NLRB Ruling Restricts Severance Agreements
UPDATE: In a March 22 memo to agency staff, the NLRB Office of the General Counsel answered 15 questions regarding the Board’s February 21 decision in McLaren Macomb. The decision is explained below. The Memo is available here.
In a February 21 decision in McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board added restrictions to confidentiality and nondisparagement provisions in severance agreements. The McLaren Macomb decision addressed what the Board described as agreements that contain “broad proscriptions” on employee activity protected under Section 7, specifically provisions that require confidentiality of severance terms and/or prohibit a former employee from discussing terms and conditions of the employment with third parties. While the Board did not hold that all confidentiality and nondisparagement clauses violate the NLRA, it deemed the language in the severance agreement at issue was overbroad.
Even though the McLaren Macomb decision suggests “narrowly tailored” provisions may be lawful, employers should follow the guidance provided in the Board’s reasoning to review severance agreements and revise overly broad language. The ruling is effective immediately and, except for airlines and railroads, all employers are subject to NLRB authority. Employment and Labor Law attorney Chelsea Latino prepared this Legal Update explaining the Board’s decision and the implications for employers.
Severance Provisions at Issue in McLaren Macomb
In McLaren Macomb, a Michigan hospital offered a “Severance Agreement, Waiver and Release” to 11 bargaining unit employees it had permanently furloughed. All 11 employees signed the agreement, which included the following clauses at issue.
- Confidentiality Agreement. 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.
- Non-Disclosure. 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.
Guidance from the Board’s Decision
In McLaren Macomb, the NLRB overturned two 2020 decisions in Baylor University Medical Center (369 NLRB No. 43) and International Game Technology (370 NLRB No. 50) which had allowed confidentiality and nondisparagement provisions in severance agreements. As the Board stated “[n]otably absent from either Baylor or IGT was any analysis of the specific language in the challenged provisions of the severance agreements.”
- “Reasonable Tendency” Rule – The McLaren Macomb Board overruled Baylor and IGT and “return[ed] 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.”
- “Mere Proffer” Test – The McLaren Macomb Board specifically overruled Baylor’s two-factor test for determining when a severance agreement violates the Act. The Board adopted a new “mere proffer” test: “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. Whether the employee accepts the agreement is immaterial.” In other words, under McLaren Macomb, offering an agreement with unlawful provisions to an employee is sufficient to lead to an unfair labor practices charge. While the issue may not arise if an employer does not undertake enforcement action against the employee, non-enforcement would not be a successful defense to a charge that challenges the existence and/or “mere proffer” of an unlawfully broad agreement. Employers should not expect to present the defense that they have not enforced an agreement that contains unlawful provisions.
- Unlawful Aspects of Nondisparagement Provision in McLaren Macomb The McLaren Macomb Board found the nondisparagement provision “on its face substantially interferes” with 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 noted the “broad provision” at issue prohibited the employee from making any statements to the employer’s employees or to the general public — “including, it would seem, any statement asserting that the [employer] had violated the Act (as by, for example, proffering a settlement agreement with unlawful provisions).”
The Board pointed out numerous problematic aspects of the nondisparagement provision:
- The “farreaching proscription … is not even limited to matters regarding past employment”.
- The “comprehensive ban would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Respondent.”
- The ban “expansively applies” to statements not only toward the employer but also to “its parents and affiliated entities and their officers, directors, employees, agents and representatives.”
- The provision has “no temporal limitation but applies ‘[a]t all times hereafter.’”
- The “sweepingly broad bar” has a “clear chilling tendency” on the exercise of Section 7 rights that “extends to efforts to assist fellow employees, which would include future cooperation with the Board’s investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future.”
- The “chilling tendency would extend to efforts by furloughed employees to raise or assist complaints about the Respondent with their former coworkers, the Union, the Board, any other government agency, the media, or almost anyone else.”
- Unlawful Aspects of Confidentiality Provision in McLaren Macomb: The Board’s scrutiny of the confidentiality provision of the severance agreement led to concluding it was overly broad because it prohibits the employee from disclosing the terms of the agreement “to any third person.”
The Board pointed out numerous problematic aspects of the confidentiality provision:
- The employee is precluded from disclosing “even the existence of an unlawful provision” which also “would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation” into the use of the agreement.
- The provision “has an impermissible chilling tendency” on the Section 7 rights of “all employees” because it bars the subject employee from providing information to the Board concerning the employer’s potential “unlawful interference with other employees’ statutory rights.”
- The provision prohibits the subject employee from discussing the terms of the severance agreement with former coworkers “who could find themselves in a similar predicament facing the decision whether to accept a severance agreement. In this manner, the confidentiality provision impairs the rights of the subject employee’s former coworkers to call upon [the subject employee] for support in comparable circumstances.”
- The provision precludes discussions “with the Union concerning the terms of the agreement, or such discussion with a Union representing employees where the subject employee may gain subsequent employment, or alternatively seek to participate in organizing, or discussion with future co-workers.”
- “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”
What’s Next for Employers
The McLaren Macomb Board stated that “Conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights, unless it is narrowly tailored to respect the range of those rights.” (Emphasis added). The Board’s decision specified numerous components of the confidentiality and nondisparagement provisions that the Board found problematic, and which employers must review and compare to their current and future severance agreements. This evaluation process should include other agreements that may be incorporated by reference into severance agreements, such as agreements relating to confidential business information, trade secrets, and other proprietary information.
Finally, it is important to note that the nondisparagement and confidentiality clauses in the McLaren Macomb agreement did not include, and therefore the Board did not address, a general disclaimer directed to preserving employee activity protected under the NLRA. The Board also did not address whether its decision applies to agreements proffered or entered into before its ruling on February 21, 2023. Nonetheless, (1) employers should review agreements that are currently pending employee execution to assess if they should be revised and (2) employers should note that an otherwise timely filed unfair labor practices charge regarding the enforcement of a pre-February 21, 2023 agreement may be valid.
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