The case is EEOC v. Allstate, decided by the 3rd Circuit on 2/13/15 [2015 U.S. App. LEXIS 2330]. Historically, Allstate agents worked through Sears and/or company owned offices via employment contract. Subsequently, in one reorganization, new agents signed a contract (R1500) and existing agents could choose remaining on their old contract (R830). Under either contract, agents were considered “at-will” employees and at-will employees were not entitled to severance if they were terminated under the terms of any group reorganization/restructuring benefit plan or program. Then in 1999, Allstate instituted a reorganization program in which 6,200 employee agents were terminated and were offered four choices, the most popular of which was a “Conversion Option” in which those who accepted were offered a bonus of at least $5,000. Those who chose not to convert remained bound by noncompetition covenants in the original R830 and R1500 contracts.
The district court of the Eastern District of Pennsylvania ruled in this case that Allstate did not illegally retaliate by requiring employee agents to waive any pending discrimination claims if terminated employees chose to become independent contractors. A similar ruling had been rendered by the that court in Romero v. Allstate (2014) [3 F.Supp 313], the appeal of which is pending.
In what is known as the “hornbook law”, the district court in the current case ruled that employers can require those terminated to release their claims if made in exchange for benefit they would otherwise not be entitled to. The 3rd Circuit agreed. The EEOC argued that trading releases under these circumstances created financial pressure simply by being offered such as deal. However, the court ruled that the company “followed the well-established rule that employers can require terminated employees to waive existing legal claims in order to receive unearned post-termination benefits.”
What’s interesting here is that similar rules are written into Older Worker’s Benefit Protection Act (OWBPA) of 1990 such that waiver of the right to sue in exchange for benefits was designed by Congress mainly for companies facing RIFs as an option for gaining voluntary agreement to waive rights under rules designed to protect those waiving their right to sue. It should be noted that similar rules have been applied in cases other than age discrimination (e.g., Title VII). More importantly for present purposes, the EEOC argued Allstate agents were coerced into accepting the conversion option, something that, on its face, would seem to run counter to the OWBPA.
I guess what this means is that an employer can choose to reorganize for whatever reason and use the OWBPA-like option to avoid discrimination claims down the line. The EEOC is on record as opposing such plans. Therefore, the ruling in this case, and the impending ruling in Romero (likely to be supported by the 3rd Circuit), puts a major crimp in the EEOC’s efforts to oppose what they think are coercive waiver plans.
By Art Gutman, Ph.D., Professor, Florida Institute of Technology