Major NLRB Ruling Restricts Severance Agreements

In a significant decision this week, the National Labor Relations Board (“NLRB”) ruled that an employer violates Section 8(a)(1) of the National Labor Relations Act (“NLRA”) when the employer uses employee severance agreements with provisions restricting employees’ exercise of their NLRA rights. Through its recent ruling in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), the NLRB reversed course from its prior decisions in Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a Inter-national Game Technology, 370 NLRB No. 50 (2020).

In McLaren, a hospital had offered a severance agreement to eleven bargaining-unit employees it permanently furloughed following the onset of COVID-19. The agreement broadly prohibited them from making statements that could disparage or harm the image of the hospital, its parent and affiliated entities and their officers, directors, employees, agents and representatives, and further prohibited them from disclosing the terms of the agreement to any third person, subject to limited exceptions. The agreement also provided for penalties against the employees if they breached the non-disparagement and confidentiality terms.

Only two years ago, in Baylor University Medical Center, and IGT, the Board had found these types of non-disparagement and confidentiality provisions to be lawful and concluded that the severance agreement and the proffer of the severance agreement to the furloughed employees was lawful. More specifically, in Baylor University Medical Center, the NLRB had held that the employer did not violate the NLRA through the “mere proffer” of a severance agreement with restrictive language, reasoning that the agreement was not mandatory, pertained exclusively to post-employment activities, and, therefore, had no impact on terms and conditions of employment. In that case, the NLRB also relied on the fact that there was no allegation that anyone offered the agreement had been unlawfully discharged, or that the agreement was proffered under circumstances that would tend to infringe on Section 7 rights. Similarly, in IGT, the NLRB had dismissed an allegation that an employer maintained an unlawful non-disparagement provision in the severance agreement it offered to separated employees since the agreement was “entirely voluntary, does not affect pay or benefits that were established as terms of employment, and has not been proffered coercively.”

McLaren, of course, overrules both Baylor University Medical Center and IGT. As the law now stands, a severance agreement is unlawful if its terms have a reasonably tendency to interfere with, restrain, or coerce employees in violation of their Section 7 rights, and that even an employer’s mere proffer of such an agreement is unlawful. The NLRB held that “[a]greements that contain broad proscriptions on employee exercise of Section 7 rights have long been held unlawful because they purport to create an enforceable legal obligation to forfeit those rights. Proffers of such agreements to employees have also been held to be unlawfully coercive.” Importantly, the McLaren decision also criticizes Baylor University Medical Center, explaining that the holding in that case failed to consider the specific language in the challenged provisions and focused merely on the circumstances in which the agreement was presented. In doing so, the NLRB affirmed that Section 7 rights are not limited to discussions with co-workers, but that the NLRA affords protection for employees who engage in communications with a wide range of third-parties.

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