NAIS Legal Tip: Federal Agency Places New Restrictions on Severance Agreements

CATEGORY: Authored Articles
CLIENT TYPE: Private Education
DATE: Jun 07, 2023

This article originally appeared in the May 31, 2023 NAIS Bulletin as the Legal Tip of the Week

The National Labor Relations Board (NLRB) is the federal agency that oversees unionized and non-unionized employee rights for private employers.  It recently issued a wide-ranging decision severely limiting schools’ ability to include certain standard provisions in severance agreements.  The NLRB’s General Counsel also provided a memo with guidance in response to inquiries following the decision.

The case, McLaren Macomb, involved layoffs.  The employer offered severance agreements to the laid off employees in return for a release that included broad non-disparagement and confidentiality provisions.  The employees brought a claim before the NLRB challenging the inclusion of those provisions.  The NLRB held that the non-disparagement and confidentiality provisions were impermissible.  In regard to the non-disparagement provision, the NLRB reasoned, “[p]ublic statements by employees about the workplace are central to the exercise of employee rights.”  That is, if a non-disparagement provision precluded employees from speaking up about perceived violations of rights, it would negatively affect other employees.

The NLRB also determined that requiring a broad confidentiality provision violated federal law because it restricted employees from speaking with others about work-related issues.  That alone rendered the provision impermissible.  Moreover, the NLRB noted that employees had an interest in knowing the amount of a severance.  Federal law specifically permits employees to discuss issues related to wages and benefits and the NLRB determined that severance fell within that right.  For that reason as well, the NLRB determined that the employer could not enforce the confidentiality provision.

Schools will need to consider this decision carefully when offering severance agreements to employees whether as part of a layoff or in other situations.  The facts themselves may be distinguishable from the McLaren case, and the risks to the school, therefore, may be much lower.  Similarly, the process of approving the severance agreement, such as having an employee’s counsel review and approve the terms, may mitigate the risk.

Schools should also keep in mind that there may be situations where McLaren will not apply because of the limitations on the NLRB’s jurisdiction.  For example:

  • Supervisors;
  • Confidential employees; and
  • Religious schools.

McLaren is currently on appeal.  We will be monitoring the case carefully as it works its way through the appeals process.  In the meantime, schools should speak with their legal counsels about the current risks related to severance agreements that include broad non-disparagement and confidentiality provisions.

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