You're fired! Want to continue to work for us as an Independent Contractor?

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If you do, you'll need to sign a release and waive all of your employment law claims first. Oh, and if you don't, you'll still be bound by your noncompete. Huh?

The facts are more complicated than that, but after Allstate Insurance decided to reorganize and shift all of its agents to an independent contractor model, it became a target of the EEOC. In its attempts to avoid litigation, Allstate decided to terminate all of its agents who were classified as employees. At the same time, the Company offered those employees a series of choices, which included a $5000 conversion bonus for those who wished to become independent contractors and a year of severance pay, for those who didn't. In either event, a release of all discrimination claims was required.

After a few of those terminated employees filed charges, the EEOC filed a civil action of its own, seeking to invalidate the release itself, on the ground that it constituted retaliation. The EEOC took issue with Allstate only permitting employees to continue their careers if they waived all discrimination claims. What's wrong with that?

Nothing, said the District Court (twice). Nothing, said the Court of Appeals (after a remand). Turning to well-established law, the Court rejected the EEOC's claims that offering to convert an employee to independent contractor status was "illegal" and that the conversion bonus was insufficient consideration for a release.

How's this for a quote? "[W]e are not persuaded by the [EEOC's] efforts to arbitrarily limit the forms of consideration exchangeable for a release of claims by a terminated employee." In sum, it is the employer, and not the EEOC, that gets to decide what post-termination benefits to offer an employee in exchange for a release. The act of refusing to sign a release is NOT protected activity and, therefore, cannot give rise to a claim of retaliation.

While this is certainly a piece of good news for employers, we continue to offer caution to employers in the area of severance agreements, as caselaw and statutes (such as the Older Workers Benefits Protection Act) continue to refine what it takes to achieve an enforceable release.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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