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Feb 20, 2015

Editor’s Note: Weekly Wrap is taking the week off. It will return next Friday.

By Eric B. Meyer

Here’s a thought: Consider requiring your new independent contractors to release employment claims.

What the hell are you talking about, Eric? Why would we make an independent contractor sign a release of employment claims before starting work for our company?

I’m so glad you asked.  

EEOC accuses Allstate of retaliation

Many years ago, Allstate Insurance restructured its business, where it decided to longer have employees; only independent contractors. So, it offered its employees a bunch of options. One option was a severance; another was the ability to convert to independent contractor status. Either way, the individual had to release all past and presented employment-related claims against the company.

When the EEOC got wind of the conversion option, they cried retaliation.

You see, the EEOC’s theory was, well, actually they had three theories:

First, the Commission contends that the Release does not fall within the well-established rule that employers can require releases in exchange for post termination benefits. Second, it argues that Allstate’s conduct was per se retaliatory because the company “withh[e]ld a privilege of the employees’ employment — the offer in the conversion option to continue their careers as Allstate agents — if they refused to release all their claims.” Alternatively, the EEOC claims Allstate retaliated against the employee agents who refused to sign the Release by denying them the option to continue their careers with the company as independent contractors.”

Releasing all claims as a condition

But, the Philadelphia-based Third U.S. Circuit Court of Appeals, in this opinion (EEOC v. Allstate), strongly disagreed:

The EEOC here fails to articulate any good reason why an employer cannot require a release of discrimination claims by a terminated employee in exchange for a new business relationship with the employer. We acknowledge the Commission’s concerns about the prospects of employers trading releases for new business opportunities and terminated employees facing “financial pressure” when offered such a deal. But the EEOC fails to explain why this financial pressure is more offensive to the anti-retaliation statutes than the pressure one is bound to feel when required to sign a release in exchange for severance pay. In sum, we are not persuaded by the Commission’s efforts to arbitrarily limit the forms of consideration exchangeable for a release of claims by a terminated employee.”

So, there you have it, folks. If you decide to convert your employees to independent contractors — and it’s not as easy as simply changing the moniker, talk to an employment lawyer (ahem!) first — you may want to have them release all claims as a condition of remaining affiliated as an independent contractor.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.

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