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“[E]mployers may not offer employees severance agreements that require employees to broadly waive their rights under the National Labor Relations Act,” the National Labor Relations Board ruled Tuesday.

NLRB Chairman Lauren McFerran and members Gwynne A. Wilcox and David M. Prouty affirmed the decision. Member Marvin E. Kaplan dissented.

“It’s long been understood by the board and the courts that employers cannot ask individual employees to choose between receiving benefits and exercising their rights under the National Labor Relations Act,” McFerran said in a statement.

The decision stems from a case in which severance agreements offered to furloughed, unionized employees at a Michigan hospital prohibited them from making statements that could disparage the employer and from disclosing the terms of the agreement itself. 

“Subject to likely appeal, the NLRB’s decision will have a significant impact on severance agreements for non-supervisory employees in both the union and non-union setting,” Bill Finegan, a labor attorney at Munsch Hardt told the McKnight’s Business Daily

“The anchoring law of the decision is Section 7 of the NLRA. That section protects nonsupervisory employee’s right to act in concert with one another (in this case, communicate with other employees) over their terms and conditions of employment,” he added. “The confidentiality and nondisparagement provisions in a settlement agreement act to prohibit employees (and former employees) from discussing underlying issues or claims related to their employment or their employer. Such prohibitions were held to violate the employee’s section 7 rights which protect their right to communicate about such issues with other employees.” 

Tuesday’s decision reverses a Trump-era decision that permitted employers to include confidentiality provisions and nondisparagement clauses in severance agreements. The 2020 decision abandoned prior precedent in finding that offering similar severance agreements to employees was not unlawful, by itself. The decision was not surprising, according to attorneys at Fisher Phillips.

“For a while now, we’ve heard rumblings that the NLRB has been interested in revisiting the two 2020 Trump-era decisions that had given parties the right to include these types of provisions in severance agreements,” wrote Fisher Phillips Regional Managing Partner Steven M. Bernstein and Partner Todd A. Lyon. “In other words, this decision has been a foregone conclusion for some time now. It was not a question of ‘if,’ but only ‘when.’”

The decision is significant, according to Bernstein and Lyon, because “under the newly resurrected rule, you may be found to have committed an unfair labor practice simply by offering your workers severance agreements with overly restrictive language even if you don’t seek to enforce them.”

Most employers should not have difficulty making the transition to the NLRB’s new stance, according to Bernstein and Lyon, because “most employers became adept at operating under the board’s tight scrutiny of company policies during the Obama era.”

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