Recent decisions and settlements from the National Labor Relations Board should serve as a not-so-friendly reminder to ensure that your severance agreements and employee handbooks do not run afoul of the National Labor Relations Act.
Severance Agreements
In June 2024, the Board held that a company violated the NLRA by including non-disparagement and confidentiality provisions in a severance agreement. Prime Communications LP entered into a severance agreement with former employee Spencer Smith (and entered into similar agreements with at least 3 other employees) that included the following terms:
- Smith must “refrain from making disparaging, defamatory, negative or other similar remarks concerning Prime” except when required by law or in connection with a legal proceeding;
- “This non-disparagement provision is intended to be as broad as possible and to include the written publication of any information related to Prime … whether true or untrue”;
- Smith is “prohibited from calling, making personal contact with or, emailing any employee of Prime Communications at any location”;
- Smith must “promise[] that he will maintain in confidence the terms and existence of this Agreement and will not disclose the existence of this Agreement or its terms to anyone else” except his spouse, tax advisor, or attorney; and
- In the event of threatened or actual breach of the agreement, Prime is entitled to $5,000 for each breach, plus attorney fees and costs.
The Board, applying its 2023 McLaren Macomb decision, held that the provisions were potentially coercive and had a “chilling tendency” on Smith’s rights under the NLRA. (Click here for more on McLaren Macomb.) Specifically, the Board noted that the agreement: would preclude Smith from assisting former coworkers who may be interested in challenging similar agreements or involved in any other employment dispute; was not narrowly tailored because it was “intended to be broad as possible;” and could coerce Smith from filing an unfair labor practice charge or assisting with a Board investigation for fear of having to pay $5,000 for each covered disclosure.
As a reminder, the Board has suggested that their reasoning could also extend beyond severance agreements to similar provisions in non-compete agreements, employment agreements, offer letters, and more. This case is a “Prime” example of the Board’s application of McLaren Macomb to invalidate agreements with provisions routinely used by companies.
Handbook Provisions
In March 2024, the Board secured a $297,000 settlement against Hilst Enterprises, Inc. (dba La-Z-Boy Furniture Galleries) based on an unfair labor practice charge filed by a former employee who had been unlawfully laid off in retaliation for engaging in protected concerted activity. This settlement illustrates the Board’s 2023 decision in Stericycle Inc. in action, which prohibits work rules that chill employees’ exercise of their rights under the NLRA unless they are narrowly tailored to promote legitimate business interests. (Click here for more on Stericycle, Inc.)
Here, the Board held that Hilst maintained unlawful work rules prohibiting employees from discussing wages, hours, and working conditions. The employee handbook included “salary information” in its definition of “sensitive company information.” Additionally, an attachment to the employee handbook read: “Your salary is a confidential matter between us and you. Your continued employment is dependent upon that confidentiality; and any discussion of salaries between employees will be reason for dismissal.”
This settlement serves as a powerful reminder to not be a La-Z-Boy, and review employee handbooks and other work rules to ensure that they do not prohibit employees from discussing (with each other or others) their wages or working conditions – which they are entitled to do under the NLRA.
Employers – both union and non-union – are advised to heed the Board’s recent activity as a warning and review existing severance agreements, employee handbooks, and other agreements to ensure that they do not prohibit conduct protected by the NLRA. Please contact one of Frantz Ward’s labor & employment attorneys with any questions.