
²No. 04-1525, 2007 WL 1893362 (4th Cir., July 3, 2007).
³415 F.3d 364 (4th Cir. 2005).