In a recent case, the National Labor Relations Board found that confidentiality and nondisparagement provisions in severance agreements may be unlawful due to the infringement of employees’ rights. How might this impact your business? Here’s what you need to know.
The Case
On February 21, 2023, in the case of McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board (the Board) ruled that confidentiality and nondisparagement agreements included in employment severance agreements may be deemed unlawful under the National Labor Relations Act (NLRA). In its opinion, the Board analyzed the question of whether an employer violated the NLRA when it offered severance agreements to a group of permanently furloughed employees.
The severance agreements contained confidentiality and nondisparagement provisions, which prohibited the employees from making statements that might harm the image of the employer. The agreements further prohibited the employees from discussing the terms of their severance agreements.
The Board’s Evaluation
The Board has historically evaluated confidentiality and nondisparagement clauses with careful scrutiny. When analyzing these clauses, the Board asks whether the language “broadly requires” the employee to waive certain rights under the NLRA.
Though prior precedent permitted employers to use such terms in severance packages, the Board has since determined that confidentiality and nondisparagement provisions may be unlawful as they manipulate employees to waive their labor rights.
In McLaren Macomb, the Board felt as if the employer’s offer was an attempt to deter employees from exercising their statutory rights. During severance, employees are vulnerable and may feel as if they must give up their rights in order to receive the benefits provided in the severance agreement.
The Ruling
The Board held that the “mere proffer” of an agreement that “unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights” violates the NLRA. McLaren Macomb exposed the ability of confidentiality and nondisparagement provisions to hinder an employees’ exercise of NLRA rights.
This decision reflects the Board’s long-term assertion that employers cannot ask employees to choose between receiving benefits and exercising their rights under the NLRA.
What Must Employers Know?
In its decision, the Board emphasized that “a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 [of the NLRA] rights, and that employers’ proffer of such agreements to employees is unlawful.”
Employers must understand that public statements by employees about the workplace are central to the exercise of employee rights under the NRLA, and therefore, cannot be prohibited through confidentiality and nondisparagement clauses.
Nonmanagerial Employees
The Board’s decision in McLaren Macomb only applies to nonmanagerial employees with Section 7 rights under the NRLA. The NRLA indicates that a manager or supervisor is an employee with the authority to “hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, adjust their grievances, or effectively to recommend such action.” Nonmanagerial employees are all others.
Employers should determine which employees are managerial and which are not prior to offering severance packages.
What Does the Future Hold?
Though the Board has issued a decision, unanswered questions remain. The Board’s ruling is subject to appeal and may be voided by an appellate court. Additionally, the Board’s decision does not impact supervisors, managers, or other employees exempt from the NLRA.
If you have any questions regarding severance packages or nonmanagerial employees’ NLRA rights, KingSpry’s Employment Law Group is prepared to assist you.
