I am not a Star Wars buff, though I have seen each of the movies once or twice. But the current National Labor Relations Board (Board) atmosphere feels very much like the epic battle between the evil Empire (employers) and the heroic rebel forces (employees). In this latest episode, the Board used its double-sided lightsaber to cauterize standard separation (or severance) agreements that employers routinely enter into with employees, whether the latter are unionized or not.
On February 21, 2023, the NLRB issued a decision in McLaren Macomb, 372 NLRB No. 58, overruling two previous recent decisions, Baylor University Medical Center and IGT d/b/a International Game Technology, and returning to the “pre-Baylor” test for determining the lawfulness of separation agreements.
In the case, the hospital employer permanently furloughed 11 employees in March 2020 as a result of the Covid-19 pandemic. The hospital offered all 11 employees a “Severance Agreement, Waiver and Release” that included differing severance payment amounts if the employees accepted and signed the agreements. All 11 employees signed the agreements.
The agreements generally required the employees to release the employer from any claims arising out of the employment or termination of employment. The agreements further contained the following provisions prohibiting disparagement of the hospital and requiring confidentiality about the terms of the agreement.
6. 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.
7. 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.
Among other violations of the National Labor Relations Act (NLRA), including failing to negotiate the furloughs and effects with the union and bypassing the union to offer the separation agreements directly to the employees, the Board found that these provisions violated Section 8(a)(1) of the Act. Accordingly, the Board ordered the hospital to cease and desist from presenting any employees with agreements containing these provisions, struck down the agreements offered to the 11 employees, ordered reinstatement of all 11 employees with backpay and interest, awarded the employees all other “direct and foreseeable pecuniary harm suffered as a result of their unlawful furloughs” in accordance with the recent Thryv decision, and other various remedies.
What is prohibited in separation agreements?
According to the Board, “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 employer’s proffer of such agreements to employees is unlawful.” In making that determination, the Board will examine the language of the agreement, including whether any relinquishment of Section 7 rights is narrowly tailored. What matters is whether the agreement, on its face, restricts the exercise of statutory rights.
The Board reviewed several past decisions in analyzing what kind of provisions violate the Act that give a good reminder of what to be cognizant of in drafting separation agreements for employees going forward. In general, separation agreements should NOT use non-assistance, nondisclosure, confidentiality or non-disparagement clauses to do any of the following:
- Prohibit employees from filing unfair labor practice charges with the Board or assisting other employees in doing so.
- Prohibit employees from cooperating with the Board in important aspects of the investigation and litigation of unfair labor practice charges.
- Broadly requiring employees to waive Section 7 rights, including but not limited to, disclosing information to the Board, assisting co-workers or former co-workers with employment-related disputes, or making disparaging remarks about their employer or former employer.
- Engaging in any other activity protected by the Act.
Most concerning for employers is the general disapproval of broad confidentiality and non-disparagement clauses. It cannot be reasonably disputed that employers have a legitimate business interest in preventing former employees from sharing confidential, trade secret or other proprietary information with the general public or competitors of the former employer. Likewise, employers have an interest in preventing harm or damage to their reputation by a former employee spreading unflattering opinions or other unproven allegations on social media. Often these types of actions do not even qualify as protected conduct under Section 7 of the Act. Nevertheless, the Board’s new decision makes clear that employers may not circumvent an employee’s right to engage in communications with a wide range of third parties in circumstances where the communication is related to an ongoing labor dispute, and when the communication is not so disloyal, reckless or maliciously untrue to lose the Act’s protection.
For employers, the biggest takeaway from the decision is to take a fresh look at their standard separation agreements and, if it contains nondisclosure, confidentiality and non-disparagement provisions, ensure that they include exceptions for conduct protected by the National Labor Relations Act. Also be sure that the agreement does not otherwise broadly waive rights protected under the Act. Note, however, that this decision does not impact agreements for any workers not covered by the NLRA, which would include public sector employees as well as supervisors, independent contractors, and others. I recommend consulting with experienced labor and employment counsel before engaging in any termination decisions (especially with unionized workforces), and before offering employees separation agreements.