NLRB Devalues Severance Agreements

Employees in 2023 enjoy a target rich environment for challenging their terminations.  Civil rights challenges alleging race, religion, gender and sexual orientation discrimination (among others) are common.  Employees can also assert discrimination based on age, or medical condition, or failure to accommodate.  They can allege retaliation based on FMLA usage, or safety complaints.  Perhaps the broadest protection of all is found in the National Labor Relations Act (“NLRA”), which protects workplace protests. 

Those quite substantial legal protections are coupled with enormous litigation costs for unlucky employers who find themselves defending terminations in civil trials or administrative enforcement proceedings.  Today, defending an employment termination can sometimes cost more than six figures, easily double or triple that in class action lawsuits.

So how do employers protect themselves when separating employees?  Other than fairness, consistency, and progressive, well documented corrective action, there’s only one preferred technique:  severance agreements.  In the simplest terms, severance agreements typically involve an employer paying extra money to an employee in exchange for avoiding legal disputes. 

Usually, severance agreements also say something like, “and by the way employee, you can’t publicly disparage the business after you sign this agreement, or brag about how much we paid you.”  Employers do not want to pay money for the privilege of being attacked on social media, or to encourage future severance demands from other sometimes unscrupulous employees.  Those types of clauses are known and “confidentiality” and “non-disparagement” provisions.

Once upon a time in the United States, employers used “confidentiality” and “non-disparagement” clauses in severance agreements without a second thought.  That began changing during the Bush and Obama Administrations when the National Labor Relations Board (“NLRB”) began to assert new theories under the NLRA.  One new theory was that “confidentiality” and “non-disparagement” clauses infringe on employees’ legally protected right to say insulting things about their employer (even after employment ends), or to advertise their severance pay to coworkers as a form of “mutual aid and protection.”  Remember, criticizing an employer or manager, and concerted protective activity among coworkers, are protected by the NLRA.

Then, in 2020, along comes the NLRB controlled by a majority of Trump appointees.  The new Trump appointed majority declared that “confidentiality” and “non-disparagement” clauses are not per se illegal, except in limited circumstances involving other types of unlawful employer conduct.[1]  That declaration changed again, on February 21, 2023, under the NLRB majority appointed by President Biden.  Now, “confidentiality” and “non-disparagement” clauses are illegal, again.[2]

This development will result in fewer severance agreements, and more litigation, because the value and effectiveness of severance agreements was just greatly diluted.   Thank our policy makers in Washington, DC who seem to believe that employers who just want to say goodbye without legal hassles are trying to trample on employee rights, and must be further restrained.

[1] Baylor University Medical Center, 369 NLRB No. 43 (2020); IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020).

[2] McLaren Macomb, 372 NLRB No. 58 (February, 2023).