Severance Shakeup

NLRB Prohibits Overly Broad Severance Agreements

In its 2023 decision in the McLaren Macomb case, the National Labor Relations Board (NLRB) recently identified significant limitations on employee severance agreements. The NLRB affirmed that, amongst other things, employers cannot enter into or enforce severance agreements in which employees broadly waive rights protected by the National Labor Relations Act (NLRA). Key points from the decision include:

1. Non-Disparagement – Severance agreements cannot include provisions that broadly prohibit employees from making statements that could disparage the employer. Such provisions can restrict employees from engaging in concerted activities protected under the NLRA, including discussions of working conditions.

2. Confidentiality – Severance agreements cannot include provisions that broadly prohibit employees from disclosing the terms of a severance agreement or discussing workplace issues with former coworkers, unions, or the NLRB. Such provisions can unlawfully restrain employees from exercising rights protected under the NLRA.

3. “Narrowly Tailored” Exception – Severance agreements may still include non- disparagement or confidentiality/non-disclosure provisions that are narrowly tailored to a legitimate business purpose, such as protecting proprietary information or trade secrets.

4. Retroactive – The NLRB decision applies retroactively, making existing severance agreements with overly broad provisions unenforceable.

5. “Proffer” – A “mere proffer” of a severance agreement that violates the NLRB’s prohibitions on overly broad provisions is, in and of itself, a violation of the NLRA.

6. Retaliation – Although supervisors are generally not covered by the NLRA, the decision applies if an employer retaliates against a supervisor for refusing to commit an unfair labor practice or prevents a supervisor from participating in NLRB proceedings.

It is important for employers to review their severance agreements and, as needed, revise them to ensure that they align with applicable NLRB guidelines. Employers who fail to comply risk costly fines and penalties.