Third Circuit: Requiring Employees to Sign Release to Become Independent Contractors Not Retaliatory | Practical Law

Third Circuit: Requiring Employees to Sign Release to Become Independent Contractors Not Retaliatory | Practical Law

In EEOC v. Allstate Insurance Co., the US Court of Appeals for the Third Circuit affirmed a district court’s granting of summary judgment to employer Allstate Insurance Company in a federal retaliation action brought by the Equal Employment Opportunity Commission (EEOC) on behalf of Allstate employee sales agents who had been required to sign a release as a condition for continuing to work with Allstate as independent contractors. The court held that the sales agents received valid consideration in exchange for their releases, and further found that the sales agents did not engage in protected activity nor did Allstate take any adverse action against them.

Third Circuit: Requiring Employees to Sign Release to Become Independent Contractors Not Retaliatory

by Practical Law Labor & Employment
Published on 23 Feb 2015 • USA (National/Federal)
In EEOC v. Allstate Insurance Co., the US Court of Appeals for the Third Circuit affirmed a district court’s granting of summary judgment to employer Allstate Insurance Company in a federal retaliation action brought by the Equal Employment Opportunity Commission (EEOC) on behalf of Allstate employee sales agents who had been required to sign a release as a condition for continuing to work with Allstate as independent contractors. The court held that the sales agents received valid consideration in exchange for their releases, and further found that the sales agents did not engage in protected activity nor did Allstate take any adverse action against them.
On February 13, 2015, in EEOC v. Allstate Insurance Co., the US Court of Appeals for the Third Circuit affirmed a district court’s granting of summary judgment to employer Allstate Insurance Company in a federal retaliation action brought by the EEOC on behalf of Allstate employee sales agents who had been required to sign a release as a condition for continuing to work with Allstate as independent contractors. The Court held that the sales agents received valid consideration in exchange for their releases, and further found that the sales agents did not engage in protected activity nor did Allstate take any adverse action against them. (No. 14-2700, (3d Cir. Feb. 13, 2015).)

Background

In 1999, Allstate implemented a program reorganizing its entire agency force into a single exclusive agency independent contractor program. It terminated its agents' employment contracts, along with their health, welfare and retirement benefits, and offered the agents four options. The only option at issue provided for the agents to sign a release of claims and convert to independent contractor status in order to continue working with Allstate (the "conversion option"). The release covered a variety of legal claims, including discrimination claims under Title VII, the ADEA and ADA. The release only covered claims that had accrued by the time the terminated employees signed it, not future claims, and it did not bar them from filing charges with the EEOC.
In exchange for signing the release, agents who chose the conversion option would receive a bonus and would not be required by Allstate to repay any office-expense advances. The agents would also acquire transferable interests in their business two years after converting to independent contractor status. Thousands of agents chose the conversion option.
Following Allstate's reorganization, several agents filed age discrimination charges with the EEOC (approximately 90% of the agents were over 40) and initiated multiple actions in federal court against Allstate. The EEOC then brought its own action against Allstate, seeking a declaratory judgment that Allstate's release was invalid on the basis that Allstate illegally retaliated against its employee agents by allowing them to continue working with Allstate as independent contractors only if they waived discrimination claims.
In March 2014, in Romero v. Allstate Insurance Co., the US District Court for the Eastern District of Pennsylvania denied the EEOC's motion for summary judgment and granted Allstate's motion (No. 01-6764, (E.D. Pa. Feb. 27, 2014)). The district court ruled that Allstate did not violate the anti-retaliation provisions of Title VII, the ADEA or the ADA by requiring its agents to sign a release in order to remain with the company as independent contractors after implementing a termination and reorganization program (See Legal Update, No Retaliation When Employer Required Terminated Employees to Sign a Release to Become Independent Contractors). The EEOC appealed.

Outcome

The Third Circuit affirmed the district court's granting of summary judgment to Allstate on the EEOC's retaliation claims. The Third Circuit held that:
  • A release need not offer severance in order to be valid, as there are other forms of valid consideration that render a release enforceable.
  • An employer allowing an employee to remain with the company in a different capacity in exchange for signing a release fell within the settled rule that releases are generally valid and enforceable.
The Court pointed out that:
  • Adopting the EEOC’s argument that Allstate would not have violated the anti-retaliation laws had it simply fired the sales agents instead of offering them an opportunity to stay on in a different capacity was counterintuitive and did not conform with the purpose of the anti-retaliation laws.
  • The conversion option offer put forth to the sales agents by Allstate included something of value to which the sales agents were not otherwise entitled, including:
    • a guarantee that they would be converted to independent contractors whereas previously no such guarantee had been made to them by Allstate;
    • a bonus;
    • an exemption from having to repay office expenses; and
    • a transferable interest in the sales agent’s business two years from conversion, whereas previously the transferrable interest was due to occur in five years.
  • The EEOC was unable to point to a single case finding it unlawful for an employer to condition a continued working relationship with the employer on signing a release. Meanwhile, a Seventh Circuit case, Isbell v. Allstate Insurance Co., had found flaws in a retaliation theory mirroring the EEOC’s argument in this matter (418 F.3d 788 (7th Cir. 2005)).
The Court rejected the EEOC’s retaliation theory that the protected activity was the sales agents’ refusal to sign the release (actually, many of them had signed the release) and Allstate’s adverse action was its withdrawal of the Conversion Option to those agents who refused to sign the release. The Court noted:
  • Refusing to sign a release does not rise to the level of protected activity because it is inaction and does not involve communicating some type of opposition to the employer's policies or practices.
  • Any refusal by sales agents to sign the release could be based on various reasons unrelated to discrimination.
  • Allstate’s withdrawal of the conversion option based on a sales agent's refusal to sign the release could not be an adverse action because Allstate was effectively denying the refusing sales agent a benefit (conversion) that the sales agent had not earned in the first place.
  • There was no nexus between any alleged action by Allstate and any alleged protected activity by the sales agents.

Practical Implications

This case highlights the EEOC's recent focus on release agreements that waive employees' rights under federal discrimination laws. Although the court found in the employer's favor here and found that other items of value besides severance can form a valid and enforceable release, employers should closely review their release agreements and reduction in force procedures to ensure that they are in compliance with applicable law.