It is not uncommon for employers to offer departing employees a severance package in exchange for their signature on a separation agreement. The employer’s primary goal in doing so is often to secure a release of all claims the departing employee may have. But some employers want to impose other obligations on departing employees, like commitments to refrain from disparaging the employer or disclosing information about the employer/the agreement itself. Their ability to do so was recently limited by the decision of the National Labor Relations Board (NLRB) in McClaren McComb.
Over the last three years, the NLRB has twice changed its position on whether these sorts of contract terms violate the National Labor Relations Act (NLRA). It is critical for employers to understand the NLRA and the NLRB’s evolving interpretation of the types of severance agreement provisions that may violate the law. Indeed, after McClaren McComb, the simple act of asking an employee to sign a severance agreement containing an improper provision violates the statute.
What is the NLRA?
The NLRA is often misunderstood and believed to be a law that applies only to unionized employees. In reality, Section 7 of the NLRA guarantees most private sector employees the right to join together, informally or by unionizing, to make concerted efforts to promote their interests in the workplace. Those interests might concern, among other things, wages, schedules and other working conditions.
Generally speaking, Section 8 of the NLRA prohibits employers and labor unions from impinging on employees’ exercise of their rights under Section 7. For example, employers cannot restrict employees’ rights to gather and discuss the terms and conditions of their employment and to take collective action to improve those conditions.
With limited exceptions, the NLRA protects all employees other than government workers, agricultural laborers, independent contractors and supervisors.
What is the NLRB?
The NLRB is an independent federal agency created to enforce the NLRA. It has regional offices throughout the country.
An employee who believes their rights under the NLRA have been violated can file a charge with one of the NLRB’s regional offices. The regional office will investigate and, if the charge is founded, issue a complaint and a notice of hearing to the party, known as the respondent, alleged to have violated the law. The respondent must answer the complaint, after which a trial will be held before one of the NLRB’s administrative law judges. The judge can dismiss the complaint if it is without merit or order the respondent to cease from engaging in unfair labor practices.
Appeals to the board can be taken thereafter. Parties can also bring court proceedings for judicial review or enforcement of the NLRB’s ruling.
The NLRA and Severance Agreements
For years, the NLRB interpreted the NLRA as forbidding an employer from asking an employee to sign a severance agreement containing provisions that have a “reasonable tendency to interfere with, restrain, or coerce employees’ exercise of their Section 7 rights.” See, e.g., Shamrock Foods Co., 366 NLRB No. 117 (2018), enfd. 779 Fed. Appx. 752 (D.C. Cir. 2019).
For example, in 2001, the NLRB held it was unlawful for an employer to ask an employee to sign a severance agreement containing a “non-assistance” provision that prohibited the employee from assisting coworkers in filing charges against the employer with the NLRB. The board found that the clause violated the NLRA because it prevented the employee from “cooperating with [the NLRB] in important aspects of the investigation and litigation of unfair labor practice charges.” Metro Networks, 336 NLRB 63, 67 (2001).
Similarly, in 2018, the NLRB found that a separation agreement containing confidentiality and non-disparagement provisions was unlawful. See Shamrock Foods Co., 366 NLRB No. 117 (2018). Those clauses barred the employee from assisting his former co-workers, disclosing information to the NLRB, or making disparaging remarks which could be detrimental to the employer. The NLRB found that these provisions violated the employee’s Section 7 rights.
In 2020, the NLRB rendered two decisions overruling its prior holdings. In Baylor University Medical Center, 369 NLRB No. 43 (2020), the NLRB held that an employer does not violate the NLRA just by asking an employee to sign a severance agreement containing non-assistance, confidentiality or non-disparagement provisions. The board held that presenting an employee with such an agreement only violates the law if the employee’s termination otherwise violated the law in the first instance.
In IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020), the NLRB again held that an employer did not violate the law by asking an employee to sign a severance agreement containing a non-disparagement provision. This time, the board suggested that a severance agreement does not even implicate Section 7 because it is “entirely voluntary [and] does not affect pay or benefits that were established as terms of employment….”
More recently, on February 21, 2023, the NLRB rendered a decision in McLaren McComb which overruled Baylor and IGT. The board reinstated the previous rule that “severance agreements requiring the forfeiture of Section 7 rights— whether accepted or merely proffered—[are] unlawful unless narrowly tailored.” Although the NLRB declined to explain what “narrowly tailored” means, it noted that “prior decisions have approved severance agreements where the releases waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.”
Applying these standards to the agreement before it, the NLRB found that the respondent violated the NLRA by asking departing employees to sign it. The agreement contained multiple unlawful provisions, including a non-disparagement provision that forever barred employees from making statements that “could disparage or harm the image of the Employer.” The board found the provision would chill employee speech “regarding any labor issue, dispute, or term and condition of employment of the Respondent.”
The NLRB also found that the severance agreement’s confidentiality provision violated the NLRA because it “broadly prohibit[ed] the subject employee from disclosing the terms of the agreement ‘to any third person.’” Thus, the agreement precluded employees from exercising Section 7 rights because they could not disclose “even the existence of an unlawful provision contained in the agreement” or discuss the severance agreement with other employees who might be asked to sign it in the future.
Re-Evaluating Severance Agreements
There are a few important takeaways for employers. First, Section 7 of the NLRA does not protect supervisory employees and employers need not worry about running afoul of McClaren McComb in asking them to sign severance agreements.
Second, as it concerns non-supervisory employees, employers should review their severance agreement templates to determine whether they might violate the law. Employers should consider eliminating non-disparagement and confidentiality provisions when they are not genuinely needed. When necessary, these clauses should be drafted narrowly and provide for exceptions permitting employees to make disclosures in response to lawful subpoenas or investigatory requests from a government agency, or in furtherance of concerted protected activity protected by the NLRA.
Third, consider including a “savings clause” in your severance agreement template which indicates that none of its terms are intended to restrict the employee’s rights under Section 7 of the NLRA.
For questions concerning severance agreements or the NLRB’s recent decision, please contact Jessica M. Baquet at email@example.com or (516) 663-6506.