A hugely momentous decision from the National Labor Relations Board (“NLRB”) in February means that severance agreements – in both unionized and non-union workplaces – could once again be deemed unlawful if they could be construed to broadly restrict a worker’s rights to speak about the agreement or otherwise talk negatively about their former employer. While several recent rulings permitted employers to include confidentiality provisions and non-disparagement clauses in severance agreements, the NLRB’s ruling in McLaren Macomb wiped those decisions off the books; thereby, jeopardizing any agreements including them. How should you change your standard severance agreement practices thanks to this setback, what should you do about existing agreements, and what does this decision signal for the future? Below are answers and legal insight to these key questions to ensure that your severance agreements hold up. 

1. What Happened in the McLaren Macomb case?

McLaren Macomb, a unionized teaching hospital in Michigan, was forced into laying off a portion of its staff during the pandemic. The employer included standard confidentiality and non-disparagement provisions in the severance agreements for many of the workers it released.

Once called into question by the workers, the company justified these provisions by pointing out it was merely following the standard set by the Trump-era NLRB, which essentially permitted employers wide latitude in crafting agreements with departing workers. Under that standard, employers would only violate the National Labor Relations Act (“NLRA”) by entering into such provisions if they committed a separate unfair labor practice discriminating against workers by implementing them against the backdrop of union organizing or other protected activity.

But after the workers filed Unfair Labor Practice (“ULP”) charges about these provisions, the NLRB held they were unlawful because they were deemed too broad and tended to “chill” the exercise of employees’ rights to collectively band together in an effort to improve the workplace (also known as NLRA Section 7 rights). The Board essentially resurrected an old standard that concluded a severance agreement violates the NLRA if its terms tend to interfere with workers’ organizing rights. Note: not all workers have Section 7 rights. For instance, independent contractors, managers, most supervisors, public sector employees, and some agricultural workers are not covered by these NLRA protections. 

2. What if an Employer Enters Into Such Agreements But Don’t Enforce Them?

It will no longer be a sufficient defense to point out to the NLRB that you haven’t sought to enforce a non-disparagement or confidentiality provision. Yesterday’s decision is significant because the Board held that that the mere “proffering” of a severance agreement containing the two problematic provisions amounted to an independent unlawful labor practice. That’s because the act of conditioning receipt of benefits on the acceptance of what it considered to be unlawful terms waiving Section 7 rights was deemed coercive in and of itself.  

Some may see this as a stretch – but according to the NLRB, doing so could be seen as a way to bar departing employees from cooperating in government investigations related to possible workplace wrongdoing. This represents a key departure from Trump-era decisions that required an additional showing of additional unlawful conduct on the part of the employer.

In other words: under the newly resurrected rule, you may be found to have committed an unfair labor practice simply by offering your workers severance agreements with overly restrictive language even if you don’t seek to enforce them.

3. Could a Disclaimer Serve as a Workaround?

Maybe. It’s important to note that both covenants in the McClaren case were drafted broadly, and neither were accompanied by a comprehensive disclaimer (such as, “these provisions do not prevent you from enforcing your Section 7 rights,” etc.). And while the Board members who wrote the opinion stop short of suggesting that any disclaimer could have saved these provisions, they do insinuate that – at the very least – any such disclaimer would need to affirmatively allow employees to:

• participate in Section 7 activity;
• file ULP charges;
• assist others in doing so; and
• otherwise cooperate with the Board’s investigative process.  

In other words, there may be a chance that a finely crafted and very broad disclaimer contained in a severance agreement could allow you to also include non-disparagement and confidentiality provisions. Of course, the disclaimers might need to be so broad that they would be rendered almost useless in practice.

4. Are There Other Safeguards Employers Could Put in Place to Salvage Severance Agreements?

It’s possible. Again, the Board members who wrote yesterday’s decision specifically deemed the employer’s non-disparagement covenant unlawful due in part to the fact that it was not limited to matters regarding past employment, contained no temporal restriction, and otherwise failed to offer any definition for “disparagement” (such as, “so disloyal, reckless or maliciously untrue as to forfeit the Act’s protection”). This would seem to indicate that the Board is opening the door to lawful non-disparagement provisions to the extent they are accompanied by these kinds of safeguards.  Similarly, the Board scrutinized the confidentiality provision at issue only to quickly invalidate it for similar reasons, including a finding that it purported to prohibit disclosure to any third party – including a labor union – and with one’s own co-workers.  

5. What About Existing Severance Agreements with Confidentiality and Non-Disparagement Provisions? Are Those Still Valid? Do Employers Need to Affirmatively Rescind Them or Risk a ULP?

This is perhaps the biggest question of all in the wake of the McLaren Macomb decision. What does this mean for the countless numbers of severance agreements you already have in place with departed employees over the past several decades? Surely many of them contain similar provisions that would be deemed inherently coercive under this standard. Does the McLaren Macomb decision mean all of them are now invalid and can be safely disregarded without fear of disgorging severance benefits?  

Not exactly. For one thing, the Board’s own procedural limitation rules effectively bar workers from bringing charges that fail to relate back to a violation that occurred within the past six months. Further, if you drafted the severance agreement at a time when the law allowed such provisions, this could serve as a potential defense to any complaint seeking retroactive application of the newly revived rule.

6. What Should Employers Do?

We obviously would not advise employers to disregard compliance obligations when it comes to this new standard, particularly when the standard comes from an agency that regulates conduct of virtually every workplace in the country. But unfortunately there is no “one-size fits all” approach when it comes to the best way to comply with this new standard.

For some risk-averse employers, it might make sense to immediately cease from including confidentiality and non-disparagement clauses in your severance agreements. For others, a healthy disclaimer clause or other written safeguards will be the best approach. Still others may decide to take a business-as-usual approach.

In order to decide which approach is right for your organization, you should coordinate with your legal counsel. The kinds of factors you should take into account include your risk tolerance level, the backdrop of the Board’s remedial authority when it comes to your organization and industry, the potential vulnerability of the decision on appeal, and the deterrent value that any disclaimer or safeguard language will bring you in the interim.

CONCLUSION

For further information or advice on how to navigate the recent decision from the NLRB or how best to strategically draft your severance agreements, contact The RAD Firm. 

This Legal Alert provides an overview of a specific developing situation. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.