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EEOC Loses Argument That Company Converting Employees to Contractors Cannot Require Release of Pending Discrimination Claims

    Client Alerts
  • February 20, 2015

Over the past several years, the Equal Employment Opportunity Commission has filed several high profile lawsuits accusing employers of retaliating against employees by requiring them to waive discrimination claims in return for post-employment benefits. Last week, the Third Circuit Court of Appeals issued another rejection of these challenges, holding that Allstate’s release used in conjunction with conversion of its agents did not violate their federal civil rights.

In EEOC v. Allstate Ins. Co., the company made the decision to convert its employee agents to independent contractors. As a condition of the conversion, Allstate required the agents to sign a general release of all claims relating to their employment, including employment discrimination claims. The EEOC alleged that this condition constituted retaliation against the agents because of financial pressure placed on agents who had little alternative to the conversion.

The Third Circuit resoundingly rejected this argument, concluding that the EEOC did not articulate any good reason to change the uniform rule that employers and employees may release claims relating to the employment relationship in return for post-termination benefits. The establishment of a new business relationship with the agents was legally indistinguishable from payment of severance or other more traditional forms of consideration. Employees considering whether to accept severance pay face the same financial pressures as those imposed on the agents in this case.

This decision strikes another blow to the EEOC’s strategic initiative aimed at preventing employers from using standard employment releases in conjunction with reductions in force and other restructuring moves. Federal courts have largely disagreed with the agency’s position that use of these agreements is retaliatory because it limits employees’ access to the EEOC’s administrative system. From a practical standpoint, eliminating the use of discrimination waivers would leave employers with considerably less incentive to provide post-employment benefits to separated employees.