NLRB Ruling Undercuts Certain Employer Protections in Severance Agreements

Last week, in a groundbreaking decision, the National Labor Relations Board (the “NLRB”) ruled that employers can no longer require employees to sign severance agreements that broadly waive their rights under the National Labor Relations Act (the “Act”). In McLaren Macomb, the NLRB found a severance agreement to be “unlawful” based on its inclusion of what the NLRB considered to be overly-broad confidentiality and non-disparagement provisions. The decision overruled certain Trump-era rulings that gave employers a fair amount of latitude in drafting these types of provisions and is a clear indication of the NRLB’s current intent to tighten the reigns on company practices that could infringe on workers’ rights under the Act.

In Macomb, a hospital provided a severance agreement and an offer of severance pay to terminated employees in exchange for a full release of claims and restrictive covenants. The restrictive covenants may sound familiar. The confidentiality provision required the employee to keep the terms of a severance agreement confidential, except the employee could disclose its terms to a spouse, as necessary to a professional advisor, or if required by law. The non-disparagement provision required the employee to refrain from disparaging or harming the image of the employer and its affiliates. The severance agreement further provided for standard monetary and injunctive sanctions against the employee if the employee were to breach either of those provisions. The NLRB found these provisions “unlawfully restrained and coerced” employees’ rights under Section 7 of the Act (for example, the right to join together to discuss and improve their working conditions), concluding that the provisions had a “clear chilling tendency” on those rights.

Not only did the NLRB find the confidentiality and non-disparagement provisions in Macomb to be problematic – it held that the mere proffering of the agreement itself was unlawful. A well-drafted severance agreement (or any agreement) will include a severability clause to say that the invalidity or unenforceability of one provision will not render the entire agreement void. It’s unclear whether this type of provision was included in the Macomb agreement, but it doesn’t appear it would have mattered. Simply providing a terminated employee with a severance agreement that included these provisions was enough to invalidate the entire exchange.

Also left unanswered is whether more limited confidentiality and non-disparagement provisions in severance agreements will pass muster in light of Macomb. While the NLRB did not specifically address this issue, it did note the “sweepingly broad” nature of the terms in the hospital’s severance agreement. It further noted that the provisions contained no temporal limitation nor any exception to permit the employee to file an unfair labor practice charge or to assist the government in investigations. Thus, it would appear that if the business needs of an employer require the use of these types of provisions, they should be narrowly tailored to apply only for a set period of time and should expressly permit the employee to file an unfair labor practice claim or to assist the NLRB in any related investigations.

What does this mean for existing severance agreements that include these common terms? If the agreement was drafted prior to last week’s ruling, this could serve as a possible defense to any subsequent former employee’s complaint of a workplace violation based on the agreement. In addition, the NLRB’s procedural rules require employees to bring charges relating to a violation of the Act within six months of the violation, so arguably agreements entered into more than six months ago are not at issue under Macomb. 

Employers should review the confidentiality and non-disparagement provisions in their current severance agreements and may need to consult with counsel to revise these terms accordingly. It’s important to note that not all workers are afforded Section 7 rights under the Act. Notably, managers, most supervisors, and independent contractors (among other categories of workers) are not covered by the Act, and any corresponding severance agreements for those workers will not be at issue.

Our team continues to monitor the NLRB and other regulatory decisions that impact our clients’ operations and will provide updates as they become available.