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Third Circuit Holds that Requiring Employees to Sign Release of Claims is Not Retaliation

On February 13, 2015, the Third Circuit Court of Appeals, which covers Pennsylvania, decided EEOC v. Allstate Insurance Company, No. 14-2700 (3d Cir. Feb. 13, 2015). The case involved a massive change Allstate made to its insurance sales model, which involved giving over 6,000 at-will employee agents the opportunity to convert to an independent contractor model instead of being laid off. Employees were given four options (including a general and an enhanced severance). Three of the choices, including the independent contractor option, required the employee to sign a release of any claims, including discrimination claims, that the employee may have had up to the time of signing the agreement. The Equal Employment Opportunity Commission (“EEOC”) filed suit against Allstate, claiming that requiring a release be signed in order to become an independent contractor constituted unlawful retaliation.

In deciding the case, the Third Circuit first noted that the anti-retaliation provisions of the employment discrimination laws prohibit: (1) discrimination against an individual because the individual opposed any act or practice unlawful under the employment discrimination laws; or (2) discrimination because an individual made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under the employment discrimination laws. The court noted that it was “well-established” that employers can require releases in exchange for post-termination benefits. It rejected the EEOC’s contention that only severance benefits provided sufficient consideration for a release of claims. The court noted that the offer of continuing to work for Allstate as an independent contractor provided sufficient consideration for a release because it constituted a benefit to which the employees were not otherwise entitled, including an enhancement of Allstate’s usual independent contractor relationship model.

The court also rejected the EEOC’s theory that Allstate retaliated against employees by not allowing employees who refused to sign the release the opportunity to continue working for Allstate. The court held that refusing to sign a general release did not constitute opposition to unlawful discrimination. Accordingly, the employees who refused to sign the release did not engage in any protected activity. Even if the refusal to sign was a protected activity, the court held that the employer did not commit an adverse action by denying the employees an unearned benefit based on their refusal to sign the release.

What Does This Mean For You? While many recent cases have expanded the reach of the retaliation provisions of employment discrimination laws, the Third Circuit here has reined in the EEOC’s expansive theories. While this case involved changing employee relationships into independent contractor relationships, it addressed only whether Allstate had unlawfully retaliated against the employees. It should not be read as approving independent contractor relationships, because that issue was not before the court. Accordingly, this case should be understood as limiting an expansive theory of retaliation, not as a license to businesses to convert employee relationships to independent contractor relationships.

If you have questions about this case or any other employment or labor law issues, please contact Whitney Rahman at (717) 509-7237 or at swr@blakingerthomas.com

 This update is for informational purposes only and should not be construed as legal advice or as creating an attorney-client relationship where one does not already exist.