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Fire, rehire clauses under fire

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The announcement last month by Cargill that it is changing its policy prohibiting employees from reapplying for work with the agriculturally franchised and industrial giant for 30 days, instead of 180 days, if they are discharged for attendance reasons, highlights the issue of companies refusing to hire former workers.

The modification by the Minnesota-based company of its no-rehire rule came in the wake of controversy over its firing of approximately 150 Muslim employees at one of its food processing plants in Colorado after walking off the job because they were not allowed the five-daily, 15-minute prayer breaks called for by their religion. But many companies in Minnesota and elsewhere, especially some of the larger ones, have even more draconian protocols barring the rehiring forever of ex-employees who are discharged for any reason. In many other instances, companies, regardless of their size, include no-rehire clauses in severance agreements that departing employees must sign in order to receive any compensation or other post-employment emoluments.

It is understandable why employers do so. One principle reason is to avoid the threat or actuality of legal claims by ex-employees for discrimination and retaliation if they are denied jobs in the future. There are also ways to assure that, if properly flagged in the Human Resources systems, they do not hire an employee who did not want to work for them previously. This is done in some large companies by “coding” department employees as ineligible for future employment there.

Doctor’s dilemma

The validity of these fire and no-rehire arrangements comes under fire. Although no Minnesota cases have addressed them, the Equal Employment Opportunity Commission (EEOC), the agency that regulates compliance with federal harassment and discrimination laws, vigorously opposes them.

The EEOC’s distaste for these clauses has not found much favor in the courts, which generally have upheld them. The tide, however, may be turning as a result of a ruling by the Ninth Circuit Court of Appeals last year in a case questioning the legitimacy of a provision in a severance agreement barring a doctor from seeking to be rehired by the employer at some future date.

In Golden v. California Emergency Physicians Medical Group, 782 F.3d 793 (9th Cir. 2015), the court, in a 2-1 vote, examined a no-rehire provision through the prism of California state law. In an unusual case, characteristic of some Ninth Circuit jurisprudence, a physician who was being terminated from his job orally agreed to drop his wrongful termination lawsuit in exchange for a severance agreement. When the employer sought to include a no-rehire clause in the severance agreement, the doctor faced a dilemma. Although he wanted the severance arrangement, he balked at the no-rehire clause and refused to proceed with the deal.

The Ninth Circuit, contrary to the majority of case law, found in favor of the doctor, refusing to genuflect to the no-rehire clause, it pointed to a provision in the California Business & Professional Code, §16660, which bars contracts in which “anyone is restrained from engaging a lawful profession, trade, or business.” Based on that provision, it overturned the trial court’s rejection of the doctor’s claim and remanded it for further consideration whether the no-rehire restriction is sufficiently “substantial” to run afoul of the California restraint of trade law.

Energizing EEOC

The Goldencase is a glittering one for the EEOC, and it may energize the agency’s steadfast opposition to these clauses. Since 2008, the agency has refused to permit them in agreements with employers that it oversees on grounds that they may be discriminatory and constitute improper retaliation. See http://suitsintheworkplace.com/blogs/archive/2008/04/05/827.aspx.

 This proscription has been followed religiously by its regional branch headquarters in downtown Minneapolis.

Speaking of religiosity, the local EEOC office has vigorously and successfully pursued discrimination claims against employers that have prohibited Muslim prayer breaks in the workplace, notwithstanding concerns by employers of the disruptiveness of these interludes and complains of inequitable treatment by non-Muslim co-workers, wincing at the indulgence given to their Muslim co-workers. Similar cases have arisen around the country. Indeed, as recently as 2009, there were nearly 1500 complaints filed by Muslims with regulatory agencies regarding religious discrimination and many of them centered on prayer-break issues, and the number has undoubtedly increased since that reporting period.

One of the nation’s most notable cases occurred the previous year, 2008, in Minnesota, when the EEOC obtained an agreement from a chicken processing plant in St. Cloud, adding two additional prayer breaks for its substantial group of Muslim workers during the workday, in addition to prayer periods that they can take during their lunch breaks. EEOC v. Gold’n Plump Poultry, Inc., 08-CV-05136 (D. Minn. 2008), and EEOC v. The Work Connection, 08-CV-05137 (D. Minn. 2008). U.S. District Court Judge Donovan Frank of Minnesota approved settlements in both of those cases, expanding the prayer break opportunities for Muslim workers at the plant, as well as $365,000 in damages assessed collectively against the company and the employment agency that referred the workers to it.

The EEOC’s success in the prayer break case here notwithstanding, the EEOC’s opposition to no-rehire clauses remains a distinctly minority position, even after the Goldencase in California. A vast number of jurisdictions that have passed upon the enforceability of settlement agreements or other arrangements containing no-re-employment provisions have upheld them. The cases have ranged from coast-to-coast, including even one in California, the site of the cited Goldencase. E.g. Jencks v. Modern Woodmen of America, 479 F.3d 1261 (10th Cir. 2007); Austin v. Spirit Airlines, Inc., 2008 WL 4927003 (S.D. Fla. 2008)(unpublished); Salerno v. City University of New York, 2005 WL 578944 (S.D. N.Y. 2005)(unpublished); HomePort Insurance Services, Inc. v. Lundy, 2012 WL 538564 (Cal. Ct. App. 2012)(unpublished).

These courts reason that the no-rehire deals are freely bargained for by management and the employees, even though, in reality, there is very little, if any, negotiation in connection with these arrangements. They usually are presented on a take-it-or-leave-it basis, with employees having little leverage to resist them if they want to obtain a severance.

The perversity of these clauses was noted by one of these tribunals, the Federal court in the busy Southern District of New York in the Salerno case, noting that “a bar on future employment is not unusual” in severance agreements.

But others view them as perverse, and antithetical not only to the rights and remedies of employees, but also to the interest of their employers. They may be imposed upon employees when their employers are reluctant to rehire due to their age, disability, gender, race, religion, or other protected classifications, or because they have been whistleblowers in the past, representing a form of discrimination and illegal reprisal. In addition to questionable legality, it may be unfair to refuse to consider employees for rehire who were laid off for economic reasons, rather than work-related ones. Even if they have been discharged due to their performance, they may be good employees at some future time, if there is a change in supervisory or management personnel. Thus, the no-rehire protocols may actually be depriving employers of the opportunity to rehire productive employees.

This infirmity is particularly true in the public sector, where these clauses are much less common. But when imposed by public sector employers, they may have the effect of injuring the public by precluding an otherwise qualified individual from performing public services, saddling tax payers with inferior personnel.

Cargill’s relaxation of its no-rehire policy is imperfect. It does not address the longer, six-month period barring rehiring of employees whose departure is for non-attendance reasons. But it may be a hopeful harbinger of other employers re-evaluating their reluctance to rehire departing or former employees.

That could be a welcome development for employees. Although the bulk of the case law is against them because of the Golden case, the EEOC’s continued opposition to no rehire provisions and Cargill’s resistance, employees challenging them at least have a prayer.

As published by Minnesota Lawyer.

http://minnlawyer.com/2016/01/28/perspectives-fire-rehire-clauses-under-fire/