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Feb. 13 — Allstate Insurance Co. didn't unlawfully retaliate under the federal anti-discrimination laws by requiring its employee agents in 2000 to sign releases that waived any pending discrimination claims if the terminated employees chose to become independent contractors selling Allstate products, the U.S. Court of Appeals for the Third Circuit ruled Feb. 13.
Affirming summary judgment for Allstate in a long-running dispute, the Third Circuit said the Allstate conversion program, one of four termination options the company offered to some 6,200 agents previously classified as employees at will, falls within the general rule that employers may require signed releases of claims in exchange for severance pay or other enhanced benefits not normally available to fired employees.
The Third Circuit rejected the EEOC's argument that Allstate's requirement of a release for a terminated employee to continue with the company as an independent contractor is an exception to “hornbook law” that employers may require releases for post-termination benefits without running afoul of federal anti-discrimination laws.
“[T]he EEOC here fails to articulate any good reason why an employer cannot require a release of discrimination claims by a terminated employee in exchange for a new business relationship with the employer,” Judge Thomas M. Hardiman wrote.
The EEOC raises valid concerns about “the prospects of employers trading releases for new business opportunities” and terminated employees “facing ‘financial pressure' when offered such a deal,” the court said.
But the EEOC “fails to explain why this financial pressure is more offensive” to the discrimination laws' anti-retaliation provisions “than the pressure one is bound to feel when required to sign a release in exchange for severance pay,” the court said.
“In sum, we are not persuaded by the [EEOC's] efforts to arbitrarily limit the forms of consideration exchangeable for a release of claims by a terminated employee,” Hardiman wrote.
“Allstate followed the well-established rule that employers can require terminated employees to waive existing legal claims in order to receive unearned post-termination benefits,” the court said. “The EEOC has neither given us reason to craft an exception to this rule nor articulated a valid retaliation claim under the relevant statutes.”
The EEOC is examining the decision and considering its options, an agency spokeswoman said Feb. 13.
In a statement, Allstate said it was pleased the Third Circuit had resolved the contested issues in its favor after years of litigation.
“As the court noted, in offering each of its employee agents an option to continue selling insurance as Allstate exclusive agent independent contractors, ‘Allstate followed the well-established rule that employers can require terminated employees to waive existing legal claims in order to receive unearned post-termination benefits,' ” said Laura Strykowski, a company spokeswoman in Northbrook, Ill.
The Third Circuit's opinion is a “very straightforward decision” rejecting as “untenable” the EEOC's view that a retaliation cause arises when employers simply offer enhanced benefits to terminated employees in exchange for a release of claims, said Rae Vann of Norris Tysse Lampley & Lakis in Washington, who filed an amicus brief for the Equal Employment Advisory Council, an association of large employers.
The EEOC's argument is “not supported by basic legal principles,” and the Third Circuit decision is in accord with every other federal appeals court to consider the issue, Vann told Bloomberg BNA Feb. 13.
The EEOC recently has been filing lawsuits challenging separation agreements, arbitration pacts and other employment documents containing releases as part of the agency's strategic enforcement plan, which identifies preserving access to the legal system as a priority, Vann noted. She hopes the Third Circuit's decision rejecting the EEOC's retaliation theory “will tamp down” the agency's enthusiasm for pursuing such cases, Vann said.
No federal appeals court agrees with the EEOC's premise that an employer may be liable for retaliation by “simply making the offer” of enhanced benefits conditioned on a waiver of claims, Vann said.
In addition, as the Third Circuit found, the EEOC's argument that any employee who refuses to release claims is engaging in “protected activity” can't be squared with the relevant language in Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act or the Americans with Disabilities Act, Vann said.
The Third Circuit's ruling that employers may lawfully condition a terminated employee's receipt of enhanced benefits on a signed release of claims should apply broadly beyond the Allstate case's particular facts, Vann said.
After Allstate implemented its conversion program in 2000, and several thousand former employee agents signed releases and many became independent contractors, some former agents and the EEOC filed separate lawsuits challenging the program.
The private plaintiffs filed individual cases and putative class actions seeking to invalidate the release and alleging discriminatory discharge, retaliation, Employee Retirement Income Security Act violations, breach of contract and breach of fiduciary duty.
Meanwhile, the EEOC alleged Allstate illegally retaliated against its employee agents under Title VII, the ADA and the ADEA by allowing them to continue their careers with Allstate only if they waived any discrimination claims.
The U.S. District Court for the Eastern District of Pennsylvania in 2007 granted summary judgment to Allstate in both cases. But in 2009, the Third Circuit vacated those rulings, saying they were “inadequately reasoned” and insufficiently supported by evidence in the record (Romero v. Allstate Insurance Co. 344 Fed. App'x 785, 47 EBC 2886 (3d Cir. 2009)). The Third Circuit ordered that on remand the cases be reassigned to a different judge and that further discovery be permitted.
Regarding the private plaintiffs' claims, the district court subsequently granted Allstate partial summary judgment but said a trial was needed to determine whether the terminated employee agents had knowingly and voluntarily signed the release and whether the release was unconscionable.
In a separate opinion, the district court granted summary judgment to Allstate on the EEOC's retaliation suit. The court said Allstate's requirement that employee agents choosing the conversation option waive their pending claims wasn't facially retaliatory because the policy didn't discriminate based on any protected trait. Allstate also hadn't specifically retaliated against employee agents who refused to sign the release because, among other things, refusal to sign a release did not constitute “protected activity” under the relevant statutes, the district court said (2014 BL 70431, 122 FEP Cases 33 (E.D. Pa. 2014)).
The EEOC appealed to the Third Circuit while the private plaintiffs' suit against Allstate remains pending in district court.
The EEOC argued Allstate's conduct was “per se retaliatory” because the company “withheld a privilege of the employee's employment—the offer in the conversion option to continue their careers as Allstate agents—if they refused to release all their claims.”
Alternatively, the EEOC contended Allstate retaliated against employee agents who refused to sign the release by denying them the opportunity to continue their careers with Allstate as independent contractors. Those employees' refusal to waive their claims constituted “protected opposition activity” that prompted Allstate to engage in the “adverse employment action” of withholding the conversion option, the EEOC said.
But the Third Circuit said the EEOC failed to establish either “protected activity” or “adverse action,” both necessary elements of a retaliation claim under Title VII, the ADEA and the ADA.
“The [EEOC] argues that refusing to sign a release constitutes opposition to unlawful discrimination, but we disagree,” the court said. “In our view, such inaction does not communicate opposition sufficiently specific to qualify as protected employee activity.”
Since the Allstate release barred signatories from “bringing any claims” concerning their employment or termination, employee agents who refused to sign “might have done so for any number of reasons unrelated to discrimination,” the court said. Indeed, the Romero plaintiffs brought claims against Allstate for breach of contract and breach of fiduciary duty, the court pointed out.
“Accordingly, the EEOC cannot show that any adverse action taken by Allstate was triggered by opposition to unlawful discrimination, dooming its retaliation case at the outset,” the court said.
But even if the EEOC could establish protected activity, the agency can't identify any adverse action by Allstate, the court said. It found the terminated agents weren't legally entitled to convert to independent contractor status.
“And the [EEOC] has cited no legal authority for the proposition that an employer commits an adverse action by denying an employee an unearned benefit on the basis of an employee's refusal to sign a release,” the court said. “There is significant support for the opposite proposition.”
As support for its argument, the EEOC cited EEOC v. Board of Governors, 957 F.2d 424, 58 FEP Cases 292 (7th Cir. 1992), in which the Seventh Circuit invalidated a collective bargaining agreement provision that suspended an employee's right to an internal grievance proceeding if the employee initiated an administrative or judicial proceeding concerning his grievance.
The Seventh Circuit said such a contract provision violated the ADEA's anti-retaliation provision because it authorized the employer to strip the employee of a contractual right and adversely altered a “condition of his employment” if the employee sought relief under the ADEA in an external forum.
But the Third Circuit said that in Board of Governors, the EEOC identified “a clear protected activity,” the employee's filing a discrimination charge in an external forum, and “paired it” with an employer action “that deprived employees of something to which they were entitled”—a hearing on their internal grievance.
“The EEOC fails to muster the same showing here, which makes all the difference,” the court said.
Judges Anthony J. Scirica and Maryanne Trump joined in the decision.
The EEOC's Paul D. Ramshaw in Washington, C. Felix Miller in St. Louis and Iris A. Santiago-Flores in Philadelphia represented the agency. Donald R. Livingston in Washington and Katherine M. Katchen in Philadelphia, both of Akin Gump Strauss Hauer & Feld, and Richard C. Godfrey, Jordan M. Heinz and Sallie G. Smylie in Chicago and Erica Zolner in New York, all of Kirkland & Ellis, represented Allstate.
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Text of the opinion is available at http://www.bloomberglaw.com/public/document/EEOC_v_Allstate_Insurance_Co_Docket_No_1402700_3d_Cir_May_15_2014.
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