April 3rd, 2023
Attention Employers: Is Your Severance Agreement Enforceable? NLRB Decision Raises Questions
Author: Corey R. Beck
Employers should revisit their severance agreement before presenting them to employees due to a recent decision by the National Labor Relations Board (the NLRB).
In McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL–CIO, an employer offered to selected employees severance agreements that included broad non-disparagement and confidentiality provisions. The non-disparagement provision restricted the former employees from making statements that “could disparage or harm the image of [e]mployer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.” The confidentiality provision restricted the disclosure of the terms of the severance agreement 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.” Employers commonly include these provisions, or a version thereof, in severance agreements.
The NLRB determined that the offering of a severance agreement with these provisions unlawfully restrained and coerced the employees in the exercise of their rights under Section 7 of the National Labor Relations Act (“Act”), which generally protects employees that engage in communications with third-parties when such communications are not “related to an ongoing labor dispute and when the communication is not so disloyal, reckless, or maliciously untrue…”. As a result, the NLRB ruled that the offering of the severance agreement violated the Act and deemed the severance agreement to be invalid and unenforceable in its entirety.
The NLRB also noted that the non-disparagement and confidentiality provisions were overbroad and failed to include limitations on the types of statements, information, or entities to which it applied, and were not time-limited. However, the NLRB did not specify whether inclusion of any such limitation would result in the enforceability of the severance agreement.
Employers should seek assistance from an employment attorney to review and potentially revise their severance agreements to address any problems or concerns raised by the decision of the NLRB in McLaren Macomb. Failure to do so may prevent an employer from being able to enforce their severance agreements. Please contact any one of Stein Sperling’s employment attorneys with any questions or for any assistance you may need in revising your company’s severance agreements or other employment matters.