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NLRB Tackles Separation Agreements

March 3, 2023

At A Glance

On February 21, 2023, the National Labor Relations Board (the “NLRB” or “Board”) issued a decision, McLaren Macomb, 372 NLRB No. 58 (2023), that seeks to make unlawful certain broadly worded confidentiality and non-disparagement provisions in separation agreements for any non-supervisory employee. The new rule applies regardless of whether the employee is union or non-union, and regardless of whether the employee was terminated in violation of the National Labor Relations Act, 29 U.S.C. §§ 151 et seq. (“NLRA” or the “Act”) or was presented the agreements in a coercive manner. In fact, the decision makes it unlawful for employers to even offer an agreement that contains such provisions. According to the NLRB, whether the employee accepts the agreement is irrelevant.

As a general matter, non-supervisory employees subject to the Act have a right to talk to others about the terms and conditions of their employment. This is a right afforded them under Section 7 of the NLRA. Accordingly, the Board’s precedent recognizes that employers may not interfere with, restrain, or coerce employees’ exercise of their Section 7 rights. The exact nature of this protection has, however, fluctuated over the years. For example, in Baylor University, 369 NLRB No. 43 (2020) and IGT, 370 NLRB No. 50 (2020), the Board held that confidentiality provisions in a severance agreement, even those that restricted Section 7 rights on their face, did not violate the NLRA unless they were tainted by circumstances of coercion separate from the agreement itself.

In light of this change in the Board’s position, you may wish to review your company’s separation agreement if it contains broad confidentiality and/or non-disparagement provisions that do not sufficiently account for Section 7 rights under the NLRA.

Tell Me More

A hospital in Michigan offered, and 11 union employees accepted, a severance agreement that contained the following two provisions:

Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.”

Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, 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, its parents and affiliated entities and their officers, directors, employees, agents and representatives.”

The employees challenged the lawfulness of these provisions as a violation of their Section 7 rights. The NLRB agreed with the employees and ruled that those provisions, including the act of merely offering the provisions, had an unreasonable tendency to interfere with, restrain, or coerce employees’ exercise of their Section 7 rights. In so ruling, the Board overturned Baylor University and IGT.

The Board specifically condemned the confidentiality provision because it:

  1.  “broadly prohibits the subject employee from disclosing the terms of the agreement ‘to any third person’”;
  2. “bars the subject employee from providing information to the Board concerning the [employer’s] unlawful interference with other employees’ statutory rights”;
  3.  tends to “coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the Respondent's use of the severance agreement, including the nondisparagement provision”;
  4. “prohibits the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement”; and
  5. interferes with “discussions with the Union concerning the terms of the agreement, or such discussion with a union representing employees where the subject employee may gain subsequent employment, or alternatively seek to participate in organizing, or discussion with future co-workers.”
As for the non-disparagement provision, the Board took issue with the fact that it:

  1. prohibited any statements by the subject employee asserting that the employer had violated the Act;
  2. was not limited to matters regarding past employment with the employer;
  3. provided no definition of disparagement that “cabins the term to [the] well-established NLRA definition”;
  4. banned the subject employee’s critique of the employer’s policies, subject only to the requirement that employee’s communications “not be so ‘disloyal, reckless or maliciously untrue as to lose the Act’s protection’”
  5. lacked any temporal limitation;
  6. hilled “efforts to assist fellow employees, which would include future cooperation with the Board's investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future”
  7. prohibited statements also toward the employer’s “‘parents and affiliated entities and their officers, directors, employees, agents and representatives.

The Board summed up its holding with the following:

A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment. Conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights[,] unless it is narrowly tailored to respect the range of those rights.

Employers do not necessarily need to remove confidentiality and non-disparagement provisions entirely, although some employee-side advocates will likely argue that this is necessary or prudent. Because the provisions at issue did not contain any sort of disclaimer or carveout for Section 7 rights, it is unclear whether the Board will take issue with more narrowly tailored confidentiality and non-disparagement provisions. As noted above, the Board suggested that “narrowly tailored” provisions that “respect the range of [statutory] rights” may not violate the Act. Employers should, therefore, consult with legal counsel to determine the best approach for their organization.

As employers review their separation agreements, it is important to keep in mind that the NLRB’s decision likely does not impact agreements presented to those who do not have Section 7 rights—most notably, supervisory employees. See Parker-Robb Chevrolet, 262 NLRB 402 (1982) (finding supervisor’s attendance at union meetings and complaints about the discharge of union leaders did not constitute protected Section 7 activity). The NLRA defines “supervisors” to mean “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

The Board’s order arguably is not retroactive and is not self-enforcing; if the hospital does not comply voluntarily, the Board must apply to the appropriate United States Court of Appeals—here, the Sixth Circuit—for enforcement of the order. The hospital may also appeal the Board’s decision to the Sixth Circuit. Employers should, nonetheless, take steps now to comply with the Board’s decision because failing to account for it could not only constitute an unfair labor practice under the NLRA, but could also lead to the unenforceability of at least the confidentiality and/or non-disparagement provisions.1

Lastly, we note that the McLaren decision is part of a growing trend to allow employees to discuss acts in the workplace that they believe are unlawful. In the last few years, California, Washington, and New York have passed laws that require employers to tailor agreements to account for such limitations on non-disparagement and/or confidentiality provisions. California recently passed, for example, the Silenced No More Act that took effect last year and prohibits severance agreements from including provisions that would prevent former employees from disclosing information about unlawful workplace acts except in certain circumstances. See Cal. Civ. Proc. Code § 1001; Cal. Gov’t Code § 12964.5. Washington also passed its own Silenced No More legislation, E.S.H.B. 1995, that applies to severance and employment agreements, and prohibits nondisclosure or non-disparagement provisions that restrict employees from disclosing or discussing what the employee reasonably believes constitutes a violation of public policy, discrimination, harassment, retaliation, or a wage and hour infraction. In 2019, New York passed a law that prohibits employers from requiring non-disclosure terms in agreements relating to facts and circumstances underlying discrimination claims unless confidentiality is the employee or former employee’s preference. See N.Y. Gen. Oblig. Law § 5-336. 

Next Steps

Here are a few steps you may take in light of the Board’s decision:

  • Review current severance agreements to determine whether they contain broad confidentiality or non-disparagement clauses that may violate the Board's rule or recently enacted state law.
  • Consider adding savings clauses that set forth the parties' mutual understanding that nothing in the severance agreement is intended to prohibit an employee's exercise of non-waivable rights under Section 7 of the NLRA.
  • Consider adding severability clauses that express the parties' mutual intent to enforce the severance agreement to the maximum extent permitted under applicable law.
  • Ensure that agreements comply with restrictions under applicable state law (such as California, Washington and New York as explained above).
  • Review employee handbooks, pre-dispute confidentiality agreements, and written policies to determine whether they contain broad non-disparagement or confidentiality covenants that may require similar disclaimers as set forth above.<
  • pre-dispute agreements between employers and their former, current, or prospective employees.

1 Notably, even if the Sixth Circuit refuses to enforce the Board’s decision, the Board does not treat adverse Court of Appeals decisions as binding precedent and could choose to follow the decision in future proceedings regardless of the outcome in the Court of Appeals. Beverly Enters., 313 NLRB 491 (1993) (issuing an order at odds with Sixth Circuit precedent because “the Supreme Court, not [the] circuit or even all twelve circuits that have jurisdiction to review orders of the Labor Board, is the supreme arbiter of the meaning of the laws enforced by the Board.”).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Adam P. KohSweeney, an O'Melveny partner licensed to practice law in California and New York, Andrew Lichtenstein, and O'Melveny counsel licensed to practice law in California, Allan W. Gustin, an O'Melveny counsel licensed to practice law in California, Eric Amdursky, an O’Melveny partner licensed to practice law in California, Apalla U. Chopra, an O’Melveny partner licensed to practice law in California, and Adam Karr, an O’Melveny partner licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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