February 2015 FBA Labor and Employment Law Third Circuit Update

Posted on Thursday, March 12th, 2015.

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Stephen E. Trimboli, Esq.

Trimboli & Prusinowski, L.L.C.


An employer does not commit unlawful retaliation by asking laid-off employee agents to execute a waiver of discrimination claims in exchange for being offered the opportunity to serve as independent contractors after being laid off.


EEOC v. Allstate Ins. Co, _F.3d_, 2015 WL 619616 C.A. 3, (Penna.), February 13, 2015, available at www2.ca3.uscourts.gov/opinarch/142700p.pdf


In 1999, the Allstate Insurance Company initiated what was then the latest in a series of changes in the manner in which it sells insurance. This latest change involved a business reorganization that called for the termination of the at-will employment contracts of approximately 6,200 sales agents. The terminated agents were each offered the choice of four severance options: the “Conversion Option” that would allow them to continue selling Allstate products as independent contractors; the “Sale Option” that would provide the agent with $5,000 and an economic interest in their existing accounts, to by sold by September 2000 to buyers approved by Allstate; the “Enhanced Severance Option” consisting of one year’s severance pay; and, the “Base Severance Option” consisting of thirteen weeks’ severance pay. Agents who selected the Conversion Option also received a minimum bonus of $5,000, were exempted from repaying any office-expense advances, and acquired transferable interests in their accounts two years after converting to independent contractor status. However, like agents who selected the Sale Option and the Enhanced Severance Option, agents who selected the Conversion Option were required to execute a release waiving all legal claims against Allstate related to employment or termination that had accrued as of the date of execution. The release included claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA). The release also did not prohibit the agents from filing charges with the Equal Employment Opportunity Commission (EEOC).


Many of the agents who signed the release subsequently filed charges with the EEOC, which, in turn, filed a civil action against Allstate on the theory that “Allstate illegally retaliated against its employee agents by allowing them to continue their careers with the company only if they waived any discrimination claims.” Following a “lengthy and convoluted” procedural history, which included parallel individual and putative class actions brought by employee agents, the District Court granted Allstate summary judgment in the EEOC’s retaliation suit. The EEOC appealed, and the Third Circuit affirmed.


A prima facie case of illegal retaliation under Title VII, the ADA or the ADEA requires a showing of protected employee activity, adverse action by the employer after or contemporaneous with the protected activity, and a causal connection between the protected activity and the adverse action.


The Third Circuit termed it “hornbook law that employers can require terminated employees to release claims in exchange for benefits to which they would not otherwise be entitled … Nothing in the employment-discrimination statutes undermines this rule.” Releases must be knowing and voluntary, cannot waive future claims, and must provide consideration to the employee in exchange for the release that the employee would not otherwise have received.


The EEOC argued that the Conversion Option was not lawful because only “severance benefits” could constitute consideration for a release, and the offer of the option to continue selling insurance as an independent contractor does not constitute “severance.” The Third Circuit rejected this argument. It is counterintuitive to hold simply firing employee agents in exchange for severance payment to be lawful, but that offering the option to continue selling in a different capacity is somehow unlawful retaliation. The employees who selected the Conversion Option received something of real value to which they were not otherwise entitled. The EEOC could not cite “a single decision holding that it is unlawful for an employer to require its employees to release all their claims in order to continue working for the company,” and “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.” In sum, the Court was “not persuaded by the Commission’s efforts to arbitrarily limit the forms of consideration exchangeable for a release of claims by a terminated employee.”


The EEOC also argued that refusing to sign a release constitutes opposition to unlawful discrimination, an alleged protected activity, and that Allstate’s policy and practice of refusing to offer independent contractor status to agents who refused to sign releases therefore constitutes “retaliation” against protected activity. The Third Circuit rejected each prong of this second argument. “In our view, such inaction does not communicate opposition sufficiently specific to qualify as protected employee activity Because Allstate’s Release barred its signatories from bringing any claims against Allstate concerning their employment or termination, employee agents who refused to sign it might have done so for any number of reasons unrelated to discrimination … Accordingly, the EEOC cannot show that any adverse action taken by Allstate was triggered by opposition to unlawful discrimination, dooming its retaliation case at the outset.”


Further, the EEOC’s second argument failed because Allstate took no adverse action. Absent selecting the Conversion Option, “the terminated agents were not entitled to convert to independent contractor status an employer commits {no} adverse action by denying an employee an unearned benefit on the basis of the employee’s refusal to sign a release.”



Provisions of the Patient Protection and Affordable Care Act that require non-profit entities that are affiliated with religious institutions to make contraceptive care available to their employees though, and at the expense of, an insurance issuer or third-party administrator do not violate the Religious Freedom Restoration Act.


Geneva College, et al. v. Secretary, U.S. Dept of Health and Human Services, et al., _F.3d_, 2015 WL 543067, C.A. 3, (Penna.), February 11, 2015, available at www2.ca3.uscourts.gov/opinarch/133536p.pdf


The Patient Protection and Affordable Care Act (PPACA) and its implementing regulations require covered employers to provide contraceptive coverage for women, at no cost to them, within employee group health insurance plans. The implementing regulations authorize an exemption from contraceptive coverage for “religious employers” as so defined under the Internal Revenue Code, which includes churches, their integrated auxiliaries, conventions and associations of churches, and exclusively religious activities of any religious order. Organizations that are not “religious employers,” but oppose contraception coverage on religious grounds, are instead offered an accommodation. To receive the accommodation, the organization must certify that it is a non-profit organization, that it holds itself out as a religious organization, and that it objects to some or all of the required contraceptive coverage on religious grounds. At that point, the obligation to provide the contraceptive coverage at issue passes to the health insurance issuer or third party administrator, at the issuer’s or administrator’s expense. The contraceptive coverage must remain separate and distinct from the objecting employer’s group health plan, and the health insurance issuer or third-party administrator must provides notice to the plan participants and beneficiaries regarding contraceptive coverage that is “separate from” materials that are distributed in connection with the regular group health coverage.


The plaintiffs in Geneva College included religious organizations that were eligible for this accommodation, but argued that the accommodation still placed a “substantial burden” on their religious exercise under the Religious Freedom Restoration Act (RFRA), 42 U.S.C. Section 2000bb to 2000bb-4. The RFRA applies to any federal statute that impacts a person’s exercise of religion. The “[g]overnment may substantially burden a person’s exercise of religion only if it demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.” 42 U.S.C. Section 2000bb-1(b). A substantial burden exists if (1) an individual is forced to choose between following the precepts of the religion and forfeiting benefits otherwise generally available, or abandoning one of the precepts of the religion in order to receive the benefit, or (2) government puts substantial pressure on an adherent to substantially modify his or her behavior in a way that violates religious beliefs.


The District Courts in various actions filed by the plaintiffs enjoined the application of the contraceptive mandate under the RFRA. The multiple cases were consolidated for appeal, and, in a single decision, the Third Circuit reversed each injunction.


The crux of the plaintiffs’ case was that by invoking the accommodation by certifying to their objection to contraceptives, they were initiating a process that resulted in the use of contraceptives, thereby causing tenets of their faith to by violated. The Third Circuit began its analysis by announcing the applicable standard:


we should defer to the reasonableness of the appellees’ religious beliefs, {but} this does not bar our objective evaluation of the nature of the claimed burden and the substantiality of that burden on the appellees’ religious exercise. This involves an assessment of how the regulatory measure actually works. Indeed, how else are we to decide whether the appellees’ religious exercise is substantially burdened? … We may consider the nature of the action required of the appellees, the connection between that action and the appellees’ beliefs, and the extent to which that action interferes with or otherwise affects the appellees’ exercise of religion—all without delving into the appellees’ beliefs.


The focus of this analysis is the burden imposed upon the persons’ religious exercise, not the impact on others or the “end result” of the process if that end result imposes no burden, or only a minimal burden, on the persons themselves. “{F}ree exercise jurisprudence instructs that we are to examine the act the appellees must perform—not the effect of that act—to see if it burdens substantially the appellees’ religious exercise. The Supreme Court has consistently rejected the argument that an independent obligation on a third party can impose a substantial burden on the exercise of religion in violation of RFRA.”


Under this standard, the contraceptive accommodation did not substantially burden the plaintiffs’ religious belief. The obligation placed on insurance providers/third party administrators to provide contraceptives in place of the plaintiffs is an obligation imposed by federal law, not by the plaintiffs themselves; thus, the argument that the plaintiffs were somehow “triggering” the provision of contraceptives was misplaced. In reaching this conclusion, the Third Circuit joined the Sixth, Seventh and District of Columbia Circuits.


Neither were the plaintiffs making themselves “complicit” in the provision of contraceptives. “{B}ecause the appellees specifically state on the self-certification form that they object on religious grounds to providing such coverage, it is a declaration that they will not be complicit in providing coverage. Ultimately, the regulatory notice requirement does not necessitate any action that interferes with the appellees’ religious activities.”


Several of the plaintiffs aligned with the Catholic Church raised the additional argument that granting houses of worship an exemption from the contraceptive mandate, while offering religious nonprofits only the accommodation, had the effect of improperly “splitting” the Church. The Third Circuit deferred to the PPACA regulations on this issue, finding the distinction to be a rational balance between respect for religious interests and the government interests served by the contraceptive requirement. Further, the court found nothing to support the claim that “the challenged accommodation poses any burden on the exempted appellees’ religious exercise, particularly a burden that would require the appellees to ‘expel’ the religious nonprofit organizations from the Dioceses’ health insurance plans.”

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