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NLRB ISSUES SWEEPING DECISION DECLARING CONFIDENTIALITY AND NON-DISPARAGEMENT CLAUSES IN SEVERANCE AGREEMENTS UNLAWFUL
Yesterday, the National Labor Relations Board reversed Trump-era Board precedent, and arguably expanded its precedent from the Obama administration, to declare unlawful two clauses commonly used by employers when offering severance packages. The decision in McLaren Macomb, Case No. 07-CA-263041 (2/21/2023) held that the employer, a Michigan hospital, violated the National Labor Relations Act by offering 11 permanently furloughed employees severances conditioned on typical release agreements that included confidentiality and non-disparagement provisions. The Board unanimously found that the employer committed unfair labor practices by failing to notify and bargain with the employees’ union, OPEIU Local 40, over its decision to furlough the employees, and by circumventing the union to present them with individual severance agreements. The Board also found based on the ULPs committed by the employer, that the severance agreements were also unlawful. However, the Biden appointed majority went on to hold that the confidentiality and non-disparagement terms in the agreements, were unlawful standing alone, regardless of the other unfair labor practices the employer committed. In doing so the Board’s majority reversed existing precedent and opened the door for challenges to virtually any severance agreement, union or no union, group or individual, regardless of circumstances. Unless overturned on appeal this decision will have far-reaching effects on virtually any release agreements that offer employees severance payments in exchange for releasing claims and conditioned also on commonly used confidentiality and non-disparage terms.
The Board’s majority in McClaren held that the releases themselves violated the NLRA by having a “chilling tendency” impacting the furloughed employees’ efforts to assist not only their fellow employees, but also former coworkers, their union, the Board itself, other governmental agencies, the media, or almost anyone else. In other words, the decision could not have had broader application. The lone dissenting Board Member Kaplan, argued that surrounding circumstances showing employer animus or an intent to suppress employee rights, was necessary before severance agreements could be deemed unlawful under Board precedent. But the majority overturned that existing precedent to assess restrictive clauses based on the surrounding circumstances. The Board majority declared:
“Certainly such surrounding circumstances may enhance the reasonable tendency of the severance agreement to coerce employees, but that tendency does not depend on them. Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed.”
While this decision was in the context of a union work environment and involved more than one employee, the quoted language makes clear the Board majority intends for it to apply outside a union work environment, to any release agreement offered even to a single employee. The rationale of this decision represents a disturbing trend of the NLRB to find violations of federal labor law based not on evidence of actual interference with protected rights, but purely on the Board’s assumptions of what might, in theory, “tend” to coerce employees. It is the sort of rationale the Board has used to greatly expand its reach far beyond its historic domain in protecting employees’ “Section 7 Rights.”. Section 7 of the Labor Act protects the rights of employees to engage in “concerted activities” for mutual aid and protections regarding terms and conditions of employment. This statutory language arguably limits the scope of this decision to instances involving mutual aid and protection. But by defining those rights to include communications to virtually anyone, this decision is not confined to applying to group severance agreements. However, an important limitation to the scope of this decision is that “Section 7” rights do not apply to supervisors or management personnel, so this decision does not impact severance agreements for employees in those positions.
Unless an appellate court overturns McLaren on appeal, or until a new majority is appointed to the Board, employers face a dilemma: either omit confidentiality and non-disparagement provisions altogether from release or severance agreements, or, at a minimum, revise them to greatly narrow their application. Because the Board gave no guidance as to what might satisfy its stated concerns over the “chilling effects” of confidentiality or non-disparagement clauses, perhaps a simple disclaimer that the provisions “are not intended to limit an employee’s rights under Section 7 of the NLRA” is worth considering. Alternatively, every release or severance agreement should contain a “severability” clause stating that if any provision in the agreement is found to be unlawful or unenforceable, the rest of the agreement shall be given effect as if the problematic clauses were severed from the document.
Read the NLRB press release here
Questions? Feel free to contact the author, attorney James Sherman, at: email@example.com
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