Separation Agreements under Attack after NLRB Decision
This week, the National Labor Relations Board issued a decision changing, yet again, the rules pertaining to separation agreements. The decision at issue addressed standard confidentiality and non-disparagement provisions contained in the separation agreements. The Board held that such provisions can violate the National Labor Relations Act (the "Act"). Employers will need to consider this decision carefully in drafting future separation agreements.
The McLaren Macomb Decision
In McLaren Macomb, a hospital permanently furloughed 11 employees deemed nonessential after the onset of Covid-19. As a part of the furlough, the employees were presented with a standard severance agreement with waivers and releases. The agreement included confidentiality and non-disparagement provisions. The Board found that the hospital violated the Act by furloughing the employees without bargaining over its effects with the relevant union. But more importantly, it reversed Baylor University Medical Center (“Baylor”) and International Game Technology (“IGT”) finding that the simple proffering of a severance agreement with the confidentiality and non-disclosure provisions violated the Act. The Board reasoned that the provisions – along with the substantial monetary and injunctive relief specified for violations of the provisions – had a “chilling effect” on lawful activity, such as the right to discuss and engage in activities for the employees’ mutual aid and protection.
The History of Standards for Assessing Separation Agreements
Baylor and IGT were two Trump-era Board decisions. Baylor and IGT found that separation agreements that contained confidentiality and non-disparagement clauses only violated the Act when they were used to by an employer to cover up a violation of the Act. These decisions overruled the Clark Distributions Systems standard, which like the McLaren Macomb decision, found that these provisions in of themselves violate the Act. In August 2021, the General Counsel for the NLRB issued a memo telegraphing an intent to have these decisions reviewed by the Board during the Biden Administration. Given this history, the decision in McLaren Macomb is not surprising, though it has important real-life effects for employers.
What this Means for Employers
The McLaren Macomb decision does not necessarily mean that employers can no longer use separation agreements with confidentiality and non-disparagement provisions. It leaves room for these provisions to be used if the terms are properly defined and disclaimed, avoiding the “chilling effect” described by the Board. Employers should review their separation agreements to ensure that any confidentiality and non-disparagement provisions in their separation agreement forms are compliant under this new standard.
If you need assistance reviewing your company’s current separation agreements for compliance given this change in the law, please feel free to contact one of Honigman’s Labor and Employment attorneys here.