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National Labor Relations Board Reverses Previous Precedent on Severance Agreements
On February 21, 2023, the National Labor Relations Board (NLRB) made a ruling in McLaren Macomb that reversed its standing on labor law rights and severance agreements. This most recent decision returns the Board’s stance on the issue to what they believe aligns more accurately with the National Labor Relations Act (NLRA).
NLRA Provisions on Severance Agreements
The NLRA, passed in 1935, establishes policies concerning workplace democracy, working conditions, and collective bargaining. It is meant to encourage workers’ rights to freedom of association and representation free of retaliation. Section 8 (a)(1) of the Act states that interfering with or coercing employees in regard to the following rights is unfair labor practice:
The NLRA allows the Board to investigate and, if needed, issue appropriate relief or restraining orders.
The McLaren Macomb Case
A hospital in Michigan furloughed 11 bargaining unit employees after COVID-19 necessitated a reorganization of their medical departments and resources. The 11 employees had initially been deemed non-essential workers and were placed on a temporary furlough. However, the separation became permanent, and the hospital offered the employees a severance agreement. As part of the agreement, the employees were required to release the hospital from claims relating to their termination. Further, the severance agreement prohibited disparagement of the hospital and discussion or disclosure of the agreement’s terms.
This case revolved around the issue that such a severance agreement is coercive and violates the NLRA’s rules regarding an employee’s rights. In previous decisions, the Board’s opinion was that these severance agreements alone did not constitute illegality, but this newest decision diverted from the former opinion.
The Board’s Change in Stance
Prior to this, the Board had decided in two separate instances (Baylor University Medical Center and IGT d/b/a International Game Technology) that employers could include specific provisions in severance agreements that prohibited employees from discussing the terms of the contract or becoming involved in claims against the employer. In McLaren Macomb, the NLRB found that such terms regarding confidentiality and nondisparagement are unlawful, thus overturning their prior decisions.
Offering a severance agreement with coercive terms could be a deterrent for employees, causing them to believe they are required to give up their rights in order to benefit from the agreement. The NLRB’s stance is that employees cannot be asked to forfeit their rights in order to receive a severance.
For questions about what this decision means for you, message Orin Kurtz with Gardy & Notis’ Employment division, or call us at 917-810-4303.
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