The NLRB Drops a Bombshell

Just a few weeks after the Federal Trade Commission (FTC) proposed a rule banning non-compete agreements, the National Labor Relations Board (NLRB) issued what is shaping up to be a landmark decision that limits the ability of employers to include two standard components of severance agreements. The McLaren Macomb decision, published on February 21, 2023, means that employers can no longer require separated workers to sign broadly written promises to keep separation agreements secret and refrain from disparaging the company — or people — they are leaving.

The McLaren Macomb case (372 NLRB No. 58) involved a Michigan hospital that permanently furloughed 11 union members during the pandemic. To receive the severance benefits being offered, these employees were required to sign an agreement broadly forbidding them from sharing the terms of the agreement and making any statements disparaging the hospital. Also, according to the ruling, the agreement enabled the hospital to bypass the union, depriving the union of the opportunity to negotiate terms.

The Board said that offering employees a severance agreement that requires them to broadly give up their rights under Section 7 of the National Labor Relations Act (NLRA) violates Section 8(a)(1) of the Act.

          “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. Today’s decision upholds this important principle and restores a longstanding precedent.” — Chairman Lauren McFerran

The decision applies to employees of employers that the NLRA covers, which would include most private-sector employers. It does not apply to anyone classified as a “supervisor” under Section 2(11) of the NLRA.  Although the decision does not expressly address its effect on separation agreements in existence prior to the date the decision was issued, it conceivably could apply to such pre-existing agreements and render the relevant provisions unenforceable.

What now?

How should employers construct separation agreements in light of this ruling? At the very least, employers are advised to analyze their separation, settlement, and other agreements containing non-disparagement or confidentiality provisions. Employers should consider whether narrowing the scope of such provisions or adding disclaimers declaring that such provisions are not to be interpreted to impair employees’ Section 7 rights (the rights to organize, bargain collectively, and engage in other concerted activities) could reduce the risk that such provisions would be deemed unlawful.

While many questions about this recent NLRB decision remain — and it is uncertain whether the current ruling will survive scrutiny by the courts — the decision is currently the law.

Employers can still find effective and legally compliant ways to extend severance benefits to departing employees while also getting some guarantees to protect themselves. However, for the foreseeable future, these agreements have become more challenging to write and difficult to enforce. Employers who wish to implement severance agreements in the year ahead — for single terminations, significant lay-offs, or furloughs — should consult an employment attorney before presenting them to employees.

If you have any questions or concerns about your current separation agreements and how you can best protect yourself and your company in the future, don’t hesitate to contact Orr & Reno for assistance.

About the Authors: Steven L. Winer and Elizabeth C. Vélez

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