Fourth Circuit: No Waiver or Release of FMLA Claims without DOL or Court Approval

Without prior Department of Labor (DOL) or court approval, a waiver or release of an employee’s prospective or retrospective FMLA claim is now unenforceable in Maryland, Virginia, West Virginia, North Carolina, and South Carolina.

In reversing the district court’s order granting summary judgment, the Fourth Circuit, in Taylor v. Progress Energy, Inc., No. 04-1525 (4^th Cir. July 20, 2005) held that 29 C.F.R. § 825.220(d) renders a release waiving or settling FMLA claims unenforceable unless the employer has obtained prior DOL or court approval.

As in waiver of FLSA claims, employers in the Fourth Circuit must now have the DOL supervise a settlement, or, for claims made in court, must have a judicially approved consent judgment.

Barbara Taylor was a technical aide and later a data management assistant at Progress Energy who missed a number of work days due to medical testing and treatment. When she asked a human resources representative about the possibility of taking FMLA leave, she was erroneously informed she was ineligible because she had been absent from work for more than five consecutive days. After then missing a full week of work due to medical complications, she received a written warning that stated she had exceeded the company’s average sick time and had to improve her attendance. Taylor then learned she needed immediate surgery. When she advised a human resources representative and asked whether any of the time she missed from work qualified as FMLA leave, she again was erroneously advised she did not qualify because she had been out of work for more than five consecutive days. Taylor then had surgery and was out of work for six weeks. She sought FMLA leave for the entire period but was credited for only four of the six weeks.

Shortly thereafter, based on these health-related absences, Taylor received a poor performance evaluation and a below-average raise. When Taylor learned the company was planning a reduction in force, she became concerned and contacted the DOL. She also asked the company to correct her performance evaluation so that it indicated her absences were qualified under the FMLA. A human resources representative denied Taylor’s request. Two weeks later, she was terminated. At that time, Progress presented Taylor with a release and severance agreement providing for seven weeks of paid leave and additional compensation if she signed the document releasing, among other claims, "all claims" under "any other federal . . . law." Taylor signed the release and received a $12,000 check, which she cashed.

Taylor again contacted the DOL concerning the company’s failure to designate her health-related absences as FMLA leave, the negative performance evaluation, and the company’s use of that evaluation in its decision to terminate her. The DOL advised her to try to resolve her concerns with the company. Taylor contacted the director of the human resources department, who corrected her performance evaluation but did not address her other issues.

Taylor then filed suit against Progress under the FMLA alleging Progress violated the statute by failing to inform her of her rights, improperly denying her requests for medical leave, terminating her employment because of medical absences, and terminating her employment because she complained about the company’s violations of the FMLA.

Progress filed a motion for summary judgment on the basis that Taylor’s release was valid and provided a complete defense to the lawsuit. In response, Taylor relied upon 29 C.F.R. § 825.220(d), which bars enforcement of the release of FMLA claims. The district court granted Progress’ motion for summary judgment, relying on Faris v. Williams WPC-I, Inc., which holds that § 825.220(d) only prohibits the prospective waiver of substantive FMLA rights. The district court found the regulation did not apply to the retrospective waiver or release of FMLA claims or the waiver or release of claims that an employer discriminated or retaliated against an employee.

The Fourth Circuit flatly rejected the district court’s interpretation of § 825.220(d). It found that the regulation’s plain language prohibits the release or waiver of retrospective and prospective FMLA rights, whether substantive or proscriptive (preventing discrimination and retaliation), absent prior approval of the DOL or a court.

The court’s analysis of the statute was guided by the Supreme Court’s opinion in Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Since Congress did not explicitly provide for the waiver or settlement of claims in the FMLA, Chevron requires an analysis of whether the regulation is based on a permissible construction of the statute. The court examined the unambiguous language and meaning of the regulation and the FMLA’s legislative history, which revealed DOL’s recognition that the FMLA’s enforcement scheme paralleled the FLSA’s. Under the FLSA, an employee may not waive or release a claim without prior approval of the DOL or a court. Moreover, the DOL rejected the suggestion that employees should be able to freely waive and release their rights under the FMLA as they can under Title VII and the ADEA.

In disagreeing with the Fifth Circuit’s analysis in Faris, the court noted that the Fifth Circuit only found the waiver doctrines under Title VII and the ADEA "highly persuasive" because it could think of "no good reason" to treat FMLA waivers any differently. The court also rejected Progress’ claim that summary judgment was appropriate because Taylor ratified the release by retaining the $12,000 she received for executing the release. Because FMLA claims are not waivable by agreement, the court said, neither are ratifications.

Progress also claimed that prohibiting the release or waiver of FMLA claims would cast doubt on the court’s decision in O’Neil v. Hilton Head Hospital, 115 F.3d 272 (4^th Cir. 1997), where the court held a general arbitration clause in an employment contract applicable to all employment claims. The court rejected Progress’s claim that barring enforcement of the release or waiver is inconsistent with the general public policy favoring settlement, similarly finding that the general policy has no place in a Chevron analysis of whether the regulation is based on a permissible construction of the statute. Furthermore, The court rejected Progress’s argument that Congress’ silence on the question of waiver should be interpreted as indicating intent to permit the waiver or release of FMLA claims, finding "inferences from congressional silence . . . treacherous." In response to Progess’s argument that prohibiting the waiver or release is arbitrary, the court stated that § 825.220(d) permits the waiver of FMLA rights, but with prior approval of the DOL or a court.

In concluding that § 825.220(d) is "based on a permissible construction" of the FMLA and not "arbitrary, capricious, or manifestly contrary to the statute," the court focused on the FMLA’s similarity to the FLSA, rather than on employment discrimination statutes such as Title VII. The FMLA was enacted to set a minimum labor standard for family and medical leave and was analogized to child labor and occupational safety laws as well as the FLSA. Congress indicated that the FMLA was to be implemented in the same way as the FLSA. The FMLA instructs the DOL to receive, investigate, and attempt to resolve FMLA violations in the same manner as it does with violations of the FLSA. The DOL thus has statutory authority to approve the waiver or release of both FLSA and FMLA claims. The court found judicial authority to supervise the waiver or release of FLSA and FMLA claims implicit in both the labor standards statutes because of the statutory grant of federal or state court jurisdiction to hear and determine the claims. Settlement of claims under the FLSA must be supervised by the DOL or a court. The DOL’s approach in adopting a standard governing FMLA waivers that tracks the standard governing FLSA waivers is. therefore, consistent with congressional intent and the statutory text.

The court found that federal labor standards "take broad societal concerns out of the competitive process so that conscientious employers are not forced to compete with unscrupulous employers" and "without the regulation’s non-waiver provision, the unscrupulous employer could systematically violate the FMLA and gain a competitive advantage by buying out FMLA claims at a discounted rate."

In light of Taylor and the Fifth Circuit’s opinion in Faris v. Williams WPC-I, Inc., 332 F.3d 316 (5^th Cir. 2003)--holding that 29 C.F.R. § 825.220(d) only prohibits the prospective waiver of substantive FMLA rights--the enforceability of waivers of prospective substantive FMLA claims may be primed for resolution by the Supreme Court.

However, at present, employers in the Fourth Circuit and elsewhere should be taking certain actions in light of this recent decision:

• Those employers with operations and employees in the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina, and South Carolina) should ensure that settlement and release agreements should no longer include language waiving an employee’s right to bring a claim under the FMLA;
• Employers with operations and employees in the Fourth Circuit should review their model waiver language in release and settlement agreements to determine whether the FMLA is specifically cited or it contains a "catchall category" like "other federal laws. " This language should be removed;
• Employers with operations and employees in the Fourth Circuit should determine whether the need for an employee’s release of FMLA claims is paramount to warrant approval by the DOL or a court; and
• All employers should review their model waiver language in release and settlement agreements to ensure compliance with the language of the statutes and regulations cited.

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