Barbara Taylor had worked for Progress Energy for seven years when she developed health problems that took her out of work intermittently. She eventually needed surgery and six weeks of recovery. The missed work counted against her substantially during a later performance evaluation; a supervisor told Taylor most of her absences didn't qualify for FMLA leave. Months later, with layoffs looming, Taylor discovered that her absences did qualify and asked her supervisor to amend her performance evaluation. The supervisor never updated her file, and the company laid her off.

Progress offered to give Taylor a severance package in return for signing a general release of claims against the company. Taylor signed, but turned around and sued anyway, alleging FMLA violations. The district judge dismissed the case. But the 4th Circuit reversed in 2005, ruling that the waiver was unenforceable under section 220(d) of FMLA, which says “Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA.”

The decision troubled many employers that routinely ask employees to waive claims when they leave a job and shocked the Department of Labor (DOL), which stepped into the suit and asked the court for a rehearing, arguing the decision ran contrary to its interpretation of FMLA.

Yet despite those protestations, in Taylor v. Progress Energy Inc. (Taylor II), handed down July 3, the court said workers cannot sign away their right to sue under the FMLA unless they have permission from a court or the DOL.

Unable to include FMLA in their waivers, employers in the 4th Circuit will have to find creative alternatives to limit their liability–or simply hope the issue doesn't come up.

“There isn't a good answer right now, other than [to] write your Congressmen and try to get them to change the law,” says Edmund McKenna, a partner at Ford & Harrison and counsel to the North Carolina Retail Merchants Association, an amicus curiae for the defense.

Types of Rights

In Taylor II the DOL, which has responsibility for administration and rulemaking with regard to the FMLA, argued the statute only forbids employees from waiving their right to sue prospectively. A waiver of retrospective rights–rights to sue after employment has ended, as in Taylor's case–would be perfectly legal under the DOL's interpretation of FMLA. The DOL also argued that requiring it to approve these waivers would create a severe backlog, burdening everyone involved. In the 2003 case Faris v. Williams WPC-I Inc., the 5th Circuit adopted that reasoning to allow employees to retrospectively waive FMLA rights.

But the 4th Circuit rejected these arguments. Judge M. Blane Michael said the department's interpretation of the law was inconsistent with the “plain language” of the regulation, which does not distinguish between prospective and retrospective rights. The majority also suggested that FMLA would be toothless without the right to sue retrospectively.

“[The DOL's] interpretation would undermine the purpose of the FMLA ?? 1/2 and turn the FMLA's substantive rights into empty and unenforceable pronouncements,” Michael wrote.

The appellees asked for an en banc rehearing in early July, and the case may end up in the Supreme Court–especially because the ruling creates a split among the circuits.

Meanwhile, the decision leaves employers with a new source of potential liability. Companies that include FMLA in releases run the risk of having the entire release invalidated–exposing themselves to FMLA claims as well as other employment litigation.

The good news is that employers may be able to forego the waiver entirely in many cases. Employers most commonly ask for the type of waiver Taylor signed as part of a severance agreement. If the departing employee doesn't have a potential FMLA claim, says employment litigator Melissa Raphan, the company can make a “reasoned decision” to just leave it out of the paperwork.

“Employers will have to take a closer look at releases in the 4th Circuit on an individual basis,” says Raphan, a partner with Dorsey & Whitney.

Extra Homework

When dealing with employees who might file claims, employers in the 4th Circuit have a few choices. But taking a waiver to the DOL for approval is emphatically not one of them.

“At a minimum, it [would be quite expensive],” McKenna says. “I'm not sure how you'd even go about doing it.”

Taking it to a court might be only slightly easier if you're not already in litigation. And that strategy could backfire.

“Going to courts and asking them to get their toe into an FMLA claim may be putting [employers] in a position where a court would cast a much wider net in terms of evaluating claims that could be brought,” says Frank Alvarez, a partner at Jackson Lewis.

But Joseph Harkins, a shareholder in Littler Mendelson, suggests employers could encourage the employee to sue and settle immediately, allowing a court to supervise the settlement. That strategy has precedent: Under the Fair Labor Standards Act workers cannot waive their rights. Filing settled cases is one way in which employers handle such liabilities.

Another way is asking employees for written affirmations that their rights under FMLA haven't been violated. Many employers use these affirmations for potential FLSA claims, and while they're not bulletproof, they are difficult for a plaintiff to overcome later.

Raphan also suggests employers that continue to include FMLA in waivers add a severability clause, which will allow the rest of the contract to remain valid if the part pertaining to FMLA is invalidated.

And, of course, in other circuits employers can still ask workers to waive FMLA claims, although attorneys working for large companies should consider establishing multiple sets of paperwork to account for the different interpretations. And, employment attorneys agreed, savvy in-house counsel are already doing that.

“I think releases [are] a circumstance where using a form is not always best,” Raphan says.