Are Your Severance Agreements Safe?
Update March 23, 2023
On March 22, 2023, Jennifer Abruzzo, the General Counsel for the National Labor Relations Board (the “NLRB”), circulated a memorandum to the NLRB regional offices related to the McLaren Macomb decision discussed in this article. This memorandum provides guidance to the NLRB regional offices and explains Abruzzo’s thinking on various aspects of the decision’s scope and effects. This memorandum also offers insight into how the McLaren Macomb decision could be interpreted in potential enforcement actions brought by NLRB regional offices around the country.
On Feb. 21, 2023, the U.S. National Labor Relations Board (“the Board”) handed down a decision in the matter of McLaren Macomb holding that broad non-disparagement and non-disclosure provisions in severance agreements violate Section 8(a)(1) of the National Labor Relations Act (“NLRA”) because they require employees to “give up” their rights under Section 7 of the NLRA. To reach this decision, the Board overruled two 2020 decisions (Baylor University Medical Center 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology 370 NLRB No. 50 (2020)).
In a press release, the Board said that:
“Today’s decision, in contrast [to the two overturned cases], explains that simply offering employees a severance agreement that requires them to broadly give up their rights under Section 7 of the Act violates Section 8(a)(1) of the Act. The Board observed that the employer’s offer is itself an attempt to deter employees from exercising their statutory rights, at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.”
The employer, a unionized teaching hospital, furloughed 11 employees without giving notice to the union or allowing a bargaining procedure. As a component of the furlough, the employer gave each employee a severance agreement without notifying the union. While the Board affirmed the administrative law judge’s findings that the lack of union notice and opportunity for involvement were violations of the NLRA, the Board reversed the judge’s finding that the severance agreements were lawful and expressly overturned its prior decisions in Baylor and IGT after noting several problems with the severance agreements given to each of the 11 employees. The severance agreements contained both non-confidentiality and non-disclosure provisions.
These provisions stated:
The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents, and representatives.
The Board held that the confidentiality section effectively required furloughed employees to “give up” their Section 7 rights, including the right to discuss or improve the terms and conditions of employment with coworkers and former coworkers, and the right to participate in the Board’s investigative process. As to the non-disclosure section, the Board determined that the restriction of employee speech went too far because it would restrict employee speech even to a union or the NLRB.
First, merely offering a severance agreement with the offending provisions is now, itself, an individual unfair labor practice (“ULP”) even if it is not enforced; nonenforcement is no defense.
As the Board said: “We therefore overrule both decisions and return to the prior, well-established principle that 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. Whether the employee accepts the agreement is immaterial….[I]t is the high potential that coercive terms in separation agreements may chill the exercise of Section 7 rights that dictates the Board’s traditional approach of viewing severance agreements requiring the forfeiture of Section 7 rights…”
Second, disclaimers might shield employers from liability. The covenants found in the agreement at issue in the case were very broad and had no disclaimer language (such as, “nothing in this agreement prevents you from enforcing your Section 7 rights…”). While the Board did not explicitly note that disclaimer language would have prevented enforcement and saved the agreement, they do lay out a checklist of what must be included in an agreement. Any effective disclaimer must affirmatively allow an employee to: participate in Section 7 activity; file ULP charges; assist others in filing ULP charges or participating in Section 7 activity; and generally cooperate with the Board in any investigatory process.
Third, disclaimer language may need to go beyond Section 7 rights and ULP charges.
The Board also took aim at several components of the covenants at issue, including:
- That there was no definition of “disparagement” in the agreement;
- That the agreement was not limited to matters of past employment;
- That it applied to parent and affiliated entities of the employer;
- That there was no temporal restriction of any kind; and
- That the confidentiality provision prohibited disclosure to any third party—including a labor union or coworker.
Employers may want to include provisions within their agreements addressing some of these issues, especially a definition of “disparagement,” as relatively low-cost ways of shielding liability.
What about prior agreements? The NLRA contains a six-month statute of limitations, so agreements entered into beyond that timeframe are likely safe. Additionally, the fact that past agreements reflected the law as it was at that time may serve as a defense.
What about agreements or policies beyond the severance context? While the McLaren decision only relates directly to severance agreements, it likely won’t be long until such scrutiny is given to all employment policies and agreements. The pending Stericycle case could give the NLRB just the opportunity it needs to do so. The Board signaled as much in its Notice and Invitation to File Briefs in the case, explicitly asking for briefs on whether “the Board [should] modify existing law addressing the maintenance of employer work rules…”
Many think that the impending decision could overturn a constellation of decisions relied on by employers in areas as wide-ranging as investigative-confidentiality rules to rules barring outside employment. For now, though, the law has only changed as it relates to severance agreements.
Disclaimer: Please contact your Payne & Fears attorney for current guidance on the subject matter of this article.