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March 10, 2023 | Employment

Your Standard Severance Agreements May Now Violate the NLRA

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Olivia Loftin

Associate Attorney

Companies often part with employees, whether through furlough, termination for cause, or mutual agreement.  When employees leave a company, they sometimes sign an agreement detailing the terms of the separation.  It is common for these severance and settlement agreements to include non-disparagement, confidentiality, and non-disclosure clauses.  However, a recent National Labor Relations Board (NLRB) decision could significantly change this practice.

The NLRB Decision

In the recent case, McLaren and Macomb, 372 NLRB No. 58 (2023), a company offered its furloughed employees severance agreements which would require them to broadly waive their rights in regard to confidentiality, non-disclosure and making disparaging statements about their employer.  The NLRB held that offering these clauses in a severance agreement, which effectively requests employees broadly give up their rights under Section 7 of the National Labor Relations Act (NLRA), violates Section 8(a)(1) of the NLRA.

Section 7 of the NLRA provides that employees have the right to:

  • Self-organize;
  • Form, join, or assist labor organizations;
  • Bargain collectively through representatives of their own choosing;
  • Engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection; and
  • Refrain from any or all of such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in Section 8(a)(3).

Section 8 of the NLRA prohibits employers from interfering with an employee’s rights under Section 7 of the NLRA.

In deciding McLaren, the NLRB stated that “employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the [NLRA].”  This means that regardless of whether the employees sign the agreement, merely offering employees the option of broadly giving up these rights in return for severance is a violation of the NLRA.

Implications for Future Severance Agreements

Although this NLRB decision concerned provisions in a severance agreement, the decision may also  apply to employee settlement agreements.  Severance agreements and settlement agreements must now be narrowly tailored.  In order to comply with the NLRB decision, companies could modify severance and settlement agreements to allow employees to participate in NLRB charges or investigations, as well as allow employees to discuss the terms of their agreements with other employees or third parties.

However, and although not clear from the decision, this decision may only apply to employees who are protected under the NLRA.  The NLRA excludes, among other individuals, “any individual employed as a supervisor” from the definition of employee.  See 29 U.S.C. § 152 (3).  Therefore, many managers and executives may be exempt from this decision.

Drafting and negotiating severance and settlement agreements is best done with the help of an experienced employment attorney.  Romano Law employment lawyers are here to help.  Contact us to speak with a member of our team today.

Photo by Sebastian Herrmann on Unsplash
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