Severance Pact Strategies Roiled After NLRB Dumps Trump Rules

Employers will have to rethink how they write new severance agreements and enforce some old ones after the National Labor Relations Board discarded rules about what language is allowed.

The board’s Democratic majority Feb. 21 said broad nondisclosure and non-disparagement provisions in severance agreements violate federal labor law, in reversing a 2020 decision.

This week’s decision brings precedent back to where it was before the 2020 order, and makes it illegal for companies to even offer severance agreements with overly restrictive language.

“I think it would potentially make employees feel like they can’t speak out,” said Bloomberg Law analyst Francis Boustany. “Those kinds of clauses simply will not stand under this board.”

The ruling comes amid several high-profile rounds of layoffs, most notably in the tech industry where companies including Meta Platforms Inc., Alphabet Inc., and Microsoft Corp. have fired tens of thousands of employees in recent months.

Employers must think carefully about whether to go after former employees who violate the provisions at issue, said Sara Robertson, a management-side associate at Polsinelli Law Firm.

“If the former employee violates the provision but is not saying anything that’s reckless or maliciously untrue, I would proceed with caution,” Robertson said.

If the former employee appears to be defaming the company in a way that doesn’t involve a protected activity, “I think the employer is still in a strong position,” she said.

Eliminate the Agreements?

After the Baylor University Medical Center and subsequent International Game Technology decisions in 2020, many companies may have broadened their nondisclosure and non-disparagement agreements, even if it meant former employees could no longer speak to union representatives or current employees about bettering working conditions.

It’s hard to know how many such agreements were struck, Boustany said, because workers have been barred from talking about them.

The NLRB found that Michigan hospital McLaren Macomb broke the National Labor Relations Act by inserting confidentiality provisions in severance agreements with 11 workers who were furloughed in 2020.

The McLaren decision could render the relevant provisions unenforceable in existing agreements, Boustany said. If an employer decides to enforce a severance pact that is considered illegal under new board standards, the company would open itself to unfair labor practice charges, he said.

Robertson said the McLaren Macomb decision leaves many unanswered questions for employers, including how it applies to other separation agreements. Companies will be looking to the NLRB’s general counsel office in the coming weeks for further guidance, she said.

The way companies proceed with severance pacts will depend on the employer’s risk tolerance, said Amy Gaylord, an attorney who represents employers for Akerman LLP.

The most conservative option, Robertson said, is to remove nondisclosure and non-disparagement provisions from severance agreements altogether. Other options include narrowing these provisions or adding heavy disclaimers that could protect employers from stepping outside the bounds of the law.

Gaylord said companies will have to think hard about the practical consequences of including the clauses in their severance agreements

“We really want them to narrow in on exactly what they’re trying to protect, whether that’s trade secrets, confidential information, or something else that can seriously harm the company,” Gaylord said. “In my opinion, it’s best to include these carve-outs that clearly state the provision doesn’t restrict an employee from filing unfair labor practice charges or participating in any sort of investigation.”

‘Bumpy Ride’

Companies can still find middle-of-the-road solutions to protect themselves without violating workers’ rights, said Joseph Paller, a union-side attorney at Gilbert & Sackman.

“Employers can still extend a severance benefit to soften the hard landing for the worker while also getting some guarantees for the company,” Paller said. “The McLaren decision just gives unions more power now to keep these provisions from interfering with employee rights.”

The severance agreement ruling will likely become one of many issues where the legal doctrine will change depending on the composition of the current board, said Thomas Lenz, who represents employers as a partner at Atkinson Andelson Loya Ruud & Romo.

The board has signaled its plans to take up three Trump-era rulings on employment classification, workplace and handbook policies, and confidentiality requirements in arbitration agreements.

“Even if you are compliant with the current legal standards you might still be accused of violating the law, as the GC seeks a new standard,” Lenz said. “I think employers need to buckle up, it’s going to be a bumpy ride for a while.”