Thursday, February 23, 2023
Do Employers Need to Revise Their Severance Agreements After Recent NLRB Ruling About Confidentiality and Disparagement?
By Warren Lightfoot and Jennifer Wheeler
This week, in McLaren Macomb, the National Labor Relations Board made two rulings regarding employers’ ability to silence laid-off or terminated employees: first, that employers can no longer include a broadly written confidentiality clause that requires employees to keep quiet about the terms of their severance agreements; and second, that employers can no longer include a broadly written non-disparagement clause that prohibits the employee from discussing the terms and conditions of their employment with third parties. The ruling reverses the NLRB’s 2020 Trump-era decisions in Baylor University Medical Center and IGT d/b/a International Game Technology, in which the Board had decided these types of restrictions were a lawful condition of receiving severance unless they were accompanied by other circumstances making them suspicious. The NLRB has now reverted to its pre-2020 stance on this issue and deems these provisions to be too broad and likely to “chill” the exercise of employees’ rights under Section 7 of the NLRA—i.e. employees’ rights to draw attention to unsafe working conditions, or to engage in other activities that protect or benefit workers as a group.
What does this mean for companies’ existing severance agreements?
1. The ruling became effective immediately.
Although the ruling could be appealed, it became effective immediately. Therefore, prospectively, it is important that companies review their severance agreement templates to ensure they don’t include language that would restrict their departing employees’ rights regarding confidentiality and disparagement.
However, companies shouldn’t be too concerned about severance agreements they entered into in the past suddenly being invalid. If the company entered into a severance agreement at a time when the law allowed these broad provisions, that would be a potential defense to any complaint seeking retroactive application of the rule.
2. The ruling applies to companies both with and without unions.
This ruling doesn’t only apply to unionized companies. Because the NLRA allows employees to exercise their right to engage in collective bargaining or to unionize in the future, the ruling applies also to companies without unions.
3. The ruling applies only to severance agreements presented to non-managerial employees.
Not all workers have Section 7 rights. For example, these NLRA protections do not cover independent contractors, managers, most supervisors, public sector employees, and some agricultural workers. Whether an employee qualifies as a “supervisor” is based on a number of factors including, but not limited to, whether the employee has authority to hire, fire, discipline, or responsibly direct the work of other employees.
4. These provisions are unlawful even if the company never enforces them.
The NLRB ruled that simply offering employees a severance agreement that requires them to broadly give up their rights under Section 7 violates the NLRA. The Board determined that such an offer is itself an attempt to deter employees from exercising their statutory rights, especially because the employee might feel they need to give up their rights in order to receive the severance benefits.
5. If illegal provisions are included in the severance agreement, that could invalidate the entire agreement.
Most companies enter into severance agreements in order to obtain a waiver of claims in exchange for a payment. Depending on the jurisdiction, if a severance agreement includes unlawful provisions, the entire agreement could be found to be invalid. This means the company could be left with meaningless and unenforceable waivers, despite having paid the departing employee severance money and other benefits. At a minimum, companies should include in their agreements a severability clause stating that one invalid provision does not invalidate the rest of the agreement.
Employers should consider this new decision when drafting and utilizing severance agreements and other employment agreements. Whether to make changes to any potential severance agreement depends on the language of the severance agreement, the employee for whom it is written, the company’s risk tolerance level, and a host of other factors. Maynard Cooper & Gale regularly works with both unionized and non-unionized employers in preparing severance agreements and ensuring compliance with NLRB guidance and other applicable state and federal laws. With any questions about this ruling or its impact on your company’s severance agreements, contact any member of our Labor & Employment Practice Group for advice.