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National Labor Relations Board Restores Precedent that an Employer Acts Unlawfully by Proffering Severance Agreements Conditioned Upon Waiver of Statutory Rights

ABSTRACT: The National Labor Relations Board has overruled multiple 2020 decisions, and restored prior precedent now holding that an employer violates the National Labor Relations Act when it proffers a severance agreement with confidentiality, non-disclosure, and non-disparagement provisions.

In McClaren Macomb and Local 40 RN Staff Council, the National Labor Relations Board overruled seminal 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology and held that an employer interfered with its employees’ Section 7 rights by proffering a severance agreement containing confidentiality, non-disclosure, and non-disparagement clauses. Baylor and IGT had instituted a test that looked at the circumstances under which a severance agreement was presented rather than the contents of the agreement, which the current Board has now rejected.

The McClaren decision arose from the permanent termination of 11 employees, working primarily as hospital greeters, who had been temporarily furloughed as non-essential employees following the onset of COVID 19. The employer made the furlough permanent, and contemporaneously presented the employees with a severance agreement that included confidentiality, non-disclosure, and non-disparagement provisions.  The employer failed to give the Union both notice and an opportunity to bargain regarding both the furloughing decision and effects of the decision.

The administrative law judge found that the employer violated Section 8 of the National Labor Relations Act by permanently furloughing the employees without consultation of their Union, and by directly dealing with the employees to enter into the severance agreement.  The judge did not find that the employer violated the Act, under Baylor and IGT, by the mere act of proffering the severance agreements.

The Board affirmed the finding of violations for the failure to involve the Union, and reversed the determination that proffering the severance agreements did not constitute a violation of the Act. 

Baylor and IGT had reversed prior precedent focusing on the language of a severance agreement to determine whether the agreement had interfered with section 7 rights, and created a two step analysis that required a finding that the employer discharged the employee in violation of the NLRA or committed another unfair labor practice discriminating against employees, before evaluating whether the severance proffer constituted a violation of the Act.  Under Baylor, merely proffering a severance agreement, regardless of the terms, did not constitute a violation of the act without something more.

The McClaren decision, reverting to pre-Baylor precedent, holds that an employer’s proffer of a severance agreement with confidentiality and non-disparagement provisions unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights. which constitutes a violation of the NLRA by itself.

The NLRB ultimately issued an Order for the employer to cease (1) furloughing employees without first notifying the Union and giving it an opportunity to bargain; (2) directly dealing with employees regarding the terms and conditions of their employment; and (3) presenting severance agreements with confidentiality provisions and/or non-disparagement provisions.  The NLRB also directed the employer to take the following affirmative steps: (1) notify the Union before implementing any changes in wages, hours, or other employment terms; (2) bargain with the Union regarding decisions to permanently terminate employees; (3) rescind the permanent furloughs; and (4) make the improperly treated employees whole.

What does this mean for you? The NLRB position on severance agreements has changed dramatically. Employers should exercise caution before including boiler-plate confidentiality, non-disparagement, non-disclosure, or other contractual provisions in their severance agreements with represented employees. Following the decision in McLaren, NLRB General Counsel Jennifer Abruzzo issued a Memorandum which contains an expansive interpretation of the decision, potentially encompassing nearly all severance agreements with confidentiality clauses. However, the Memorandum also seems to indicate that settlement of disputes unrelated to NLRB charges may have greater freedom of contract regarding confidentiality, so long as the confidentiality does not extend past the financial terms of the settlement. Careful drafters should therefore consider language strictly limiting the scope of confidentiality or containing specific carveouts for protected concerted activities.

Although the GC’s Memorandum does not have the force of law, and it remains to be seen whether a Court of Appeals will affirm or reverse all or some of the McLaren decision, the Memorandum provides great insight into the GC’s enforcement priorities. Therefore, drafters of severance agreements should take great care in the language they use and understand the risks involved in including confidentiality provisions. Contact an employment law specialist for guidance before you proffer a severance agreement that may inadvertently violate the Act.