NLRB Rules Severance Agreements With Non-Disparagement Clauses Constitute Unfair Labor Practices

The National Labor Relations Board (NLRB) overturned its Trump-Era “precedent” on Feb. 21, holding that an employer violated the NLRA when it proffered a severance agreement containing confidentiality and non-disparagement clauses. The NLRB’s democratic majority specifically held that “an employer violates Section 8(a)(1) of the Act when it proffers a severance agreement with provisions that would restrict employees' exercise of their NLRA rights.”

In the decision, McLaren Macomb, a unionized teaching hospital, laid off a portion of its staff, purportedly driven by the COVID-19 pandemic. The employer included confidentiality and non-disparagement provisions in severance agreements for its former staff, which included employees represented by an Office and Professional Employees International Union affiliate.

Although the board’s decision in McLaren Macomb reversed two Trump-Era decisions, Baylor University Medical Center and IGT d/b/a Game Technology, the majority framed its decision as a return to “longstanding precedent” whereby a severance agreement violates the NLRA if its terms tend to interfere with workers’ organizing rights. Under Baylor, the focus was on the circumstances of the offer and the employer’s intentions behind that offer. An agreement was legal so long as:

• • It was entered into voluntarily.
  • It was limited to post-employment activities.
  • The worker at issue was not fired illegally.

To find a violation, the two-factor test required an employer to commit a separate unfair labor practice discriminating against workers and to harbor animus against organizing.

McLaren adds to the list of Trump-Era decisions that have been struck down by the current NLRB, and there are more of those decisions from the previous administration in the queue. While there is concern about an accelerated reversal of precedent that follows the election of a new president, the latest decision did not come as a surprise to most. Traditionally, a majority of the NLRB members share the same political affiliation as the sitting president, and the NLRB’s general counsel had previously mentioned her intention to address these types of cases.

Republican NLRB member Marvin Kaplan dissented, arguing that his colleagues’ reversal of Baylor and IGT is "based on an incorrect, or speculative, interpretation of those cases." 

Moving forward, the McLaren decision may require employers to assess their risk tolerance and refine restrictive covenants in their severance agreements. The decision is noteworthy because the board held that simply offering a severance agreement containing problematic provisions, even if not enforced, constitutes an unfair labor practice. However, the board also deemed the hospital’s confidentiality and non-disparagement clauses unlawful specifically because the provisions were overly broad and arguably an attempt to prevent former employees from cooperating in government investigations and discussing the terms of their agreements with their labor union or co-workers.

Please contact Regan Canfill or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice or guidance.