NLRB ISSUES DECISION LIMITING CERTAIN PROVISIONS IN SEVERANCE AGREEMENTS
On February 21st, the National Labor Relations Board (NLRB) issued a new decision regarding severance agreements that effects both unionized and non-unionized workplaces. In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB ruled that employers may not offer severance agreements that require employees to effectively waive their rights under Section 7 of the National Labor Relations Act. This means that severance agreements can be deemed unlawful if they could be construed to broadly restrict employee’s rights to speak about the severance agreements through confidentiality provisions or otherwise speak negatively about their former employer through non-disparagement provisions.
The case that led to this new ruling involved McLaren Macomb, a unionized teaching hospital in Michigan. McLaren Macomb was forced to lay off a portion of its nonessential staff during the pandemic. McLaren Macomb asked the laid off employees to sign a severance agreement, which included confidentiality and non-disclosure provisions that prevented the employees from making statements to employees or to the general public which could disparage or harm the image of the hospital, as well as its officers, employees, and representatives, and from disclosing the terms of the severance agreements to any third party. At least eleven (11) of its laid off workers signed the severance agreement.
Some of the workers questioned the provisions; however, the employer justified the confidentiality and non-disparagement provisions by pointing to the standard set by two Trump-era NLRB decisions — Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 3 370 NLRB No. 50 (2020). Under this standard, severance agreements could contain confidentiality and non-disparagement provisions as long as the circumstances surrounding the severance agreement did not interfere with, restrain, or coerce employees in the exercise of Section 7 activity.
The laid off workers went on to file Unfair Labor Practice (ULP) charges against McLaren Macomb based on the confidentiality and non-disparagement provisions. The NLRB held that the provisions were unlawful because they were deemed to be too broad and effectively chilled the exercise of employee’s rights to collectively band together.
Specifically, the NLRB found the non-disparagement provision at issue violated employees’ Section 7 rights because “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act.” While the Board found that the confidentiality provision at issue violated employees’ Section 7 rights because it precluded employees from “disclosing even the existence of an unlawful provision contained in the agreement,” in so doing tended to coerce employees from filing ULP charges or assisting the NLRB in an investigation.
As noted earlier, the NLRB held that severance agreements requiring the forfeiture of Section 7 rights are unlawful “unless narrowly tailored.” Unfortunately, the Board declined to define the meaning of “narrowly tailored.” The Board’s reasoning for this is that it was not called on to do so in the case before it. The hope moving forward though is that the NLRB will provide other guidance in future cases applying and interpreting McLaren Macomb.
Read the full board decision here.
At this point in time, employers should review their severance agreements and other agreements that may contain confidentiality and non-disparagement agreements in the light of the rulings set forth in this new case. Any agreements whose terms have a “reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights,” will likely be deemed to be unlawful and the proffer of which agreements unlawful.
Employers may not be able to rely on many of the employer-friendly actions taken by the NLRB during the previous administration as the current NLRB has been reversing many of those actions. For that reason, employers should keep a close eye on all decisions issued by NLRB to make sure all actions taken along with policies and agreement remain complaint.
NAE members with questions regarding severance agreements they have in place or are contemplating offering departing employees should reach out to our team of professionals to ensure your agreement is current and compliant.
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