Offering an employee a severance agreement that includes confidentiality and non-disparagement provisions runs afoul of Section 8(a)(1) of the National Labor Relations Act (NLRA), a divided National Labor Relations Bureau (NLRB) recently ruled.
A hospital in Mt. Clemens, Michigan, McLaren Macomb, temporarily furloughed 11 employees in March 2020 because they were deemed nonessential employees. The employees—members of Local 40 RN Staff Council, Office of Professional Employees International Union—were each presented with a “Severance Agreement, Waiver and Release” that offered to pay differing amounts to each employee.
The agreement required the employees to release the hospital from any claims arising out of their employment or termination of employment; it also prohibited disparagement of the hospital and mandated confidentiality about the terms of the agreement.
All 11 employees signed the agreement, and a complaint was filed with the NLRB, alleging that the hospital violated Section 8(a)(1). An administrative law judge found the severance agreements lawful, and the ruling was appealed.
In a 3-to-1 decision, the NLRB reversed.
“Agreements that contain broad proscriptions on employee exercise of Section 7 rights have long been held unlawful because they purport to create an enforceable legal obligation to forfeit those rights,” the Board wrote. “Proffers of such agreements to employees have also been held to be unlawfully coercive.”
In a pair of 2020 decisions—Baylor University Medical Center and IGT d/b/a International Game Technology—the Board reversed this “long-settled precedent and replaced it with a test that fails to recognize that unlawful provisions in a severance agreement proffered to employees have a reasonable tendency to interfere with, restrain, or coerce the exercise of employee rights under Section 7 of the Act,” the Board said.
“We accordingly overrule Baylor and IGT and, upon careful analysis of the terms of the non-disparagement and confidentiality provisions at issue here, we find them to be unlawful, and thus find the severance agreement proffered to employees unlawful.”
Prior to Baylor and IGT, there existed a “backdrop of nearly a century of settled law that employees may not broadly waive their rights under the NLRA,” the Board said. “Agreements between employers and employees that restrict employees from engaging in activity protected by the Act, or from filing unfair labor practice charges with the Board, assisting other employees in doing so, or assisting the Board’s investigative process, have been consistently deemed unlawful.”
The broad scope and wide protection afforded employees by Section 7 of the Act bear repeating, the Board emphasized, and it is through the lens of this broad grant of rights and the Board’s duty to protect them that the Board scrutinized the severance agreements at issue.
“Inherent in any proffered severance agreement requiring workers not to engage in protected concerted activity is the coercive potential of the overly broad surrender of NLRA rights if they wish to receive the benefits of the agreement,” the Board wrote. “If the law were to the contrary, it would create an incentive for employers to proffer severance agreements with unlawful provisions to employees.”
Whether the employee accepts the agreement is immaterial, the Board noted.
Both the non-disparagement and confidentiality provisions used by McLaren Macomb substantially interfered with employees’ Section 7 rights on their face, the Board concluded.
To read the decision and order in McLaren Macomb, click here.
Why it matters: The decision made headlines for what the NLRB characterized as a “return to longstanding precedent,” holding that an employer violates Section 8(a)(1) of the NLRA when it proffers a severance agreement with non-disparagement and confidentiality provisions. While the Board’s decision does not have universal application, it is important for employers to keep in mind when drafting severance agreements.