February 27, 2023
In light of the National Labor Relations Board’s recent decision, all employers (unionized as well as non-union work environments) should revisit their use of two common provisions in their severance or separation agreements.
The NLRB’s decision appears to fundamentally alter how employers use non-disparagement and confidentiality provisions in their severance / separation agreements. In McLaren Macomb and Local 40, the NLRB addressed an unfair labor practice claim alleging that several laid-off employees were offered severance benefits in exchange for their execution of a severance agreement. The Union claimed the severance agreement contained unlawful confidentiality and non-disparagement provisions. Under the confidentiality provision, the employees would be bound to keep the terms of the agreement, including the details of the severance package offered to them, confidential with only limited exceptions. The employees also would be prohibited from making any public statements that could disparage not only the employer, but the employer’s officers, agents, other employees and affiliated entities.
Reversing the Administrative Law Judge’s decision, the Board found the confidentiality and non-disparagement provisions violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”). Unpersuaded by Board precedent allowing the use of such terms, the Board majority found that the provisions were unlawful because they interfered with, restrained, and coerced employees in the exercise of their Section 7 rights under the NLRA. Significantly, the Board found that the employer violated Section 8(a)(1) by merely proffering the severance agreements to the employees.
In doing so, the Board chose to disregard two 2020 decisions from the Trump Board. The prior 2020 decisions permitted the use of confidentiality and non-disparagement provisions in severance agreements, provided the circumstances surrounding the severance did not involve an employee discharged in violation of the Act or another unfair labor practice evidencing animus towards the exercise of Section 7 activity.
Relying on its pre-2020 precedent, the Board determined “a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.” The Board then concluded that 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.” The Board also found that the confidentiality provision violated employees’ Section 7 rights because it precluded employees from “disclosing even the existence of an unlawful provision contained in the agreement” and because it prohibited employees from discussing the severance agreement with former coworkers who may receive similar agreements, as well as union representatives or other employees.
While the Board’s decision left open the possibility that agreements “narrowly tailored to respect the range” of employee rights may nevertheless be permissible, it provides little guidance as to the scope of this exception. One silver lining, the Board’s new decision does not apply to employees who serve as “supervisors” under the NLRA as supervisors are not entitled to the protections of Section 7.
With the current Board composition, we expect to see additional Board challenges to common employer policies and provisions that the new Board believes interferes with the rights of employees to discuss the terms and conditions of their employment. Employers should consider this new decision when drafting and utilizing severance agreements, particularly because unfair labor practice charges may be filed against all employers, in both unionized and non-union workplaces. In other words, all employers will be expected to comply with this new decision. The attorneys at Farhang & Medcoff are well-versed on these issues, and we stand ready to advise you on how best to proceed on future severance or separation agreements.
This writing is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by the dissemination of this writing.
