CSG Law Alert: Don’t Press Your Luck That Your Severance Agreements are Compliant with Recent Changes in the Law

On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a decision in McLaren Macomb impacting how private sector employers, including those with unionized as well as non-unionized workforces, must now draft their severance agreements.

Specifically, the NLRB overruled its prior decisions that previously permitted an employer to include very broad non-disparagement and confidentiality provisions in severance agreements. Consequently, a severance agreement may now be deemed unlawful if it contains non-disparagement and confidentiality provisions that are drafted so broadly that they effectively “chill” an employee’s ability to exercise their rights under the National Labor Relations Act (“NLRA”) to collectively band with others in an effort to improve the workplace. Those rights, which are generally known as Section 7 rights, afford protections to employees who engage in communications with each other as well as a wide range of third parties, including, administrative, judicial, legislative and political forums, newspapers, the media, social media, and communications to the public, about the terms and conditions of employment.

The non-disparagement and confidentiality provisions at issue in McLaren were as follows:

6. 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.

7. 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 parent and affiliated entities and their officers, directors, employees, agents and representatives.

8. Injunctive Relief. In the event that Employee violates the provisions of paragraphs 6 or 7, the Employer is hereby authorized and shall have the right to seek and obtain injunctive relief in any court of competent jurisdiction. If Employee individually or by his/her attorneys or representative(s) shall violate the provisions of paragraph 6 or 7, Employee shall pay Employer actual damages, and any costs and attorney fees that are occasioned by the violation of these paragraphs.

The NLRB determined that these provisions were violative of the NLRA because:

  • They prohibited the employee from making any statements to other employees or the general public, which could disparage or harm the image of the employer, its parents and affiliated entities and their officers, directors, employees, agents, and representatives, which provision is too broad in that it could chill the employee’s Section 7 rights.
  • They prohibited the employee from disclosing the terms of the agreement “to any third person,” thereby, precluding the employee from even disclosing the existence of any unlawful provisions contained in the agreement.
  • They lacked a temporal limitation, instead applying “at all times hereafter.”
  • In the event of a breach, the agreement provided for substantial monetary and injunctive sanctions against the employee.

The NLRB further held that the mere “proffering” of a severance agreement containing such problematic provisions amounted to an unlawful labor practice because the act of conditioning receipt of benefits on the acceptance of unlawful terms effectively waiving the employee’s Section 7 rights is coercive in and of itself.

As a result of this decision, an employer’s mere proffer of a severance agreement may be unlawful if the agreement, on its face, restricts the exercise of Section 7 rights. Notably, the NLRB will consider “whether any relinquishment of Section 7 rights is narrowly tailored,” hinting that a potential solution to ensure compliance is for employers to include disclaimers in severance agreements clearly stating that the provisions included therein do not prohibit the employee from engaging in any activities protected by the NLRA.

This new standard will likely have employers guessing whether the provisions in their standard severance agreements have suddenly become unlawful. Do not press your luck this St. Patrick’s Day – contact your employment counsel at CSG Law to review and modify your severance agreements to reflect the NLRB’s most recent decision.

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