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 previously claimed, the National Labor Relations Board (“NLRB” or “Board”) below President Biden is doing work to undo a lot of any employer-welcoming actions taken all through the former administration. On February 21, 2023, the Board ongoing in its development and wiped absent a Trump-period ruling which gave companies certain latitude in drafting and executing severance agreements with their staff members. Specifically, the Board, in a divided determination, dominated employers can no for a longer period give severance agreements that contains clauses that (i) protect against staff from earning disparaging remarks about their previous employer or (ii) compel departing personnel to retain the contents of the severance arrangement confidential.

The Board’s choice in McLaren Macomb, 372 NLRB No. 58 (2023) anxious a Michigan hospital that, in the midst of the COVID-19 pandemic, permanently furloughed 11 nonessential union staff members following the issuance of govt laws prohibiting the healthcare facility from undertaking elective and outpatient treatments and from allowing nonessential personnel to function inside of the hospital. In exchange for a severance payment, the hospital questioned the forever furloughed workers to indicator a “Severance Arrangement, Waiver and Release” that offered to pay out differing severance quantities to each and every furloughed employee if they signed the settlement. Like a lot of severance and launch agreements, it contained confidentiality and non-disclosure provisions that barred the staff from making “statements to [the hospital]’s employees or to the normal public which could disparage or hurt the picture of [the hospital], its mum or dad and affiliated entities and their officers, directors, staff, brokers and representatives” and from disclosing the conditions of the severance agreements to “any third human being.” The 11 workers executed the agreements.

The Board agreed with the Administrative Legislation Decide that the medical center violated Segment 8(a)(5) and (1) of the Act by permanently furloughing the 11 personnel without having to start with notifying the Union and offering it an option to discount about the furlough selection and its consequences, and that it further more violated Segment 8(a)(5) and (1) of the Act by communicating and instantly working with the 11 employees to enter into the severance agreement, whilst entirely bypassing and excluding the Union. The Board’s a few Democratic member the greater part, nonetheless, above the lone dissent from Republican appointee Member Kaplan, reversed the ALJ’s obtaining less than Baylor College Health care Center, 369 NLRB No. 43 (2020) and IGT d/b/a Global Match Engineering, 3 370 NLRB No. 50 (2020), that the Respondent did not violate Area 8(a)(1) of the Act by basically proffering the severance agreement to the forever furloughed employees. In Baylor and IGT, the Trump Board addressed regardless of whether the mere proffer by an employer of severance agreements that contains non-disparagement, non-help, and confidentiality provisions interfere with, restrain, or coerce personnel in the exercise of their rights beneath the Act. The Board concluded in Baylor and IGT that, absent outside the house instances that could render the proffers coercive, the mere motion of featuring these agreements to former employees does not represent 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. Below, the Board invalidated the severance agreements. 

Whilst Member Kaplan’s dissent noted the hospital’s mere proffer of the severance agreements made up of the non-disparagement and confidentiality provisions would have been unlawful under Baylor and IGT, the Board vast majority deemed it essential to overrule the Trump-era Board rulings for the reason that they unsuccessful to “analyze the conditions of the severance agreements which are the quite subject of the alleged illegal proffer to receiver employees” and overruled both circumstances. Noting the non-disparagement provision at situation listed here prohibits employees from making any “statements to [the] Employer’s staff or to the general public which could disparage or hurt the graphic of [the] Employer”—including, it would appear to be, any assertion asserting that the Respondent had violated the Act”, the the vast majority even more concluded the non-disparagement proscription “would encompass worker conduct concerning any labor problem, dispute, or term and affliction of work of the Respondent,” a move much too considerably in light of the Act’s perfectly-worn proscriptions from employee communications that are disloyal, reckless or maliciously untrue so as to lose the Act’s protection. Probably even more troubling for innumerable companies, the Board similarly found the confidentiality provision illegal, stating the broad prohibition from disclosing the terms of the settlement “to any third person” would “reasonably are inclined to coerce the worker from filing an unfair labor apply cost or aiding a Board investigation into the Respondent’s use of the severance settlement, which include the nondisparagement provision.” In framing its decision as a return to long-standing Board precedent, the Board concluded “[t]oday’s decision…explains that simply just featuring workforce a severance settlement that necessitates them to broadly give up their rights…[and] that the employer’s present is itself an attempt to discourage employees from doing exercises their statutory rights, at a time when workers could truly feel they need to give up their legal rights in purchase to get the positive aspects delivered in the arrangement.” 

Curiously, whilst the Board affirmed the ALJ’s final decision to rescind the long lasting furloughs that had been unilaterally executed (and for the healthcare facility to protect a range of damages, these as to compensate the furloughed staff for the adverse tax repercussions, if any, of getting lump-sum backpay and to make them total for their affordable search-for-operate and interim work expenditures, in addition interest, irrespective of whether those people expenses exceeded their interim earnings), neither the Board nor the ALJ requested the separated staff members to fork out the severance payments back to the medical center, the invalidation of the severance arrangement notwithstanding.

Heading forward, the Board will obtain a severance agreement illegal if its terms have a “reasonable inclination to interfere with, restrain, or coerce staff in the training of their Area 7 legal rights,” and the Board will additional come across that employers’ mere proffer of these kinds of agreements to staff is illegal. In creating that resolve, the Board will look at the language of the agreement, like whether or not any relinquishment of Portion 7 legal rights is narrowly customized. To that close, the Board discovered a number of critical (and very common) deficiencies in the employer’s non-disparagement covenant, noting it was not confined to matters about past work, contained no temporal restriction, and otherwise failed to offer you any definition for “disparagement.” While this caveat to begin with presents hope to employers that these kinds of limits are achievable and still ample, it is most likely the current Board will only permit limits that are already deemed illegal in other contexts (such as defamation). Equally, the Board’s challenge with the confidentiality provision (prohibiting disclosure to any 3rd get together – including a labor union and co-employees) supplies minimal hope to employers looking for to meaningfully curtail dissemination of the material terms of any severance settlement. 

Important Takeaways

Unsurprisingly, this selection is the most up-to-date in a collection of techniques the Biden-era Board has taken to undo most important Trump-period Board choices, and the validity of post-employment covenants was recognized by the Common Counsel as getting on the chopping block. Importantly, this determination carries substantial realistic implications for each union and non-union companies alike, who ought to grapple with a wide variety of lawful and practical issues, these kinds of as:

(a) what does this selection suggest for similar severance agreements companies previously have in place with departed workers?

(b) will previous employees be able to problem their severance agreements as unenforceable in long term lawsuits based on statements they experienced originally waived in the agreements?

(c) is it even attainable to draft modifications to non-disparagement and/or confidentiality provisions that both of those address the Board’s considerations though also providing significant protections for companies?

(d) if similar provisions in an employer’s severance agreement are observed illegal, what is the likely remedy? 

There is no just one-sizing matches all answer to these difficulties, and employers will have to assess the various pitfalls this kind of provisions carry in light-weight of their workforce, the conditions providing increase to the agreements becoming made available, and the probability that these provisions are even required. Employers need to consult with proficient labor counsel to discuss these problems and how best to manage separation agreements in light-weight of the Board’s directive.