We Can Now Add Civility and Secrecy to the List of Things Money Can’t Buy: NLRB Rules Non-Disparagement and Confidentiality Clauses in Severance Agreements Unlawfully Restrain and Coerce Employees

As we formerly noted, the National Labor Relations Board (“NLRB” or “Board”) underneath President Biden is functioning to undo a great deal of any employer-pleasant steps taken in the course of the prior administration. On February 21, 2023, the Board continued in its pattern and wiped away a Trump-period ruling which gave businesses sure latitude in drafting and executing severance agreements with their staff members. Especially, the Board, in a divided decision, ruled businesses can no more time present severance agreements containing clauses that (i) protect against personnel from building disparaging remarks about their former employer or (ii) compel departing personnel to retain the contents of the severance arrangement confidential.

The Board’s determination in McLaren Macomb, 372 NLRB No. 58 (2023) involved a Michigan hospital that, in the midst of the COVID-19 pandemic, forever furloughed 11 nonessential union staff next the issuance of govt laws prohibiting the medical center from undertaking elective and outpatient strategies and from enabling nonessential workers to do the job inside the healthcare facility. In trade for a severance payment, the medical center asked the forever furloughed staff members to signal a “Severance Arrangement, Waiver and Release” that supplied to shell out differing severance quantities to every single furloughed personnel if they signed the arrangement. Like quite a few severance and launch agreements, it contained confidentiality and non-disclosure provisions that barred the staff members from making “statements to [the hospital]’s personnel or to the normal public which could disparage or damage the image of [the hospital], its dad or mum and affiliated entities and their officers, directors, employees, brokers and representatives” and from disclosing the conditions of the severance agreements to “any 3rd person.” The 11 personnel executed the agreements.

The Board agreed with the Administrative Regulation Judge that the medical center violated Part 8(a)(5) and (1) of the Act by permanently furloughing the 11 staff members devoid of initially notifying the Union and offering it an prospect to cut price about the furlough conclusion and its consequences, and that it further violated Portion 8(a)(5) and (1) of the Act by communicating and straight working with the 11 staff members to enter into the severance settlement, when solely bypassing and excluding the Union. The Board’s three Democratic member the vast majority, even so, about the lone dissent from Republican appointee Member Kaplan, reversed the ALJ’s discovering under Baylor University Health-related Heart, 369 NLRB No. 43 (2020) and IGT d/b/a International Sport Engineering, 3 370 NLRB No. 50 (2020), that the Respondent did not violate Section 8(a)(1) of the Act by just proffering the severance agreement to the completely furloughed staff. In Baylor and IGT, the Trump Board addressed no matter if the mere proffer by an employer of severance agreements made up of non-disparagement, non-aid, and confidentiality provisions interfere with, restrain, or coerce workforce in the exercise of their rights underneath the Act. The Board concluded in Baylor and IGT that, absent outdoors conditions that could render the proffers coercive, the mere action of presenting these agreements to former employees does not constitute a violation of the Act. See IGT, 370 NLRB No. 50, slip op. at 2 Baylor, 369 NLRB No. 43, slip op. at 1–2. Here, the Board invalidated the severance agreements. 

Whilst Member Kaplan’s dissent famous the hospital’s mere proffer of the severance agreements that contains the non-disparagement and confidentiality provisions would have been illegal less than Baylor and IGT, the Board greater part considered it needed to overrule the Trump-era Board rulings because they unsuccessful to “analyze the terms of the severance agreements which are the really subject of the alleged unlawful proffer to recipient employees” and overruled each instances. Noting the non-disparagement provision at problem below prohibits workforce from making any “statements to [the] Employer’s workers or to the normal public which could disparage or damage the graphic of [the] Employer”—including, it would seem to be, any assertion asserting that the Respondent experienced violated the Act”, the vast majority even more concluded the non-disparagement proscription “would encompass personnel carry out concerning any labor problem, dispute, or expression and problem of employment of the Respondent,” a phase as well far in light-weight of the Act’s perfectly-worn proscriptions from personnel communications that are disloyal, reckless or maliciously untrue so as to drop the Act’s safety. Potentially even a lot more troubling for a great number of companies, the Board also found the confidentiality provision illegal, stating the broad prohibition from disclosing the phrases of the agreement “to any 3rd person” would “reasonably have a tendency to coerce the employee from filing an unfair labor exercise demand or assisting a Board investigation into the Respondent’s use of the severance agreement, which include the nondisparagement provision.” In framing its final decision as a return to extended-standing Board precedent, the Board concluded “[t]oday’s decision…explains that merely giving workforce a severance settlement that involves them to broadly give up their rights…[and] that the employer’s present is itself an try to deter workforce from performing exercises their statutory legal rights, at a time when personnel may well sense they should give up their legal rights in purchase to get the advantages supplied in the arrangement.” 

Interestingly, although the Board affirmed the ALJ’s selection to rescind the long lasting furloughs that have been unilaterally carried out (and for the healthcare facility to address a assortment of damages, such as to compensate the furloughed workers for the adverse tax repercussions, if any, of receiving lump-sum backpay and to make them full for their acceptable lookup-for-work and interim employment fees, plus desire, irrespective of no matter if people expenses exceeded their interim earnings), neither the Board nor the ALJ purchased the divided personnel to pay back the severance payments again to the healthcare facility, the invalidation of the severance arrangement notwithstanding.

Heading forward, the Board will come across a severance agreement illegal if its phrases have a “reasonable inclination to interfere with, restrain, or coerce workers in the physical exercise of their Segment 7 rights,” and the Board will additional find that employers’ mere proffer of these kinds of agreements to employees is unlawful. In earning that willpower, the Board will study the language of the arrangement, such as regardless of whether any relinquishment of Section 7 legal rights is narrowly tailor-made. To that conclude, the Board recognized a several significant (and very common) deficiencies in the employer’s non-disparagement covenant, noting it was not minimal to matters relating to earlier employment, contained no temporal restriction, and if not failed to provide any definition for “disparagement.” While this caveat to begin with gives hope to businesses that these kinds of limitations are probable and however sufficient, it is probable the present Board will only allow constraints that are by now deemed illegal in other contexts (such as defamation). Similarly, the Board’s challenge with the confidentiality provision (prohibiting disclosure to any 3rd party – like a labor union and co-employees) provides minor hope to companies in search of to meaningfully curtail dissemination of the content phrases of any severance arrangement. 

Important Takeaways

Unsurprisingly, this selection is the hottest in a series of techniques the Biden-period Board has taken to undo most crucial Trump-era Board choices, and the validity of put up-work covenants was recognized by the General Counsel as being on the chopping block. Importantly, this decision carries major practical implications for equally union and non-union businesses alike, who ought to grapple with a wide variety of authorized and functional issues, these types of as:

(a) what does this choice mean for identical severance agreements employers already have in area with departed staff?

(b) will former workers be equipped to challenge their severance agreements as unenforceable in foreseeable future lawsuits dependent on promises they experienced initially waived in the agreements?

(c) is it even achievable to draft modifications to non-disparagement and/or confidentiality provisions that equally handle the Board’s considerations when also furnishing meaningful protections for companies?

(d) if comparable provisions in an employer’s severance settlement are observed illegal, what is the probable treatment? 

There is no one particular-measurement matches all option to these difficulties, and companies will have to assess the different hazards such provisions carry in gentle of their workforce, the circumstances giving rise to the agreements getting made available, and the chance that this kind of provisions are even needed. Employers should talk to experienced labor counsel to discuss these troubles and how best to handle separation agreements in light-weight of the Board’s directive.