NLRB Takes Aim At Severance Agreements

In a recent decision, the National Labor Relations Board (“NLRB”) targeted severance agreements that contain confidentiality, non-disclosure and non-disparagement clauses.

In McLaren Macomb, the NLRB determined that 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.” Section 7 of the National Labor Relations Act (the “Act”) applies to nearly all workforces in the private sector regardless of whether employees are represented by a union. Under Section 7, employees have the right to engage in protected concerted activities including discussions with their coworkers regarding the terms and conditions of their employment (e.g., wages, benefits, working conditions, etc.).

The NLRB specifically took issue with non-disparagement and confidentiality provisions in severance agreements. A non-disparagement provision generally restricts an employee from making disparaging remarks about an employer. A confidentiality provision generally prohibits an employee from disclosing the terms of a severance agreement. The NLRB determined that these provisions in the severance agreement at issue interfered with and restrained employees’ Section 7 rights as they would “chill” an employee’s ability to be highly critical of their employers and the employer’s employment practices.

According to the NLRB, if a severance agreement unlawfully conditions receipt of benefits on giving up statutory rights, the offer to enter into that agreement alone violates the Act because it has a reasonable tendency to interfere with or restrain Section 7 rights. The NLRB’s ruling impacts severance agreements with most lower-level employees. Severance agreements provided to supervisors, managers and executive personnel would not be covered by the NLRB ruling because Section 7 rights are not afforded to these groups.

The NLRB’s ruling raises several questions. Does the ruling extend to other agreements such as settlement agreements? Does the NLRB’s decision apply retroactively? Will the remaining terms of the agreement be enforceable if there is a severability clause? The NLRB’s General Counsel may provide guidance on these unanswered questions in the coming months.

Going forward, we recommend employers review and revise their severance agreements to account for the NLRB’s decision. The McGrath North Labor and Employment team is ready to assist with such revisions. Contact any member of our team for further information.