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NLRB Ruling Restricts Severance Agreements

By Douglas Lipsky

The National Labor Relations Board (NLRB) recently ruled that employers could no longer require employees to sign severance agreements with overly broad confidentiality and non-disparagement clauses. 

In McLaren Macomb, the NLRB found that severance agreements are unlawful on their face if they contain overly broad confidentiality and non-disparagement terms that “interfere with, restrain, or coerce employees in the exercise of their Section 7 rights” under the National Labor Relations Act (NLRA).  

The decision (1) reverses certain Trump-era rulings that gave employers more latitude in drafting such provisions and (2) highlights the board’s intent to rein in business practices that infringe on workers’ rights under the NLRA. 

Most private sector employers must abide by the NLRB’s decision. However, the ruling does not apply to certain employees, including supervisors and managers with decision-making authority, independent contractors, agricultural, and domestic workers. The best way for businesses and employees in New York to understand their rights and obligations in light of this ruling is to consult an experienced severance agreement attorney.

The Backdrop

McLaren Macomb, a unionized teaching hospital in Michigan, laid off a portion of its staff during the pandemic. In the severance agreements for at least 11 workers released, the employer included confidentiality and non-disparagement provisions.

The confidentiality provision required the employees to keep the terms of a severance agreement confidential, excluding disclosing its terms to a spouse, a professional advisor, or if required by law. The non-disparagement provision required the employee to refrain from disparaging or harming the image of the employer and its affiliates.

Under the Trump-era Board standard, employers would only violate the NLRA by including such provisions if they also discriminated against workers for engaging in a legally protected activity, such as union organizing. 

After the affected workers filed unfair labor practice charges, the NLRB deemed the provisions unlawful by their mere inclusion in the severance agreement. The board held severance agreement ageeements are unlawful if they prohibit employees from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union and the Board, about their employment.  

In so doing, the NLRB restored the prior standard that a severance agreement violates the NLRA if its terms tend to interfere with workers’ organizing rights. The Board also found Section 7 rights apply to both current and former employees and extend to forums outside the employee-employer relationship (e.g. judicial forums and social media).

What The NLRB Ruling Means

Employers that require nonmanagerial workers to enter severance agreements containing broad confidentiality and nondisparagement language face potential liabilities. Accordingly, employers should review existing severance agreements for compliance with the Board’s ruling and narrow any provisions prohibiting disclosure of agreement terms and disparagement. As always, employees who have been asked to sign a severance agreement should talk to an experienced employment lawyer. 

About the Author
Douglas Lipsky is a co-founding partner of Lipsky Lowe LLP. He has extensive experience in all areas of employment law, including discrimination, sexual harassment, hostile work environment, retaliation, wrongful discharge, breach of contract, unpaid overtime, and unpaid tips. He also represents clients in complex wage and hour claims, including collective actions under the federal Fair Labor Standards Act and class actions under the laws of many different states. If you have questions about this article, contact Douglas today.