Tuesday, July 10, 2007

FMLA waivers pose a potential trap

There are few worse feelings than being sued by an employee with whom you had previously negotiated a severance or settlement agreement and learning that the release of claims that had protected you from that very eventuality is invalid. Taylor v. Progress Energy, Inc., decided last week by the Fourth Circuit, presents that very dilemma under the FMLA, and holds that no waiver of any claim or right under the FMLA is valid unless it is first approved by the Department of Labor or a court.

Section 825.200(d) of the regulations for the FMLA states: "Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA." At issue in Taylor was whether 825.200(d)'s proscriptions apply to any claim under the FMLA, certain types of FMLA claims, or only future FMLA claims. First, the Court concluded that the regulation applies to all types of FMLA claims: those regarding substantive rights (i.e., denials of leave), those regarding proscriptive rights (i.e., retaliation), and those regarding remedial rights (i.e., actions to recover damages). Secondly, because there is nothing in the text of 825.200(d) that distinguishes between past and future claims, and because the word "waive" has a retrospective connotation, the regulation applies to any claim under the FMLA, past or future. The Court so ruled because of the strong policies that merit protection under the FMLA: "[W]ith respect to the FMLA, ... settlements that are cheaper than compliance would encourage noncompliance, thereby undermining the Act's purpose of imposing minimum standards for family and medical leave."

The Sixth Circuit has not addressed this issue, but at least two other courts have, with each reaching the opposite result from Taylor. The Fifth Circuit has held that section 825.200(d)'s prohibition against waivers only applies to prospective waivers of substantive rights such as rights to leave, reinstatement, etc. The Eastern District of Pennsylvania interprets 825.200(d) even more narrowly in holding that it does not prohibit an employee from waiving any past FMLA claims as part of a severance agreement or settlement.

Because this issue is open in the Sixth Circuit, Ohio employers would be prudent to tread conservatively and obtain judicial or DOL approval of any agreement that contains any waiver of any rights under the FMLA, or at a minimum include indemnification language (an issue not addressed by Taylor) in such agreements to cover any future lawsuits. Ultimately, the Sixth Circuit could (and should) adopt the common sense approach and permit a waiver of past FMLA claims as part of a severance or settlement agreement. After all, no one pays an employee severance or a settlement to leave unreleased claims that could later mature into a lawsuit. Releases are intended to cover all past conduct and claims, which is why the employee is paid a sum of money to which he or she would not otherwise be entitled. However, there is certainly a risk that the Sixth Circuit will find Taylor persuasive and find all unapproved FMLA waivers null and void.