Up-to-date information for employers on topics and issues that may affect workplace operations. The posts are current as of the date of the posting.

Separation Agreements and the NLRA

by Jennifer Shaw and Melissa Whitehead | The Daily Recorder | April 6, 2023

On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a decision affecting all employers who offer separation agreements to outgoing employees – regardless of whether their workforce is unionized.

Employers Subject to the National Labor Relations Act

The NLRB enforces the National Labor Relations Act (“NLRA”), which applies to most private sector employers. The NLRA does not apply to federal, state, or local governments; employers who employ only agricultural workers; and employers subject to the Railway Labor Act (interstate railroads and airlines). Independent contractors and supervisors also are exempt from NLRA protections, subject to limited exceptions.

The NLRA defines supervisors as, “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.”

Protected Concerted Activity

Under the NLRA, all covered employees are entitled to “act together to try to improve their pay and working conditions.” This right to engage in “concerted activity” to address work-related issues is broad and includes, among other things, talking to coworkers about wages, benefits, or other working conditions. Employers may not discharge, discipline, threaten, or “coercively question” employees about protected concerted activity. The NLRA does not protect employee activity that is egregiously offensive, knowingly and maliciously false, or publicly disparages the employer’s products or services (unrelated to any complaint or labor controversy).

Separation Agreements and the NLRA

In the recent McLaren Macomb opinion, the NLRB reviewed non-disclosure and confidentiality provisions in severance agreements offered by an employer to furloughed employees. The provisions at issue are below:

Confidentiality Provision: 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.

Non-Disclosure Provision: 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 NLRB held that these provisions violated furloughed employees’ rights to engage in protected concerted activity by prohibiting them from disclosing the terms of the agreement to “any third party.” This provision did not allow separating employees from disclosing the existence of unlawful provisions in the agreement, and would “reasonably tend to coerce” employees to refrain from filing unfair labor practice charges and otherwise cooperating with and assisting the NLRB in its investigation related to the employer’s severance agreements. The confidentiality provision had an “impermissible chilling tendency” on the furloughed employees’ rights to engage in concerted activity, and so was unlawful.

Similarly, the NLRB ruled that the non-disclosure provision was unlawful because it “substantially interfered” with the furloughed employees’ rights to make public statements about their (former) workplace. That right is “central to the exercise of employee rights under the [NLRA].” The NLRB reasoned that the non-disclosure provision was so broad that it would encompass employee statements about any labor issue, dispute, or the terms and conditions of employment. Also, by extending the non-disclosure provision to the employer’s “parent and affiliated entities and their officers, directors, employees, agents and representatives,” the provision unlawfully barred furloughed employees from raising or assisting other employees with complaints about labor practices or working conditions.

The NLRB also held that it was unlawful for employers to offer an agreement that “unlawfully conditions receipt of severance benefits on the forfeiture” of NLRA-protected rights. Even if an employee does not sign the agreement, the offer itself “has a reasonable tendency to interfere with or restrain the prospective exercise of” the right to engage in concerted activity, both for the furloughed employees and those remaining employed.

Lessons for Employers

This NLRB opinion adds to an already long list of challenges California employers face with respect to separation and similar agreements. The terms and provisions in separation agreements must vary by employee’s position (e.g., “supervisors” are not subject to NLRA protections), age (the Older Worker Benefit Protection Act has specific requirements related to separation agreements for employees aged 40 or older), and whether there are pending disputes with the separating employee (e.g., California law prohibits certain provisions for employees with pending sexual harassment, sexual assault, or discrimination claims). One thing is clear, the days of “template” separation agreements are over.