The National Labor Relations Board (NLRB) has ruled that employers are barred from drafting severance agreements that contain overly broad non-disparagement and confidentiality prohibitions. After the ruling, the NLRB’s general counsel released guidance indicating the decision also applies retroactively to agreements already entered with such provisions.
The details
The case before the NLRB (McLaren Macomb) involved an employer that permanently furloughed 11 employees and presented each of them with an agreement that offered severance pay if they signed it. All 11 employees signed the severance agreement.
The agreement required the furloughed employee to release the employer from any claims arising out of their employment or termination of employment. The agreement also contained the following provisions regarding confidentiality and disparagement:
The employee acknowledges that the terms of this agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
At all times hereafter, the employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the employee has or had knowledge of, or involvement with, by reason of the employee’s employment. At all times hereafter, the Employee agrees not to make statements to employer’s employees or to the public that could disparage or harm the image of employer, its parent and affiliated entities and their officers, directors, employees, agents, and representatives.
If the furloughed workers violated these provisions, they could have faced significant sanctions.
The NLRB found that the plain language of those provisions violated employees’ rights under Section 7 of the National Labor Relations Act (NLRA). Under Section 7 of the NLRA, employees have the right to act together to improve wages and working conditions and to discuss wages, benefits, and other terms and conditions of employment, with or without a union.
“The non-disparagement provision on its face substantially interferes with employees’ Section 7 rights,” the NLRB found. “Public statements by employees about the workplace are central to the exercise of employee rights under the NLRA. Yet the broad provision at issue here prohibits the employee from making any ’statements to employees or to the general public that could disparage or harm the image of the employer’ — including, it would seem, any statement asserting that the employer had violated the NLRA (as by, for example, offering a settlement agreement with unlawful provisions).”
The NLRB also found that the confidentiality provision unlawfully impacted Section 7 rights.
“The provision broadly prohibits the subject employee from disclosing the terms of the agreement ‘to any third person’” the NLRB said. “The employee is thus precluded from disclosing even the existence of an unlawful provision contained in the agreement. This proscription would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a NLRB investigation into the employer’s use of the severance agreement, including the non-disparagement provision. Such a broad surrender of Section 7 rights contravenes established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the NLRB. The confidentiality provision has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the NLRB concerning the employer’s unlawful interference with other employees’ statutory rights.”
Importantly, the NLRB found that simply offering employees a severance agreement that includes unlawful provisions violates the NLRA, even if the employer doesn’t take any additional adverse action against individuals (such as by imposing sanctions against a furloughed worker because they spoke with the NLRB about the severance agreement).
“A severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers' proffer of such agreements to employees is unlawful,” the NLRB wrote. “In making that determination we will examine the language of the agreement, including whether any relinquishment of Section 7 rights is narrowly tailored.”
Next steps
Review severance agreements to ensure that any provision that could impact Section 7 rights is narrowly tailored or removed. The NLRB didn’t define what is considered narrowly tailored, so employers may want to consult legal counsel when conducting the review.
Please contact your ADP Service Representative with any questions.