In today's litigious environment, it has become increasingly common for employers to enter into separation agreements with departing employees, particularly those at higher levels. Under most separation agreements, in an effort to resolve all matters regarding the relationship on a full and final basis, the employer agrees to provide severance pay or some other type of consideration to an employee, such as payment of health insurance premiums, in exchange for the employee's release of all claims against the employer.

In order to increase the likelihood that a release will be considered valid, many employers list the various types of claims that the employee is discharging. In a recent case, the U.S. Court of Appeals for the Fourth Circuit ruled that a release of claims under the Family and Medical Leave Act (the "FMLA") is not valid unless it is approved by a court or the U.S. Department of Labor ("DOL"). Taylor v. Progress Energy, Inc., No. 04-1525 (4th Cir. July 20, 2005).

In Taylor, an employee who had missed several weeks of work due to a medical condition and received a poor performance evaluation for productivity was laid off during a reduction in force. In exchange for severance benefits, she signed a general release of all claims against her employer. Nevertheless, she later sued her employer for violation of the FMLA. After the district court granted summary judgment for the employer, Taylor appealed to the Fourth Circuit.

Taylor argued that the DOL's regulations under the FMLA made her release invalid. Indeed, 29 C.F.R. 825.220(d) provides in pertinent part that "[e]mployees cannot waive, nor may employers induce employees to waive, their rights under [the] FMLA."

Relying on a decision by the Fifth Circuit in Faris v. Williams WPC-I, Inc., 332 F.3d 316 (5th Cir. 2003), the district court had reasoned that the DOL's regulation prohibits only the prospective waiver of substantive rights to take job protected leave under the FMLA.

According to the district court, the regulation does not apply 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.

The Fourth Circuit disagreed with the district court. It held that "[t]he regulation's plain language prohibits both the retrospective and the 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, because the FMLA's enforcement scheme is similar to that under the Fair Labor Standards Act (the "FLSA"), the Fourth Circuit accepted the DOL's position that the regulation "permits the waiver or settlement of FMLA claims only with the prior approval of the DOL or a court."

In so holding, the Fourth Circuit noted that the Supreme Court consistently has held that FLSA rights cannot be waived by a private agreement between an employer and an employee, but only when supervised by the DOL or a court. The Fourth Circuit concluded that the DOL's construction of the FMLA was permissible and was not "arbitrary, capricious or manifestly contrary to the statute."

It is unclear what, if any effect this decision will have. In the Fourth Circuit, which covers the states of Maryland, North Carolina, South Carolina, Virginia and West Virginia, employers should examine their release agreements to determine if they create issues under the FMLA.

In the Fifth Circuit, which covers Mississippi, Louisiana and Texas, releases of FMLA claims should continue to be valid. Ultimately, disputes of this nature between or among the federal circuit courts often are resolved by the Supreme Court or Congress.

Until this issue is resolved one way or the other, employers should consider a number of alternatives. First, at least in those states covered by the Fourth Circuit, they could exclude FMLA claims from their standard release agreements. Second, they could include a severability clause in their release agreements, to ensure that the entire agreement is not invalidated if a release of FMLA claims is considered unenforceable.

Third, they could consider a "tender back" provision that requires the refund of severance benefits in the event an employee asserts released claims or in the event the release is deemed invalid. Finally, employers can consider obtaining DOL or court approval of releases of FMLA claims.

For more information, contact:

Michael L. Stevens
202-857-6382
stevens.michael@arentfox.com