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02.24.2023 Legal News

Tales from the NLRB: When Terminating an Employee, Confidentiality and Non-Disparagement Provisions Are ULPs

The National Labor Relations Board (Board), in a bold move on February 21, 2023, decided that employers commit an unfair labor practice act (ULP) under the National Labor Relations Act (NLRA) when they merely offer severance agreements with certain provisions to outgoing employees. This latest case is just another precedent-altering decision by the Board.

The Board’s decision in McLaren Macomb found that it is a ULP to include confidentiality and non-disparagement provisions in severance agreements unless they are narrowly tailored to avoid any interpretation that the language could be interpreted by an employee as an attempt to chill Section 7 rights under the NLRA. Section 7 of the NLRA protects employees’ rights to “self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Seizing on Section 7, the Board further stated that “[c]onditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights, unless narrowly tailored to respect the range of those rights.”

The majority of the Board, consisting of the three Democrats, determined that the Michigan hospital violated the NLRA by offering severance agreements to furloughed workers that included non-disparagement and confidentiality provisions. The confidentiality provision prohibited discussing the terms of the severance agreement with anyone along with any “information, knowledge or materials of a confidential, privileged, or proprietary nature” the workers learned or gained due to their employment. The provision included exceptions for engaging with legal counsel, a tax professional, or if legally compelled by a court or administrative agency. The non-disparagement provision prohibited making statements that “could disparage or harm the image” of the Company to other employees of the Company or the general public.

Republican Member Kaplan, who dissented from the Board’s decision, agreed that offering these severance agreements directly to the workers without union involvement (as was the case here) was a violation of the NLRA. However, the Democratic majority went beyond that consensus and reversed two Trump-era Board decisions, Baylor University Medical Center and International Game Technology. Under this framework, even the mere offer of an agreement that makes receiving severance benefits contingent upon accepting facially neutral non-disparagement and confidentiality provisions is “inherently coercive” and unlawful unless such provisions are narrowly tailored.

Under Baylor University Medical Center and International Game Technology, the framework was more relaxed in determining whether facially neutral language in a severance agreement violated the NLRA. For the Board to decide there was a ULP, there had to be some accompanying conduct or language in the severance agreement that attempted to restrain a worker’s Section 7 rights. As Member Kaplan stated in his dissent, the Trump era standard “examine[d] if there are circumstances external to a severance agreement that render its proffer objectively coercive.” Objectively coercive circumstances would likely include unlawful discharges, ULPs, making the severance agreement mandatory, or affecting the terms of the worker’s employment.

Under the McLaren Macomb standard, severance agreements that contain confidentiality and non-disparagement provisions are likely suspect. The majority stated, “the high potential that coercive terms in separation agreements may chill the exercise of Section 7 rights … dictates the Board’s traditional approach of viewing severance agreements requiring the forfeiture of Section 7 rights – whether accepted or merely proffered – as unlawful unless narrowly tailored.”

The majority expressed two big concerns with such provisions: that they might limit the Board’s ability to investigate and litigate and that they might prevent a worker from being able to engage with other workers.

The Board focused on how it believed the non-disparagement and confidentiality provisions limited the Board’s ability to investigate and litigate ULPs because workers would be contractually bound not to speak about their experiences with their prior employer. This focus was prominent despite the fact that the clause at issue included an exception if the employee was legally compelled by a court or administrative agency to speak about his or her employment.

The Board was also concerned with how the non-disparagement provision would prevent an individual from telling anyone, including other workers still at the Company, that the Company had violated the NLRA. The Board also considered such non-disparagement clauses to prevent workers from talking about the terms and conditions of their employment. This concern persisted despite the fact that the individuals at issue were no longer employees of the Company because they had been laid-off lawfully.

As stated previously, all employees, except statutory supervisors and other managerial employees, have Section 7 rights under the NLRA, so employers should be mindful of what language is used in their severance agreements, especially if such agreements include non-disparagement and confidentiality provisions. Employers are encouraged to consult with labor and employment attorneys to ensure that such severance agreements are narrowly tailored, as well as to ensure compliance with other recent Board decisions. Stay tuned for more legal developments from the Biden-era Board.