NLRB Restricts Certain Severance Agreement Provisions

Volume: 22 | Issue: 9
March 2, 2023

The National Labor Relations Board (NLRB or Board) has ruled that employers cannot require employees to broadly waive their rights under the National Labor Relations Act (NLRA or Act) in a severance agreement. It has also concluded that the mere offer of an agreement that “unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights” violates the NLRA.

Specifically, in the recent case of McLaren Macomb, the NLRB ruled that an employer violated the NLRA by offering a severance agreement to 11 furloughed employees because the agreement prohibited them from making disparaging or harmful statements about the employer and from disclosing the terms of the agreement. The Board stated that the language used in an agreement’s nondisparagement and confidentiality provisions must be “narrowly tailored” to protect employees’ rights under the Act. Unfortunately, the Board did not define the meaning of “narrowly tailored,” leaving employers waiting for further guidance and future cases applying the McLaren Macomb ruling.

This decision does not mean that employers using severance agreements will always violate the NLRA. Instead, it means that certain provisions typically used in severance agreements (and settlement agreements) may need to be eliminated or narrowed.

First, keep in mind that while the NLRA applies to most employees, including those who are not represented by a union, it does not apply to supervisors or managers. If you are offering a severance agreement to a person who meets the Board’s definition of a supervisor or manager, you can require confidentiality and nondisparagement without violating the Act.

In all other severance agreements, however, a provision limiting the employee’s ability to discuss the terms of the severance, i.e., a confidentiality provision, will likely be unlawful under the NLRA. This is because employees (and former employees) have the right to discuss their terms and conditions of employment with their coworkers and a “wide range of third parties,” such as the media, the legislature, administrative agencies (like the Board), the courts, and union representatives. The Board will consider the terms of the severance agreement to constitute a term or condition of employment.

Employers have slightly more leeway with nondisparagement provisions and can tailor this part of a severance agreement to meet the Board’s definition of unprotected conduct. Specifically, while an employee (or former employee) is permitted to criticize an employer, he loses the Act’s protection if his communication is reckless or maliciously untrue. Thus, employers can still use nondisparagement provisions in employee severance agreements but must narrow the provision to prohibit the former employee from making reckless or maliciously false statements about the employer.

Severance and settlement agreements are becoming more complicated by the day. KZA attorneys are always available to help you draft or revise these agreements so that they provide the protection you are seeking without running afoul of federal or state law. 

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.

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