On Tuesday, February 21, the National Labor Relations Board (NLRB) issued a long-awaited decision affecting severance agreements. Severance agreements may be considered unlawful if they either 1) prohibit a worker from disclosing the terms of the severance or 2) restrict the worker’s ability to speak negatively about their former employer. These standard clauses – a non-disparagement clause and a confidentiality clause – may now be, in effect, illegal. Also, while the NLRB ruling was made in the case of severance agreements used in a lay-off, there is no reason right now to think that these same rules would not also apply to one-off separation agreements.
This ruling affects both unionized and non-unionized workplaces. However, most supervisors, managers, public sector employees, contractors, and some agricultural workers are not covered by this ruling. Thus, an employer may still be able to include a non-disparagement and confidentiality clause for its supervisors and executive team in any severance or separation agreement.
Several Trump-era NLRB rulings permitted employers to include restrictions on a worker’s rights to speak about their severance agreement or otherwise talk negatively about their former employer. However, February’s ruling in McLaren Macomb reversed these decisions—jeopardizing many employers’ severance agreement practices.
This specific case challenged standardized confidentiality and non-disparagement provisions in severance agreements for terminated employees at McLaren Macomb—a unionized teaching hospital in Michigan. Under the Trump-era standard, these types of provisions only violated the National Labor Relations Act (NLRA) if the employer also committed a separate unfair labor practice discriminating against workers. For example, when these provisions were implemented to snuff out protected activity such as union organizing.
However—in the McLaren Macomb decision, the NLRB held that the hospital’s broadly drafted confidentiality and non-disparagement provisions were unlawful. Essentially, this standard says it is a violation of the NLRA if a provision’s terms tend at all to interfere with workers’ organizing rights. In this case, the provisions were deemed to be too broad and to “chill” the employees’ ability to band together in an effort to improve the workplace—also known as NLRA Section 7 rights.
Additionally, the NLRB held that the mere “proffering” of these provisions amounted to unlawful labor practice. Employers can therefore no longer rely on a defense arguing that they haven’t actually sought to enforce the provisions. This is a big departure from the Trump-era rule that required additional unlawful conduct for an NLRA violation.
It is still an open question as to whether these provisions would be upheld if they included a well-crafted disclaimer or other safeguard. In the McLaren case, the NLRB suggests that a disclaimer could be effective if it affirmatively protects employees right to:
- participate in Section 7 activity;
- file Unfair Labor Practice charges;
- assist others in participating in Section 7 activity or filing Unfair Labor Practice charges;
- otherwise cooperate with the Board’s investigation.
It is unclear how broad these disclaimers would have to be to pass NLRB review; and it is possible that they would have to be made so broad so as to render the provisions practically useless.
In terms of implementation, most employers should likely shift back to the way they were operating during the Obama era—before the Boeing decision decreased NLRB scrutiny of severance agreements. It is also likely that this decision will be followed by General Counsel advisory memos. These will likely present more concrete examples of severance covenants that will be upheld under the McLaren standard.
Employers must now decide whether to cease including confidentiality and non-disparagement provisions in their severance agreements, to draft disclaimers or other safeguards to include in the provisions, or to proceed with business-as-usual. Each employer should review their risk tolerance level, their potential vulnerability, the Board’s remedial authority over their organization and industry, and any deterrent effect that a disclaimer or safeguard language could have.
NLRB’s press release with a link to the Board Decision can be found here.