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By: Bob Chadwick and Gabriel Canto
As part of a permanent furlough in 2020, McLaren McComb, a union teaching hospital, offered 11 union employees severance agreements offering severance payments in exchange for releases of claims and the following clauses:
Clause 6. 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.
Clause 7. Non-Disclosure. … 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.
Many nonunion employers may recognize these clauses as akin to those in severance agreements they have presented to employees upon separation.
What started as a seemingly innocuous offer of severance benefits to 11 union employees, however, culminated in a February 2023 National Labor Relations Board (“NLRB”) decision which purports to outlaw these clauses in severance agreements for union and nonunion employers alike. Nonunion employers across the country are thus asking similar questions regarding McLaren McComb: (1) How does this decision impact them? and (2) Where do they go from here?
How Does McLaren McComb Impact Non-Union Employers?
Section 7(a) of the National Labor Relations Act (“NLRA”) protects the rights of non-supervisory employees to not only “to bargain collectively through representatives of their own choosing” but also “to engage in other concerted activities for .. mutual aid or protection.” It is the right to engage in other concerted activities which is protected for non-union employees. An employer commits an unfair labor practice under Section 8(a)(1) of the Act if it interfere[s] with, restrain[s], or coerce[s] employees in the exercise of the[se] rights.”
What troubled the NLRB as to the “Confidentiality” clause in Section 6 above was that it restrained a terminated employee from discussing the terms of the severance agreement with former co-employees who found themselves facing a similar decision whether to accept a severance agreement. The Board found such a restraint prevented the former employee from providing mutual aid or protection to existing employees in violation of Section 7.
What troubled the NLRB regarding the non-disparagement language in Section 7 above was that it prohibited public statements about the employer’s workplace. The Board determined such a restraint likewise prevented the former employee from providing mutual aid or protection to existing employees in violation of Section 7.
It thus wasn’t just the ability to communicate with a union that the NLRB found to be unlawfully restrained by the confidentiality and non-disparagement clauses, it was also the ability to communicate with and protect other employees. Indeed, the Board found that merely offering such clauses chilled the exercise of Section 7 rights. This reasoning was broad enough to include nonunion employees.
Where Do Non–Union Employers Go From Here?
The NLRA only affects non-supervisory employees. Accordingly, non-union employers may continue to offer severance agreements with confidentiality and non-disparagement clauses to supervisors without violating the NLRA. Non-union employers should still review such clauses for compliance with other federal, state and local laws.
For non-supervisory employees, non-union employers must now evaluate whether and how severance agreements are offered. Without a confidentiality clause, employees are free to compare notes with other employees regarding severance offers. This dynamic may affect the decision whether to offer a severance agreement. Under certain circumstances, a practice designed to resolve potential claims may actually create potential discrimination or retaliation claims.
Without a non-disparagement clause, moreover, a former employee is free to publicize negative opinions regarding work conditions. This possibility may likewise affect the decision whether to offer a severance agreement. After all, there may be circumstances where a non-disparagement clause is a primary reason for the agreement.
With a confidentiality or non-disparagement clause, a severance agreement can now be found to be in violation of the NLRA. A limited confidentiality clause or a confidentiality clause which incorporates a carve-out for concerted activity may be an option but still carries risk. For instance, a confidentiality clause can protect the employer’s proprietary information but allow the employee to discuss the terms of employment and the severance agreement itself with other employees. An employer exploring this option should first consult legal counsel.
Similarly, a limited non-disparagement clause may be an option but still carries risk. For example, a non-disparagement clause can be limited to the quality of the goods or services sold by the employer. An employer exploring this option should also first consult legal counsel.
This much is certain for non-union employers. The decision-making process with respect to severance agreements is more difficult today than it was on February 20th. McLaren McComb is subject to appeal in federal court, but for now it presents a significant hurdle for non-union employers accustomed to routinely including confidentiality and non-disparagement clauses in severance agreements. Moreover, non-union employers offering severance agreements in connection with reductions-in-force should be aware that they, too, are subject to the McLaren McComb decision.
For more information, please contact Bob Chadwick at [email protected], Gabriel Canto at [email protected], or your local FMG attorney.