Even Presenting an Employee with an Overbroad Severance Agreement Can Create Employer Liability

By Leni Plimpton

Employers: Does your company regularly provide employees with severance agreements? If so, it is critical to be aware of changing labor laws and review your severance and separation agreements accordingly. 

Recently, the National Labor Relations Board overruled two of the previous Board’s decisions from 2020. In McLaren Macomb, issued February 21, 2023, the Board imposed strict requirements on employers, holding that it is unlawful to even present an employee with a severance agreement containing problematic terms. Calling the 2020 decisions “arbitrary” and “flawed,” the Board cited “nearly a century of settled law” establishing that employees may not “broadly waive” protected labor rights. 

The Board reasoned that if a severance agreement has terms that “have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights,” then it has a tendency to coerce employees and has a potential chilling effect on the exercise of protected labor rights. Accordingly, the Board held that it is unlawful for an employer to present such an agreement to an employee, even if the employee does not ultimately sign the agreement.

The Board emphasized that it views Section 7 of the National Labor Relations Act as having extremely “broad scope” and providing very “wide” protection to current and former employees. Contrary to what employers commonly thing, such rights “are not limited to discussions with coworkers” and “do not depend on the existence of an employment relationship.” The Board explained further that the protections of the NLRA extend to all “efforts to improve terms and conditions of employment,” including efforts through “channels outside the immediate employee-employer relationship,” such as “administrative, judicial, legislative, and political forums,” “newspapers,” “the media,” and “social media.”

The Board held that standard, boilerplate nondisparagement and confidentiality provisions violated Section 8(a)(1) of the NLRA. Interestingly, the decision did not mention the presence of a waiver clause in the offending agreement, and it remains unclear what sort of effect such a disclaimer or notice would have. 

However, the National Labor Relations Board’s General Counsel issued a Memorandum on March 22, 2023, providing “guidance” to all NLRB field offices regarding the upshot of McLaren Macomb. In that guidance, while not binding on the Board, she stated that disclaimer language in a severance agreement “would not necessarily cure overly broad provisions” and an employer “may still be liable for any mixed or inconsistent messages” that “could impede the exercise of Section 7 rights.” The General Counsel suggested that, perhaps, a very thorough and detailed “prophylactic statement of rights” could get the job done. 

Employers should know that the NLRA only covers employees who are not supervisors, management, or executive personnel, so this analysis does not apply to employees in those categories. However, there is a nuanced test for this, contact experienced employment counsel to ensure that you are not making any missteps).

In light of the Board decision and General Counsel’s guidance, employers should immediately review their severance agreement templates and consider revising them. Continuing to present overly broad agreements to departing employees may bring significant liability.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Lenora Plimpton

Lenora Plimpton

Lenora (Leni) specializes in employment and commercial litigation. She has experience with a wide range of employment and labor matters, including claims of age, race, and sex discrimination; disability discrimination; EEOC and CCRD charges of discrimination; mediations; arbitrations; and unemployment insurance audits.

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