Severance packages have long been used by employers and for many different reasons. High on the list is preventing employees from sharing sensitive and disparaging information. Employers may need to rethink this strategy given the National Labor Relations Board’s (“Board”) recent ruling that broad silencing provisions in severance agreements are unlawful.
In McClaren Macomb, numerous furloughed union-represented employees were offered a severance payment that was conditioned on an agreement to refrain from making any statements that may disparage or harm the image of the employer and sharing any information regarding the terms of the agreement. The employees who were offered severance were not allowed to communicate with coworkers the amount of severance they received, details related to their employment, and facts related to the employer’s violation of the NLRA. In its decision and order published on February 21, 2023, the Board explained that if an employer engages in conduct that may reasonably be understood to interfere with employees’ National Labor Relations (NLRA) rights then such activity is unlawful.
The Board reasoned that the employer’s restrictions were broad and acted to coerce employees to give up legal rights in favor of the financial benefits of the severance package. While previous Board decisions did allow these types of severance agreements, these decisions were reversed, and it is clear now that the proffer of a severance agreement with broad non-disparagement and confidentiality provisions is just the type of interference, restraint, and coercion that the Board seeks to prohibit.
Union-represented and non-Union employees have NLRA rights.
If you are an employer, you may be thinking this does not impact you because you do not have Union-represented employees. Not so fast. The NLRA provides rights to Union-represented and non-Union employees alike. This decision applies to severance agreements for virtually all private-sector employers in the United States. However, some individuals are excluded from coverage under the NLRA, including an individual employed as a supervisor or with the status of independent contractor. Always check with legal counsel when employment classification and legal protections are uncertain.
Employers should take steps to comply with the ruling now.
What now? Should employers stop offering severance packages?
Not necessarily. Employers should always evaluate the purpose of a severance package. It is reasonable for an employer to seek opportunities to protect its reputation. The Board’s decision does not mean that an employer must allow a terminated employee to say whatever they want about the employer without consequences. The Board recognized this by explaining that its order is not intended to protect “disloyal, reckless, or maliciously untrue” communications.
What if the employee refuses to sign a severance agreement?
Refusal to sign an unlawful agreement does not do much to protect the employer. The Board made clear that even the offer of an unlawful agreement, without acceptance, would be a violation of the NLRA.
What is the NLRB’s enforcement plan?
The NLRB General Counsel issued a memorandum with some follow up actions. A few key points from the General Counsel are summarized below. This list is not exhaustive and is based on the agency’s positions, which the General Counsel notes are far reaching and may extend beyond severance agreements. Employers should expect to see an increase in enforcement and as such familiarize themselves with the agency’s positions. The full memo can be read here.
- Employers should do a review of past severance agreements. The Board’s decision is retroactive. This means that maintaining or attempting to enforce past severance agreements that are inconsistent with the Board’s order will be considered a violation.
- Employers may need to notify past employees subject to overly broad severance agreements that are now considered unlawful that those provisions are void and will not be enforced.
- Employers would benefit from reviewing confidentiality and non-disparagement provisions they typically use and revise in accordance with this recent decision. These provisions will only be lawful if they are narrowly tailored.
Note that it is always best to seek legal advice when drafting employment related agreements. Please contact us for help.
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