NLRB Returns to Previous Precedent for Employee Severance Agreements
By: Danielle Smid
On February 21, 2023, the National Labor Relations Board (NLRB) issued a decision in McLaren Macomb, returning to previous precedent holding that employers may not offer employees severance agreements that require employees to broadly waive their rights under the National Labor Relations Act (NLRA). The decision involved severance agreements offered to furloughed employees that very broadly prohibited them from making statements that could disparage the employer and required confidentiality of the terms of the actual agreement.
Details of the McLaren Macomb Ruling
McLaren Macomb operated a hospital in Michigan where it employed union-represented service employees. During the COVID-19 pandemic, McLaren permanently furloughed certain employees and offered those employees severance agreements. The severance agreements contained both a confidentiality provision that the employee “acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person . . .” and a non-disparagement provision in which the employee “promises and agrees not to disclose information, knowledge or materials of a confidential, privileged or proprietary nature . . . 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 . . .”
The NLRB found that McLaren violated section 8(a)(1) of the NLRA by providing its employees with a severance agreement containing provisions that restricted employees’ Section 7 rights. In regard to the non-disparagement provision, the Board determined that it interfered with employees’ Section 7 rights because statements by employees about the workplace are central to the exercise of employee rights under the Act. According to the Board, because the provision had no temporal, definition, or scope limitations, the restrictions could impede on employees’ discussion of a labor dispute, efforts to assist other employees, and future cooperation with Board investigation and litigation.
Similarly, the Board held that the confidentiality provision violated the NLRA by prohibiting employees from discussing the terms of the severance agreement with other employees, union representatives, and NLRB representatives.
In its ruling, the NLRB departed from Trump-era precedent and overruled decisions that focused on the circumstances under which the agreement was presented to employees rather than solely on the language in the agreement. McLaren made it clear that severance agreements restricting an employee’s NLRA rights are unlawful regardless of the surrounding circumstances.
NLRB General Counsel Offered Guidance on Severance Agreements after McLaren
On March 22, 2023, subsequent to the McLaren decision, the General Counsel of the NLRB, Jennifer Abruzzo issued a memo on the decision and warned employers that their enforcement of past severance agreements with overly broad non-disparagement and confidentiality provisions will be considered unlawful by her office. In her memo, Abruzzo clarified that confidentiality provisions that are “narrowly tailored” to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be lawful. Abruzzo similarly clarified that a narrowly tailored non-disparagement provision that is limited to defamation-like statements may be found lawful. Broader types of provisions may be violative of the Act.
Abruzzo further explained that generally, the Board will seek to void overbroad or otherwise illegal clauses as opposed to the entire severance agreement and that the McLaren decision DOES NOT apply to managers and supervisors as they are not covered by the NLRA.
Takeaways for Employers
In light of the McLaren Macomb ruling, employers should consider the following takeaways when drafting or reviewing their severance agreements:
- Avoid Broad Language: Employers should avoid using broad language that could be interpreted as interfering with employees' rights under the NLRA. Instead, employers should use specific language that is tailored to the circumstances of the individual employee's separation from the company.
- Review Existing Agreements: Employers should review their existing severance agreements to ensure that they do not include language that could be interpreted as interfering with employees' rights under the NLRA. If necessary, employers should revise their agreements to comply with the NLRB's ruling. When enforcing existing agreements with former employees, Employers should not attempt to enforce overbroad provisions similar to those discussed in McLaren.
- Train Managers and HR Personnel: Employers should train their managers and HR personnel on the implications of the McLaren Macomb ruling and the importance of ensuring that severance agreements do not interfere with employees' rights under the NLRA.
- Seek Legal Advice: Employers should seek legal advice from an experienced employment attorney to ensure that their severance agreements comply with the NLRB's ruling.
If you have questions about how this ruling may impact your employment policies or agreements, please contact Dani Smid or your BrownWinick employment attorney.
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