Labor Regulations
February 23, 2023

Labor Board Rules Against Gag Orders in Severance Agreements: Use Caution When Exchanging Silence for Pay

In a ruling on February 21, the National Labor Relations Board (NLRB) restored what it called “an important principle and longstanding precedent” that had been reversed just a few years before. At the crux of the debate was the issue of employers coercing their workers into waiving their rights in exchange for severance payments and benefits. In other words, companies can no longer offer severance agreements that prevent employees from making disparaging remarks about their former employer. Before jumping to the conclusion that the NLRB just paved the way for a defamation free-for-all, let’s break down the situation.

NLRB Decision Restores a Past Precedent

As the NLRB explained shortly after publishing its decision, “Today, the Board issued a decision in McLaren Macomb, returning to longstanding precedent holding that employers may not offer employees severance agreements that require employees to broadly waive their rights under the National Labor Relations Act.”

The decision reverses the actions of the Board in place under the previous administration. At that time, the NLRB’s rulings over Baylor University Medical Center and IGT d/b/a International Game Technology, issued in 2020, found that offering severance agreements to employees with restrictive covenants about disclosure was not unlawful in and of itself. This interpretation essentially abandoned the prior precedent, giving employers more latitude in crafting severance agreements in which terminated or otherwise departing employees would accept payouts or other benefits in exchange for adhering to a series of non-disclosure, confidentiality, and non-disparagement clauses beyond the NDAs workers routinely execute during onboarding.

Under this standard, companies could craft some creatively prohibitive language so long as their provisions didn’t violate the National Labor Relations Act (NLRA) by treading into unfair practices such as discriminating against employees involved in union organizing or other protected activities. 

What Prompted the Decision?

“It’s long been understood by the Board and the courts that employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the National Labor Relations Act.  Today’s decision upholds this important principle and restores longstanding precedent,” said NLRB Chairman Lauren McFerran.   

Such was the case with 11 permanently furloughed employees at McLaren Macomb, a teaching hospital in Michigan. After they received their severance agreements, with the non-disparagement and confidentiality terms, the workers filed Unfair Labor Practice charges. The hospital had also bypassed the union, depriving it of an opportunity to negotiate. Typically, the primary consideration in cases such as these is compliance with Section 7

Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.

However, the current Board felt that severance agreements of this nature had become too broad in how they “attempt to deter employees from exercising their statutory rights, at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.”

Writing in the New York Times, Noam Scheiber described the new Board’s concerns with blanket gag orders in exchange for severance packages:

“Anne Lofaso, a professor of labor law at West Virginia University, said the latest decision was limited to rights under the National Labor Relations Act, such as employees’ rights to draw attention to unsafe working conditions, or to engage in other activities that protect or benefit workers as a group.”

Keep in mind, the NLRB ruling is still focused on the NLRA: “She said an employer could still offer workers a severance agreement requiring them to give up their right to sue over, say, race discrimination under the Civil Rights Act of 1964.” Though, we wouldn’t recommend doing that either.

Here’s the potential slippery slope: once a precedent has been established, it can be invoked by others when making legal decisions that affect other rights or acts. As Scheiber also pointed out, the ruling could open the doors for expanding what the NLRB deems as unlawful behavior moving forward. 

“The ruling could have a direct impact on severance agreements that seek to prevent former employees from publicly discussing sexual harassment or sexual assault accusations,” Scheiber wrote. “The labor board is likely to consider those agreements illegal.”

What Happens Now?

The law firm Fisher Phillips observed that the overly broad language of the severance agreements influenced the ruling.

“The Board members who wrote yesterday’s decision specifically deemed the employer’s non-disparagement covenant unlawful due in part to the fact that it was not limited to matters regarding past employment, contained no temporal restriction, and otherwise failed to offer any definition for ‘disparagement’ (such as, "so disloyal, reckless or maliciously untrue as to forfeit the Act's protection"). This would seem to indicate that the Board is opening the door to lawful non-disparagement provisions to the extent they are accompanied by these kinds of safeguards. 

“By the same token, the Board scrutinized the confidentiality provision at issue only to quickly invalidate it for similar reasons, including a finding that it purported to prohibit disclosure to any third party – including a labor union – and with one’s own co-workers.”

It’s possible that more specific language may have mitigated the issue, but all employers must exercise caution when drafting severance agreements. And, as a best practice, including prohibitive language around non-disparagement and confidentiality should probably be avoided. Here’s why.

  • The NLRB decision was significant because it determined that merely “proferring” a severance agreement containing the two contentious provisions (non-disparagement and confidentiality) amounted to “unlawful labor practice.” 
  • The same statutes could apply even if the language doesn’t directly involve Section 7 or protected activities around collective bargaining and organizing.
  • Employers who attempt to defend themselves by claiming they did not intend to enforce the non-disparagement or confidentiality provisions will no longer have sufficient defense in that argument.
  • This precedent could be used to influence similar rulings involving other regulators, employment rights, and acts.

However, it’s also important to understand that this ruling does not exonerate disgruntled employees from engaging in defamatory behavior, including slander and libel. If former workers post derogatory content that contains false information, character attacks, name-calling, and any information intended to damage a person’s reputation, they remain unprotected from legal action that a company may take against them.  

Photo by Sasun Bughdaryan on Unsplash

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