On February 21, 2023, a divided National Labor Relations Board (NLRB) concluded that employers violate federal labor law if they condition agreements providing for severance on employees agreeing to provisions preventing them from disparaging the company and/or disclosing the terms and conditions of the severance agreement. The Board majority, consisting of three Democrats, reversed two Trump-era decisions finding that such provisions are illegal only when other factors were present, and focused on the language of the provisions themselves as inherently coercive.
Section 7 of the National Labor Relations Act (NLRA) guarantees employees "the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection."
"Other concerted activities" include the right freely to speak about terms and conditions of employment with co-workers, representatives, and/or the public in general. Agreements that contain broad proscriptions on employee exercise of Section 7 rights have long been held unlawful because they purport to create an enforceable legal obligation to forfeit those rights. McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL-CIO, Case 07-CA-T63041 involved a hospital in Mt. Clemens, Michigan that permanently furloughed 11 bargaining unit employees because they were deemed nonessential in the face of the COVID-19 pandemic. The hospital offered each affected employee a "Severance Agreement Waiver and Release" that offered to pay differing severance amounts to each furloughed employee if they signed the agreement. All 11 employees signed the agreement. Each document contained the following provisions:
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.
Further, each agreement afforded the hospital the ability to seek injunctive relief if either of these provisions were violated, and expressly provided that those violating the provisions would be liable to the employer for "actual damages, and any costs and attorney’s fees that are occasioned by the violation of these paragraphs."
The Board majority found that the nondisparagement language and confidentiality provision as to the severance agreement itself served unlawfully to restrain and coerce the furloughed employees in the exercise of their Section 7 rights. In doing so, the Board reversed Baylor University Medical Centers and International Game Technology, two Trump-era NLRB decisions that held that such provisions were not unlawful because, in those cases, the then-Board concluded that the agreements were not mandatory, pertained exclusively to post-employment activities (thus having no impact on current terms and conditions of employment), and there were no separate allegations that anyone offered
the agreements was unlawfully discharged or that such agreements were proffered under circumstances that would tend to infringe on Section 7 rights. Thus, the Board scrapped Baylor’s "two-factor test" requiring additional unlawful activity and emphasized that it is the language of the agreement itself that is relevant as to a finding of unlawful coercive behavior. The Board announced a return to the pre-Baylor "historical norm." Prior to Baylor, when analyzing whether a severance agreement violated the NLRA, the Board looked at whether the proffer "had a reasonable tendency to interfere with, restrain or coerce" employees in the exercise of their NLRA rights.
The Board found that the nondisparagement language in the agreements at issue "on its face substantially interferes with employees’ Section 7 rights. Public statements by employees about the workplace are central to the exercise of employee rights under the Act." The Board found that the language at issue would have a "chilling tendency" that could prohibit "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 for fear of violating the severance agreement’s general proscription against disparagement and incurring it very
Similarly, the Board found that the language providing for the confidentiality of the severance agreement was unlawful because it "broadly prohibits the subject employee from disclosing the terms of the agreement to any third person," with limited exception, including the Board itself in regard to filing and/or investigating alleged violations of the NLRA. The Board found that this provision would prevent the employee from discussing the agreement with his former coworkers or union representatives.
In this case, in addition to returning to pre-Baylor precedent, the Board held that McLaren Macomb Hospital violated the NLRA by executing the furloughs – which the hospital argued were necessary due to the rapidly changing landscape for healthcare employers caused by the pandemic – without negotiating with the Union prior to the furloughs and by issuing the severance agreements directly to the employees without involving the Union.
Severance or "separation" agreements containing provisions similar to those that the Board has now found to be inherently violative of Section 7 rights have been commonplace for employers transitioning employees. Keep in mind that Section 7 of the NLRA applies to both unionized and non-union employees but is not an issue as to employees holding managerial and supervisory positions who have no right to organize under the NLRA.
As to those with Section 7 rights, employers must revise nondisparagement and/or nondisclosure provisions expressly to "carve out" Section 7 concerns from prohibitions to avoid the risk that agreements could be deemed unlawful or simply forego them altogether.
Our Labor & Employment lawyers are available to assist our clients with crafting separation-related documents that comply with the Board’s new decision and take into account Section 7 rights.