Hunton Employment & Labor Perspectives

The National Labor Relations Board (“Board” or NLRB) decided in McLaren Macomb, 372 NLRB No. 58 (2023) that an employer violated the National Labor Relations Act (NLRA) by offering furloughed employees severance agreements that contained confidentiality and non-disparagement provisions. “A severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their [NLRA] rights, and that employers’ proffer of such agreements to employees is unlawful,” announced the Board. In rendering the decision, the NLRB overruled Baylor Univ. Med. Ctr., 369 NLRB No. 43 (2020)[1] and IGT d/b/a Int’l Game Tech., 370 NLRB No. 50 (2020). In those cases, the Board decided that employers did not independently violate the NLRA simply by presenting employees with severance agreements containing non-assistance, non-disclosure, and non-disparagement provisions that arguably restricted NLRA rights absent some additional circumstances.

Background on NLRA Rights

Most private sector employers in the United States are covered by the NLRA, irrespective of whether their workplaces are unionized. The NLRA provides both union and non-union employees with the right to engage in protected concerted activities and the right to refrain from such activities. Such activities include the right to discuss terms and conditions of employment with co-workers, publicly protest unfair working conditions, and join labor unions. Employees also have the right to file unfair labor practice (“ULP”) charges with the NLRB and cooperate in Board investigations. To the extent language in a severance agreement, such as a confidentiality provision, can be read to interfere with these rights, employers should carefully consider the decision in McLaren Macomb before including such language.

A Summary of McLaren Macomb Decision

Facts

The employer operates a hospital in Michigan and employs over 2,000 employees. Following a union election in August 2019, the NLRB certified a labor union as the exclusive collective bargaining representative of about 350 service employees at the hospital.

Approximately six months after the union election, in March 2020, the government issued COVID-19 regulations that limited the employer’s operations. The regulations prohibited the employer from performing elective and outpatient procedures, and from allowing nonessential employees to work in the hospital. As a result of these restrictions, the employer terminated its outpatient services and eventually permanently furloughed 11 employees who were represented by the union.

The employer offered the permanently furloughed employees severance agreements. As is typical, each severance agreement provided the employee with consideration in exchange for a waiver of the right to bring certain legal claims. The severance agreement further required the employee to keep the terms of the agreement confidential and prohibited the employee from disparaging the employer, related entities, and individual representatives. In the event an employee breached the confidentiality or non-disparagement provision, the severance agreement stated that the employer could obtain injunctive relief and that the employee would be responsible for damages to the employer, including attorneys’ fees.

At the time the employer provided the employees with the severance agreements, the employer was testing the validity of the union’s August 2019 election victory. The employer did not give the union advance notice of the permanent furloughs or that it would offer the employees severance agreements. The employer did not provide the union an opportunity to bargain over the furlough decision or the effects of the decision. And, the employer did not include the union in its discussions with the employees about the severance agreements.

Procedural History

The union filed a ULP charge against the employer, claiming that its conduct with respect to the furloughs violated the NLRA. The general counsel issued a complaint stemming from the charge.

A hearing was held before an Administrative Law Judge (“ALJ”), who concluded that the employer violated the NLRA by failing to notify the union about the furlough decision, failing to provide the union an opportunity to bargain about the decision and the effects of that decision, and directly dealing with the employees about the furlough decision. The ALJ decided the employer did not separately violate the NLRA by offering the severance agreements to the employees. Regarding this ruling, the ALJ looked to the decisions in Baylor and IGT. The ALJ said, “[t]he agreements were voluntary, only offered to separated workers, and did not impact their previously accrued benefits.” Despite the conclusion that the employer violated the NLRA by failing to involve the union in the furlough decision, the ALJ further stated, “[t]his case also does not involve . . . other circumstances interfering with [NLRA] rights . . . ”

Both the employer and the general counsel filed exceptions to the ALJ’s decision. The general counsel’s exceptions argued, for the first time, that the Board should overrule Baylor and IGT.

Decision

The NLRB agreed with the ALJ, deciding the employer violated the NLRA by failing to notify the union about the furlough decision, by failing to provide the union an opportunity to bargain about the decision and the effects of that decision, and by directly dealing with the employees. The Board disagreed with the ALJ’s conclusion that the employer did not separately violate the NLRA by offering the severance agreements to the employees. In doing so, the NLRB overruled Baylor and IGT.

The Board claimed that the decisions in Baylor and IGT were problematic to the extent they stand for the proposition that an employer cannot violate the NLRA merely by offering a severance agreement to employees absent a finding that the employer otherwise violated the NLRA and harbored animus toward rights protected by the NLRA. The NLRB held that the mere offering of a severance agreement to employees is an independent violation if the agreement’s terms have a reasonable tendency to interfere with, restrain, or coerce employees in exercising their NLRA rights, irrespective of any other circumstances. The Board opined that this standard was consistent with long-standing NLRB precedent.

The Board decided that the confidentiality and non-disparagement provisions at issue were unlawful because they had a reasonable tendency to interfere with, restrain, or coerce employees’ exercise of their NLRA rights. As to the confidentiality provision, the NLRB said that the provision broadly prohibited an employee from disclosing the agreement to any third-party, which would include the Board and other employees. The NLRB highlighted that it is against public policy to prohibit individuals with knowledge of ULPs from cooperating with the Board and that employees have the right under the NLRA to discuss their terms and conditions of employment with each other. Regarding the non-disparagement provision, the NLRB faulted the provision for prohibiting an employee from making any statement that could disparage or harm the image of the employer, related entities, and individual employer representatives without any temporal limitation. The Board emphasized that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the [NLRA].” It explained that employees can exercise NLRA rights both inside and outside the workplace, including in political forums and the media.

In rendering its decision, the NLRB mentioned that not every provision in a severance agreement that arguably interferes with NLRA rights is unlawful. The Board explained that the standard it set forth examines whether the relinquishment of NLRA rights is a permissible “narrowly tailored” one. In this regard, the Board footnoted:

We are not called on in this case to define today the meaning of a ‘narrowly tailored’ forfeiture of [NLRA] rights in a severance agreement, but we note that prior decisions have approved severance agreements where the releases waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.

Dissent

A dissenting Board member criticized the decision in McLaren Macomb on numerous grounds. The Board member claimed the NLRB decision to overrule Baylor and IGT was merely “dicta.” The dissent explained that it was not necessary for the Board to overrule Baylor or IGT because the offering of the severance agreements in McLaren Macomb constituted an NLRA violation under Baylor and IGT as the employer committed ULPs by failing to involve the union in the furlough decision. The Board member pointed out that the general counsel did not even argue to overrule Baylor and IGT until filing exceptions to the ALJ’s decision, further questioning whether it was appropriate for the NLRB to overrule Baylor and IGT. In addition, the dissent disagreed with the Board’s conclusion that Baylor and IGT were contrary to long-standing precedent. The dissent noted that neither Baylor nor IGT overturned NLRB cases coming before them, “but merely declined to continue to apply the overboard holdings contained therein to cases involving a significantly different factual scenario.” The dissent also faulted the Board for applying the “reasonable tendency to interfere” standard borrowed from a currently outdated standard set forth in Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004) to evaluate facially neutral work rules in analyzing the facially neutral provisions in the severance agreements at issue.

Conclusion

The decision in McLaren Macomb makes clear the Board will be critical of any language in a severance agreement that arguably interferes with employees’ rights under the NLRA. As a result, employers must keep this decision in mind when drafting and presenting severance agreements to employees protected under the NLRA.  Feel free to check out our client alert about this decision here, which includes some tips for employers to consider moving forward. Additional coverage on McLaren Macomb can be found in our previously published alert.

[1] Hunton Andrews Kurth LLP’s Amber Rogers represented Baylor in this case.