Last week, in Equal Employment Opportunity Commission (“EEOC”) v. Allstate Insurance Co., No. 2-01-cv-07402 (3d Cir. Feb. 13, 2015), the Third Circuit affirmed that the defendant did not violate federal anti-retaliation laws by offering thousands of terminated at-will employees the opportunity to continue working as independent contractors in exchange for signing a release.
By way of background, the defendant here decided to reorganize its business and, in the process, terminate more than 6,000 sales agent employees. In connection with their termination, the employees received the option to convert to independent contractor status if they executed a release waiving any existing legal claims against the company. Employees who chose conversion also received a bonus of at least $5,000, repayment of office expense advances, and a transferable interest in their books of business in two years’ time (rather than the standard five).
Despite the defendant’s attempts to prevent litigation, several former employees brought a class action seeking to invalidate the releases they had signed. The EEOC also filed suit to invalidate the releases on the grounds that the defendant retaliated against the employees by permitting them to continue their careers with the company only if they executed a waiver of claims.
The Third Circuit affirmed the lower court’s dismissal of the EEOC’s claim, stressing that there was no “good reason why an employer cannot require a release of discrimination claims by a terminated employee in exchange for new business relationship with the employer.” The Court specifically held that the “Conversion Option offered terminated employee agents something of value to which they were not otherwise entitled” (e.g., guaranteed conversion to independent contractor status and additional financial benefits), and thus “conformed with the settled rule that employers can exchange consideration for releases of claims.”
Failing to understand why this “pressure” situation was any “more offensive to anti-retaliation statutes than the pressure one is bound to feel when required to sign a release in exchange for severance pay,” the Third Circuit, in turn, concluded that the EEOC had failed to establish any of the necessary prerequisites—protected activity and adverse action—for a retaliation claim.
Despite this favorable decision, employers in the Third Circuit should still remember to exercise caution when exploring less conventional arrangements in return for a release.