Imagine this scenario. Your company wants to terminate a disgruntled, mid-level executive who on more than one occasion has threatened to “get a lawyer.”
The CEO authorizes you to offer a generous severance package in exchange for the executive’s release of all claims that she may have against the company.
One month after the termination, the former executive sues your company in federal court for violating the Family and Medical Leave Act (FMLA). You trot out a copy of the release and tell your outside counsel to file a motion to dismiss the lawsuit, only to learn the release of FMLA claims is invalid.
You again find yourself in the CEO’s office, this time seeking a budget to defend the case.
Employers routinely sign separation agreements with terminated employees where they agree to provide a severance payment in exchange for a broad release of all claims. Such arrangements satisfy two highly desirable goals – certainty and finality.
For relatively small sums employers can avoid the potential of expensive, distracting and reputation-damaging employee lawsuits.
A recent opinion by the 4th Circuit, however, jeopardizes these touchstones of certainty and finality, at least with respect to FMLA claims.
The FMLA requires employers of 50 or more employees within a 75-mile radius to provide eligible employees with up to 12 weeks of unpaid leave annually for the birth or adoption of a child, to care for seriously ill family members, or to address their own serious health conditions.
Employees are eligible for FMLA leave if they have been employed for a minimum of 12 months, and have worked at least 1,250 hours during the 12-month period immediately preceding the requested leave period.
Although employers frequently obtain releases of FMLA claims, a regulation issued by the Department of Labor, which enforces the FMLA, states that “[e]mployees cannot waive, nor may employers induce employees to waive, their rights under [the] FMLA.” 29 C.F.R. § 825.220(d).
Until recently, most lawyers assumed this regulation applied only to future FMLA claims, rather than claims that had accrued prior to the execution of the release.

Can’t release past FMLA claims

The 4th Circuit, however, recently dashed that assumption, ruling the regulation prohibits an employee from releasing past FMLA claims – even if the release was knowing, voluntary and accompanied with a severance payment.
In Taylor v. Progress Energy, 493 F.3d 454, an employee signed a separation agreement and received severance pay in exchange for her waiver of “all claims and . . . all rights . . . relating to employee’s employment.”
She then promptly sued her former employer under the FMLA alleging the company had (1) not fully informed her of her FMLA rights; (2) improperly denied her requests for medical leave; (3) terminated her employment because of her medical absences; and (4) terminated her employment because she complained about the company’s FMLA violations.
The 4th Circuit panel said the plain language of the regulation voided the release of FMLA claims, permitting the former employee to continue prosecuting her claims. The panel also held that the release or waiver of FMLA claims will not be valid absent the prior approval of a court or the DOL, analogizing to minimum wage claims under the Fair Labor Standards Act (FLSA), where it has long been the practice to receive court approval of private settlements.
The U.S. District Court of Illinois (part of the 7th Circuit) applied similar logic in refusing to honor a FMLA release of claims. Dierlam v. Wesley Jessen Corp., 222 F. Supp. 2d 1052 (2002).

Contrary rulings

Other courts, however, have reached contrary results. Only three months before the 4th Circuit’s Taylor opinion, the U.S. District Court for the Eastern District of Pennsylvania (in the 3rd Circuit) ruled that the DOL regulation prohibited prospective waivers of FMLA claims, but not releases of past or accrued claims. Dougherty v. Teva Pharmaceuticals USA, Inc., 2007 U.S. Dist. LEXIS 27200.
The 5th Circuit made a similar decision in Faris v. Williams WPC-I, Inc., 332 F. 3d 316 (2003). The court in Faris impliedly overruled Bluitt v. Eval. Co. of America, 3 F. Supp. 2d 761 (D. Tex. 1998), which had previously voided an FMLA release.
The First Circuit has yet to rule on this issue.
At the state level, some employment laws also contain anti-waiver provisions.
For example, the Massachusetts Payment of Wages Act (M.G.L. c. 149, § 148) states, “No person shall by a special contract with an employee or by any other means exempt himself from this section.”
Unlike the 4th Circuit’s Taylor decision, the Massachusetts Superior Court has thus far distinguished between waivers and releases, ruling that the Massachusetts statute does not prohibit a voluntary release of a past, accrued claim. (See Dobin v. CIOview Corp., 16 Mass. L. Rptr. 785 (2003), voiding employee’s oral agreement to defer wages until the company’s financial position approved, and Gordon v. Millivision Holdings, LLC, 19 Mass. L. Rptr. 61 (2005), permitting release of acknowledged wage claims.)
In 2005 alone, 76 million FMLA-eligible employees were working in the U.S., and approximately 13 million of them took FMLA leave. The split in rulings at the federal appellate level likely means the issue is destined for ultimate resolution by the Supreme Court.

Avoid financing FMLA lawsuits

In the meantime, you can take the following three steps to help avoid financing an FMLA lawsuit against the company.
First, the company should evaluate whether the terminating employee even has a colorable FMLA claim. For example, does the employee work in a location where there are at least 50 employees within a 75-mile radius? Does the employee meet the service eligibility requirements? Did the employee recently take an FMLA leave of absence, such that he could allege the termination was in retaliation for taking such leave?
Second, the release clause of the company’s standard separation agreement should expressly reference the FMLA. While this ultimately may not carry the day, it could bolster employer challenges to assertions that a release of FMLA claims was inadvertent, involuntary or unknowing. The release also should contain a standard severability clause to increase the chances a judge will carve out FMLA claims rather than invalidate the entire release.
Third, at least for those employees working in Illinois or the states encompassed by the 4th Circuit (Maryland, Virginia, West Virginia, North Carolina and South Carolina), employers should consider seeking DOL or court approval of the settlement or the release, particularly if the analysis reveals significant legal exposure.
It is unlikely that the DOL or a court would reject a reasonable proposal, particularly if the employee is represented by counsel. Employers still may be able to achieve certainty and finality, albeit not without some additional cost, delays and aggravation.
Steven Weatherhead is counsel at Bello Black & Welsh LLP in Boston, where he advises employers on all aspects of labor and employment law, including terminations and reductions-in-force. A former in-house counsel at both public and private companies, he has litigated FMLA cases in federal courts throughout New England. Kasia Klaczynska is a legal intern at Bello Black & Welsh LLP. She received an LL.M. from Harvard Law School in 2007.