No Retaliation When Employer Required Terminated Employees to Sign a Release to Become Independent Contractors

Practical Law Legal Update 7-561-9248 (Approx. 6 pages)

No Retaliation When Employer Required Terminated Employees to Sign a Release to Become Independent Contractors

by Practical Law Labor & Employment

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, 90% of which were over 40 years old, and offered the agents four options. The first three options required the agents to sign a release waiving federal discrimination claims in order to receive either severance or contracts to continue as independent contractors. The fourth option did not require the agents to sign a release but subjected them to additional non-compete and non-solicitation obligations.

The agents filed age discrimination charges with the EEOC and initiated two actions in federal court against Allstate. The EEOC then brought its own action against Allstate, alleging it unlawfully retaliated against its agents in violation of Title VII, the ADEA and the ADA by refusing to permit them to continue as agents unless they signed a release. The EEOC also sought a declaratory judgment that Allstate's release is invalid.

Both parties filed motions for summary judgment. The court denied summary judgment as to the validity of the release, holding that there were genuine issues of material fact whether the release was knowingly and voluntarily signed.

Outcome

Addressing the retaliation claims, the court held that Allstate did not violate the anti-retaliation provisions of Title VII, the ADEA or the ADA.

The court held that the mere offer of the release was not facially retaliatory because:

A release used in connection with a termination is not per se retaliatory simply because it includes the release of federal discrimination claims.
Allstate's entire agent workforce, with limited exceptions based on state law, was terminated regardless of age or protected activity.
All agents were offered the same options.
The reorganization did not categorize agents according to their age or protected activity.
The Seventh Circuit's decision in EEOC v. Board of Governors of State Colleges & Universities (957 F.2d 424 (7th Cir. 1992)), holding that a collective bargaining agreement's policy denying employees their contractual right to a grievance proceeding when initiating a claim in court was retaliatory, is distinguishable because:
- the Seventh Circuit did not state that the existence of the policy on its own was retaliatory, but that the enforcement of the policy against employees who filed EEOC charges was retaliatory;
- the policy preemptively retaliated against employees by automatically subjecting them to an adverse employment action when engaging in the protected activity; and
- in the present case, the offer to become independent contractors was a new benefit offered to the agents, not a contractual right that the agents already had, and requiring a release in exchange for a new benefit was not facially retaliatory.

The court also found that Allstate did not retaliate against agents who did not sign the release by refusing to let them become independent contractors or remain employed, holding that:

The mere refusal to sign a broad release was not a protected activity.
The refusal to sign a release did not necessarily indicate an intent to participate in any litigation, let alone federal discrimination litigation.
There was no evidence in the record showing that any of the agents had threatened to pursue discrimination claims against Allstate prior to the reorganization.
Allstate could have thought that the agents refused to sign the release to pursue breach of contract claims, not necessarily discrimination claims.
To hold that all releases that ask for waivers of federal discrimination claims are substantively retaliatory would go against Congress's intent.
The EEOC failed to prove that withholding the benefit of becoming an independent contractor, to which the agents were not previously entitled before the offer and release, is an adverse employment action, or that those who refused to sign were subjected to other adverse employment actions.
The EEOC conceded that if Allstate had not offered the fourth option to agents to convert to independent contractors it would have no retaliation claim, and it would be illogical to hold that by adding the fourth option Allstate engaged in retaliation.

The court further held that Allstate did not engage in anticipatory retaliation against agents who signed the release by preventing them from bringing discrimination claims in exchange for continued employment because:

The cases the EEOC relied on involve employers who were aware or reasonably feared an employee's specific intent to engage in a protected activity, which then triggered the adverse employment action, whereas here there was no evidence that Allstate implemented the reorganization based on knowledge or fear that the agents had any intent to raise discrimination complaints.
Allstate did not take or threaten to take any adverse actions against the agents for bringing discrimination claims.

The court also found against the EEOC in its assertion that Allstate violated Section 503(b) of the ADA, which makes it unlawful to coerce another party not to exercise his rights under the ADA. The court held that Section 503(b) is inapplicable because the EEOC has not shown that the agents were enjoying rights protected by the ADA, a prerequisite to its application.

Practical Implications

This case highlights the EEOC's recent focus on release agreements that restrict employees from raising federal discrimination claims. Although the court found in the employer's favor here, employers should closely review their release agreements and reduction in force procedures to ensure that they are in compliance with the law.

No Retaliation When Employer Required Terminated Employees to Sign a Release to Become Independent Contractors | Practical Law