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Why “Template” Separation Agreements Will Get You Sued!

by Jennifer Shaw and Julia Melnicoe Insel | | March 7, 2023

Okay.  Now that I have your attention…

Last month, the National Labor Relations Board issued an important decision (McLaren Macomb, 372 NLRB No. 58 (2023) regarding the inclusion of certain common provisions in severance and separation agreements. You can read the 02/21/23 decision on the NLRB’s site here.

Before you tell yourself, “Whew, so glad we don’t have a union!  I can ignore this post,” keep in mind that the National Labor Relations Act applies to most employers, whether or not they are unionized.

In the Board’s words,“[i[n 1935, Congress passed the National Labor Relations Act (“NLRA”), making clear that it is the policy of the United States to encourage collective bargaining by protecting workers’ full freedom of association. The NLRA protects workplace democracy by providing employees at private-sector workplaces the fundamental right to seek better working conditions and designation of representation without fear of retaliation. So, employees covered by the Act have broad rights with respect to engaging in concerted activity.

Under the Act, “supervisors” are excluded from these protections. That term is defined as:

(11) The term “supervisor” means any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

Of course, it’s not always easy to determine who qualifies as a “supervisor,” and employers faced with making such a decision should consult counsel.

Okay, back to McLaren Macomb

The employer at issue offered severance agreements to employees affected by furloughs. The agreements contained confidentiality and non-disclosure/non-disparagement language.

The confidentiality provision stated:

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.

The non-disclosure/non-disparagement provision stated:

At all times hereafter, the employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged or proprietary nature of which the employee has or had knowledge of, or involvement with, by reason of the employee’s employment. 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.

The Board found both of the provisions problematic under the NLRA. In particular, the Board disliked the restrictions on discussing terms of the agreement with any third persons, and making statements to other employees or the public about the employer. The Board also determined that the mere offering of a severance agreement containing overbroad confidentiality and non-disparagement provisions is unlawful, even if the employee does not sign the agreement.

Of course, employee agreements are already challenging in California. We have a number of laws that limit confidentiality and non-disparagement provisions in certain contexts. Employers may not include confidentiality and non-disclosure provisions in agreements related to claims involving allegations of sexual harassment, sexual assault or discrimination based on any protected characteristic under the Fair Employment and Housing Act. Similarly, employers may not include non-disclosure provisions in employment severance agreements that prohibit the “disclosure of information about unlawful acts in the workplace,” such as harassment, discrimination or any other conduct that the employee has “reasonable cause” to believe is unlawful.

For all of these reasons, you cannot use a “template” separation or severance agreement without incurring substantial legal risk. The law changes too quickly, and different rules apply depending on the circumstances.  For example, as of 2022, even employees under 40 are entitled to a minimum of five business days to review a separation agreement.  As far as the McLaren McComb decision goes, it will not affect every employee (because the NLRA does not apply to “supervisors”), so a confidentiality or non-disparagement provision might be appropriate in some circumstances.

The bottom line is that a separation or severance agreement these days involves something of a legal decision-tree.  We maintain up-to-date model language for our clients, and can put together an agreement quickly once we know the key details.


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