Monday, February 16, 2015

Third Circuit Okays Employee-to-Independent Contractor Release of Claims

The Third Circuit issued its opinion in EEOC v. Allstate Insurance Company on Friday.

Allstate changed its business model, effectively making its agents independent contractors instead of employees. So, technically, Allstate had to fire the employees. It then gave the terminated agents a choice: stay on as an agent but sign an independent contractor agreement; or choose from a few different severance agreements. The independent contractor "conversion" agreements included a release of any claims the no-longer-employee-agents had at the time.

The EEOC filed suit seeking to invalidate the agreements. The EEOC advanced two primary arguments. First, the agents did not receive adequate consideration because all they really got was an "opportunity to continue their Allstate careers." The Court rejected that argument, noting that the agents were not entitled to continue on as independent contractors, and that they chose the independent contractor agreements over severance packages that clearly included consideration (fairly substantial monetary value). In other words, they received something of significant value that they were not entitled to in exchange for signing the release.

The EEOC's second argument was that the employees who refused to sign the release were not allowed to continue their careers (in my words, not theirs: they were effectively fired for refusing to sign). The Court rejected this argument because the "inaction" of not signing a general release (encompassing claims beyond discrimination) was not protected activity. "[S]uch inaction does not communicate opposition sufficiently specific to qualify as protected employee activity"

Furthermore, the employees were all terminated regardless of whether they signed or not, so there was no causal connection. Further still, "the terminated agents were not entitled to convert to independent contractor status . . . . And the Commission has cited no legal authority for the proposition that an employer commits an adverse action by denying an employee an unearned benefit on the basis of the employee’s refusal to sign a release."

The Third Circuit affirmed the District Court's entry of judgment in favor of Allstate.

Endnote: Perhaps I'm reading too much into the decision, but in rejecting the EEOC's consideration argument the Court notes: "The agents were entitled to neither continued employment (because they were at-will employees under the R830 and R1500 contracts) nor severance pay." (emphasis added). Does that open the door to enforceable releases based on nothing more than continued employment? I haven't specifically researched the issue, but the Court's statement has piqued my interest.