NLRB Rules Severance Agreements with Nondisclosure Clauses are Unlawful
Pictured: Business person points to indicate where to sign document/BernardaSv/iStock
On March 22, the National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo to all field offices clarifying the details of the Board’s recent ruling in a case regarding severance agreements.
In the case, McLaren v. Macomb, management at a hospital offered severance agreements to furloughed employees that included a clause prohibiting them from speaking negatively about their employer and disclosing the agreement's terms.
On Feb. 21, the NLRB ruled this was unlawful, and Abruzzo stated in the memo that the ruling also applies retroactively. This means employers may be forced to leave non-disclosure clauses out of future severance agreements and reverse agreements they previously offered.
According to a press release issued by the agency at the time of the ruling, any severance agreement that requires employees to “broadly give up their rights under Section 7 of the [National Labor Relations] Act violates Section 8(a)(1) of the Act.”
Section 7 of the Act guarantees employees the following rights:
- to self-organization
- to form, join or assist labor organizations
- to bargain collectively through representatives of their choosing
- to engage in other concerted activities for collective bargaining or other mutual aid or protection
The section also gives employees the right “to refrain from any or all such activities.”
“It’s long been understood by the board and the courts that employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the National Labor Relations Act,” Lauren McFerran, NLRB chairman, said in the press release. “Today’s decision upholds this important principle and restores longstanding precedent.”
Changing with the Tides
The McLaren v. Macomb decision reverses the Board’s previous decisions in Baylor University Medical Center and IGT d/b/a International Game Technology in 2020. In these cases, the Board ruled that similar severance agreements offered to employees were not unlawful.
This reversal is not unprecedented.
Richard Dreitzer, a managing partner at Fennemore Law who specializes in employment law, told BioSpace. It’s not unusual for government bodies like the NLRB to reflect the values of the majority political party.
“It’s a function of the national headwinds of politics in either direction,” Dreitzer said. “Agencies like the Federal Trade Commission [FTC], the NLRB, et cetera, when populated by conservatives, the rulings and guidance tend to shift toward more towards the employer. When they’re populated by Democrats . . . they tend to be more employee-friendly.”
This shift in favor of employees is exemplified not only in the NLRB’s recent decisions but in the FTC’s as well. On Jan. 4, the agency issued a Notice of Proposed Rulemaking that, if passed, would ban the use of non-compete agreements, in which an employee pledges not to work for a competitor for a pre-specified amount of time after they leave the company.
The FTC argued that non-compete clauses are unlawful even if signed willingly because employers often use their power over employees to coerce them into signing them. Following its recent decision about non-disclosure agreements, the NLRB issued a similar statement.
“The board observed that the employer’s offer is itself an attempt to deter employees from exercising their statutory rights, when employees may feel they must give up their rights to get the benefits provided in the agreement.”
What Happens Next
Dreitzer said that what sets the Board’s McLaren v. Macomb decision apart from other cases is that typically its rulings pertain to employees who are represented by a union. In this case, the agency did not distinguish between union and non-union employees, meaning the ruling applies to all employers.
“The problem with guidance like that is how are you going to enforce it? What’s that going to look like?” he said. “The devil is always in the details.”
Those details, outlined in Abruzzo’s memo, are not entirely black and white. Abruzzo wrote that if a provision in a severance agreement is unlawful, the agency may ask to remove those provisions rather than void the document. However, voiding the document is still possible.
She also wrote that other provisions commonly found in severance agreements, such as non-compete clauses, as the FTC has proposed, could be problematic. Other potentially problematic agreements include no-solicitation clauses, no-poaching clauses and any others that could interfere with an employee’s rights, she wrote.
For employers who have previously offered severance agreements with clauses that the NLRB now deems unlawful, Abruzzo stated in the memo that because the decision is retroactive, employers should contact the affected employees and tell them those contracts are now null and void.
Dreitzer said that though this could help some employees unhappy with their severance agreements, others may not be thrilled to receive this message. If the contract is null and void, he said, that applies to all aspects of the contract, including any severance pay given to the former employee.
Dreitzer said he expects to see litigation shortly challenging the Board’s decision in court.
“At the end of the day, taking a severance agreement away from an employee who already had it is probably a bad thing for them. . . . It could cause a lot of problems for employees,” he said. “There may be unintended consequences, and it may not work out as well as they hoped.”
“[Employers] must ensure that any waiver provisions are narrowly tailored so as not to restrict employees from exercising their Section 7 rights,” he said. “For instance, an employer may include a non-disparagement clause in a severance agreement but should clarify that it does not prevent the employee from discussing workplace issues or participating in protected activities under the NLRA.”
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