What does the new NLRB ruling on severance agreements mean for employers?

Building on a growing trend, a new NLRB ruling restricts the ability of employers to include confidentiality and non-disparagement clauses in severance agreements for non-supervisory employees.

The board’s ruling in McLaren Macomb, 372 NLRB No. 58, reverses two Trump-era NLRB rulings that made it easier to include such provisions in severance agreements.

With this new ruling, even offering an agreement with overly broad confidentiality and/or non-disparagement terms is prohibited under federal law.

Seeds planted by COVID-19 regs

The early seeds for the Feb. 21 decision were planted when government-issued COVID-19 regulations banned McLaren Macomb from allowing nonessential employees to work inside a hospital it operates in Michigan.

As a result of the ban, McLaren Macomb permanently furloughed 11 nonessential service employees, who were all part of a union.

In connection with the move, it presented the employees with agreements that offered severance pay in exchange for a release of claims that might otherwise be filed. In addition – and most relevant here – the agreements generally barred the employees from disclosing their terms and banned them from making disparaging statements about the employer.

McLaren Macomb did not notify the union about the permanent furlough, so the union did not have an opportunity to bargain regarding the decision.

Severance agreements on hot seat

In August of 2021, an administrative law judge at the NLRB decided that McLaren Macomb violated the National Labor Relations Act by implementing the furlough without first telling the union and giving it an opportunity to bargain regarding it. But he also decided that McLaren Macomb did not violate the statute by offering the agreement to the furloughed employees.

Under existing NLRB precedent at the time, the latter finding made perfect sense: Two Trump-era NRLB decisions had granted employers leeway to include such provisions in severance agreements.

But those cases were wrongly decided and due to be overruled, this new board decision held. Those rulings “ignore well-established precedent concerning waiver of employee rights,” the decision said.

Essentially, the decision explained, employees may not waive rights granted to them under the NLRA. The scope of those rights is broad, it continued, and “discussing terms and conditions of employment with co-workers lies at the heart of protected Section 7 activity.”

Section 7 is the part of the NLRA that gives covered employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”

When an employer offers a covered employee a severance agreement that would restrict the exercise of NLRA rights, that employer violates the statute, the decision says.

Provisions crossed the line

And that is exactly what happened here, it found.

The agreements’ non-disparagement and confidentiality provisions interfered with, restrained or coerced the employees’ exercise of Section 7 rights, the board held.

It conditioned the receipt of benefits under the agreement on the employees’ acceptance of unlawful provisions, it said.

More specifically, it added, the non-disparagement provision interfered with Section 7 rights “on its face” because it comprehensively banned any statement regarding a labor issue, dispute, or term or condition of employment.

And the confidentiality provision purported to ban employees from revealing even an unlawful provision within the agreement, the board noted. It thus would improperly stop a covered employee from cooperating with the board regarding unfair labor practices.

Thus, the agreements were invalid, the decision held.

While the decision fuels an employee-friendly trend evidenced most recently by the passage of the federal Speak Out Act, it is important to note that it is limited to non-supervisory employees. This is because, with limited exceptions, the NLRA does not apply to supervisors.

Nonetheless, it should spur employees to think carefully before including non-disparagement and confidentiality provisions in severance agreements. If used, they must be crafted in a way that does not coerce the forfeiture of Section 7 rights.

Remember: Even offering these agreements violated the law in the NLRB’s view.

Key considerations for employers

Employers using severance agreements should:

1. Include a clear statement that nothing in the agreement should be construed to prevent the employee from engaging in protected Section 7 activity.
2. Separately indicate that nothing in the agreement blocks the employee from filing an administrative charge of unlawful bias, and
3. Be aware of any limitations that may exist as a result of applicable state law.

“A severance agreement is unlawful,” the decision advises, “if it precludes an employee from assisting co-workers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”