Layering administrative law and basic contract principles: analyzing the waiver of FMLA claims in severance agreements.

• Author: Burkhart, Katherine A.
• Position: Family and Medical Leave Act of 1993

1. INTRODUCTION II. BACKGROUND A. Employee Rights Under the FMLA B. Faris v. Williams WPC-I, Inc.: The Fifth Circuit Allows Retrospective Waivers of Proscriptive FMLA Claims in Severance Agreements C. Taylor v. Progress Energy, Inc.: The Fourth Circuit Rejects Retrospective Waivers of Proscriptive FMLA Claims in Severance Agreements D. Federal Common Law Tests for Analyzing Waivers of Federal Statutory Employment Rights III. ANALYSIS A. The Chevron Analysis for Interpreting Administrative Regulations B. Waiver of FMLA Claims Under Chevron 1. Chevron's Second Step: A Low Threshold and Generous Deference to Administrative Agencies a. A Joining of-Issues: Disagreement Over the Plain Language of [section 825.220(d) b. Two Reasonable, yet Opposite Interpretations of [section] 825.220(d) 2. No Resolution After Chevron A Need for Another Layer of Analysis C. The Gardner-Denver Analysis for Assessing the Valid Release of Employment-Related Claims 1. Gilmer Versus Gardner-Denver: A Distinction Ignored by Courts 2. The Mechanics of Applying the Gardner-Denver "Knowing and Voluntary" Standard D. Exploring the Possibility of Waiver of FMLA Claims Under Gardner-Denver's "Knowing and Voluntary" Standard IV. RECOMMENDATION V. CONCLUSION I. INTRODUCTION

   Employee termination and severance package negotiation are a reality of daily corporate life. According to the Department of Labor's (DOL) Bureau of Labor Statistics, in June 2006 alone corporate employers took 1097 "mass layoff actions," defined as layoffs of fifty or more workers, involving a total of 119,662 employees.(1) Many of the discharged employees likely signed standard severance agreements whereby, in exchange for monetary consideration, they released or waived any employment-related claims against their former employers. (2) Such claims include those found under federal employment statutes such as the Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), the Fair Labor Standards Act (FLSA), the Age Discrimination in Employment Act (ADEA), and the Worker Adjustment and Retraining Notification Act (WARN). (3)

   Employers who are potential defendants in employment-related lawsuits rely heavily on the validity and enforceability of claim waiver provisions in severance agreements. (4) They are interested in using the waiver device as an "effective, voluntary means of resolving both actual and potential claims without the costs, risks, and other burdens associated with litigation." (5) Because severance agreements likely save large corporations millions of dollars annually in litigation costs, employers and their representatives pay careful attention to judicial decisions and legislation affecting the enforceability of these general claim releases. (6)

   In 2003, the Fifth Circuit in Faris v. Williams WPC-I, Inc (7) upheld the validity of a severance agreement generally releasing the employer from all employment-related claims where the former employee attempted to sue her employer for violating her rights under the FMLA. (8) In July 2007, the Fourth Circuit expressly disagreed with the Fifth Circuit and held in Taylor v. Progress Energy, Inc. (9) that any waiver--prospective or retrospective--of an employee's claims under the FMLA is unenforceable without the supervision of the waiver by a court or the DOL. (10) The resulting circuit split created great uncertainty and anxiety for employers and brought the practical importance of certainty surrounding post-severance agreements to the attention of lawyers and employers alike. The Taylor ruling that private parties cannot execute a valid release of claims arising under the FMLA would have a major effect on countless employers and employees. Taylor undermined "the preclusionary effect of any general release of employment claims in any context, reducing its value to employers and in turn reducing what they are willing to pay for it, to the ultimate detriment of the employees who are the recipients of the consideration given for the release." (11) In short, the uncertainty in this area of law resulting from the circuit split jeopardized involuntary separation severance pay programs.

   This Note addresses the law surrounding post-severance FMLA claim waivers, focusing in particular on the circuit split between the Fourth Circuit's decision in Taylor and the Fifth Circuit's decision in Faris. It provides a survey of the various approaches that courts use to analyze private waiver of federal statutory rights. The current state of federal administrative case law reveals a muddled line of decisions in which courts failed to apply a uniform analysis to waiver of federal statutory rights such as those under the FMLA, the ADA, the ADEA, the WARN, and Title VII. (12) Ultimately, this Note proposes an entirely different approach than the analysis used by the Fourth and Fifth Circuits--one that uses Supreme Court precedent and embraces principles of basic contract law to achieve a more uniform and thorough analysis for post-severance waivers.

   Part II.A explains severance agreements and summarizes the relevant and important FMLA provisions, including the purposes and goals of the FMLA, the rights it affords employees, and the DOL's role in implementing the FMLA statute. Part 11.13 details the holding and rationale of the Fifth Circuit in Faris and Part II.C details the Fourth Circuit's recent decision in Taylor. Part III includes a discussion of the two federal common law tests (Chevron and Gardner-Denver) set forth by the Supreme Court and often, albeit inconsistently, used by courts in analyzing the waiver of employment rights under federal statutes. Parts III.A and 111. (13) are devoted to explaining Chevron and analyzing FMLA claim waivers under its framework. Parts III.C and III.D discuss Gardner-Denver's "voluntary and knowing" 13 standard and explore the possibility of analyzing claim waiver cases under this more traditional contract law analysis.

   Finally, Part IV proposes that, in addition to the federal common law tests in Chevron, a thorough and proper approach to analyzing the release of FMLA claims requires a further, more fact-specific inquiry that examines the circumstances under which the employee signs the release. This necessary second step for determining the validity of releases of FMLA claims can be accomplished by applying the Supreme Court's framework set forth in Gardner-Denver.

2. BACKGROUND

   Upon terminating an employee, employers often seek a severance agreement releasing all claims by the employee. (14) Under such releases, the employee waives certain employment-related claims against the employer arising under federal employment statutes. (15) In return for waiving her claims, the employee typically receives severance pay, which is a lump sum of money often worth approximately two weeks of wages. (16) Federal statutory rights that employees may waive through release and severance agreements include those under Title VII, the ADEA, the ADA, the WARN, and the FMLA. (17) The benefits to the employee of signing such a release include monetary consideration and the opportunity to avoid the costs and unpredictable outcomes of lawsuits against former employers. (18)

   1. Employee Rights Under the FMLA

      Enacted in 1993, the FMLA grants eligible employees two types of rights--substantive and proscriptive. (19) There are two distinct substantive rights under the FMLA. (20) The first is the right to take up to twelve work weeks of unpaid leave annually for any of the several reasons listed in the statute. (21) Second, employers must return employees to the positions they held before taking leave, or to an "equivalent position with equivalent employee benefits, pay, and other terms and conditions." (22) The employee's single proscriptive right is the right to freedom from retaliation or discrimination by the employer for exercising her substantive FMLA rights. (23)

      In order for employees to enforce these rights, the FMLA gives plaintiffs a private right of action to seek both equitable relief and monetary damages against an employer for interference with or denial of FMLA rights. (24) A DOL implementing regulation, [section] 825.220(d), states that employees may not waive their rights under the FMLA and that employers may not induce employees to waive their rights. (25) It is widely understood that employees cannot prospectively waive rights under the FMLA, giving up opportunities for future leaves of absence in return for monetary consideration. (26) However, as this Note discusses, district and circuit courts are divided over the question of whether [section] 825.220(d) or the FMLA statute itself prohibits enforcement of post-termination severance agreements in which employees waive FMLA claims that arise during their time of employment. (27)

   2. Faris v. Williams WPC-I, Inc.: The Fifth Circuit Allows Retrospective Waivers of Proscriptive FMLA Claims in Severance Agreements

      In 2003, the Fifth Circuit held that an employee's release of all employment-related rights in a severance agreement barred the employee's subsequent FMLA retaliation claim against her former employer. (28) The plaintiff, Carol Faris, worked for Nextira as an occupational health specialist for approximately a year and a half before her supervisor terminated her for poor performance. (29) On the date of her termination, Faris received two weeks. (30) pay in lieu of notice, and Nextira proposed a release agreement, which Faris later signed. 0 In exchange for one month's salary--approximately $4000--Faris waived her rights to "all other claims arising under any other federal, state or local law or regulation." (31) The language of the release did not specifically mention the FMLA. (32) Following termination, Faris sued Nextira and her supervisor, claiming that she was fired in retaliation for asserting her rights under the FMLA. (33) The district court granted Faris's motion for partial summary judgment on the issue of...