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► NLRB Places NDAs In Its Crosshairs
On February 21, 2023, the National Labor Relations Board (NLRB) made a broadside attack on precedent, confidentiality, and non-disparagement provisions in severance agreements signed by rank-and-file employees. The far-reaching decision calls into question the enforceability of standard severance and employment agreement provisions entered into with statutory employees going forward.
Facts
When the federal government disallowed McLaren Macomb Hospital from employing nonessential employees in 2019, the hospital fired 11 union-represented employees (who were employed as greeters) and presented each with a severance agreement, which each of them signed. The agreements contained provisions the NLRB found “broadly prohibit[ed] disparagement of [McLaren] and requir[ed] confidentiality about the terms of the agreement.”
The specific provisions at issue were as follows:
- Confidentiality agreement. “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.”
- Nondisclosure. “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 general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.”
McLaren didn’t give the employees’ union an opportunity to bargain over the agreements’ terms, notify the union that it presented the employees with the agreement, or include the union in its discussions with employees about the discharges.
Administrative law judge’s decision
In the resulting hearing, the administrative law judge (ALJ) determined the hospital violated its duty to bargain with the union over the agreements and engaged in unlawful direct dealing with the employees.
Applying Trump Board precedent, however, they ruled McLaren didn’t violate the National Labor Relations Act (NLRA) when it presented the employees with agreements containing the broad nondisparagement and nondisclosure provisions.
NLRB’s decision
The NLRB upheld the ALJ’s findings of bad-faith bargaining and direct dealing but reversed the ALJ’s finding that the hospital's agreements didn’t violate the NLRA. By doing so, the Board overturned two 2000 precedential decisions that set forth a test for determining whether a severance agreement violated the Act.
In Baylor University Medical Center, the NLRB stated the proper focus is on the “circumstances under which the agreement was presented to employees” and not so much on the language of the agreement itself.
In Baylor, the Board “reasoned that the agreement was not mandatory, pertained exclusively to post-employment activities and, therefore, had no impact on terms and conditions of employment, and there was no allegation that . . . the agreement was proffered under circumstances that would tend to infringe on Section 7 rights.”
Baylor articulated the following two-part test:
- Did the employer discharge the employee in violation of the NLRA, or did it commit another unfair labor practice?
- Does the employer “harbor animus against Sec. 7 activity” such that it is “willing to terminate employees who engage in it”?
If the answer to both tests is no, then under Baylor the offer of a severance agreement “does not reasonably tend to interfere with the free exercise of employee rights under” the NLRA.
In IGT, the NLRB found again that the severance agreement’s nondisparagement provision didn’t violate the NLRA because it “was entirely voluntary, [did] not affect pay or benefits that were established as terms of employment, and [had] not been proffered coercively.”
In overruling these two precedents, the McLaren Board noted that “absent from either Baylor or IGT was any analysis of the specific language in the challenged provisions of the severance agreements.” It held that Baylor and IGT erroneously found that the “mere proffer to employees of a severance agreement with unlawful provisions cannot be unlawful” and held instead that “inherent in any proffered severance agreement requiring workers not to engage in protected concerted activity is the coercive potential of the overly broad surrender of NLRA rights if they wish to receive the benefits of the agreement.”
In McLaren, the Board held it was returning to its pre-Baylor and pre-IGT approach and 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 . . . regardless of the surrounding circumstances.” McLaren Macomb, 372 NLRB No. 58.
Bottom Line
The McLaren decision is only the latest in a series of Board decisions and NLRB General Counsel pronouncements that foreshadow NLRB activism and wholesale reconsideration of precedential decisions issued by the Trump Board.
While this decision was widely expected given the Board’s current composition under President Joe Biden, severance agreements for statutory employees (i.e., employees other than supervisors, managers, executives, and confidential employees) must be drafted carefully to avoid unfair labor practice exposure.
More specifically, you should be more selective in including confidentiality and nondisparagement provisions in departing employees’ severance or separation agreements. Not every departing employee leaves with employer-sensitive information or is in a position to hurt the former employer’s reputation. It’s settled Board law that employees have the right to discuss their own terms and conditions of employment with each other.
States such as New Jersey and New York have taken steps to release employees from confidentiality agreements in the context of asserting and prosecuting claims of unlawful discrimination. In this era of extreme scrutinization of severance agreements, a prudent employer will consider including in its agreements a clear statement that nothing in the agreement is intended to interfere with the employee’s rights under the NLRA or to contact or cooperate with the NLRB.
A properly drafted severance agreement should also include a clear statement that signing the agreement doesn’t preclude the employee from filing a charge with the Equal Employment Opportunity Commission (EEOC) or the respective state fair employment practices agency. Finally, the McLaren decision suggests, but does not hold, that the NLRB might not have found the hospital’s agreements to be coercive had they been bargained over and agreed to by the employees’ union representative.
By Harris S. Freier and Patrick W. McGovern. Both are partners at the law firm of Genova Burns, LLC.
[3/2023]
