CAN A SEVERANCE OFFER BE ILLEGAL? THE NLRB SAYS SO

In McLaren Macomb1, issued in February of this year, the National Labor Relations Board (Board) ruled that an employer’s offer of a severance agreement to eleven employees was, in and of itself, an unfair labor practice. How can that be? And what are the practical implications?

Fundamental National Labor Relations Act (Act) Principles

Section 7 of the Act provides employees with the right to engage in concerted activity for mutual aid and protection regarding wages, hours and working conditions. These rights exist in all workplaces covered by the Act, not just those that are unionized. In general, employers who conduct more than $50,000 of business in interstate commerce are covered.

Section 8 (a)(1) of the Act provides that it is an unfair labor practice “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed under Section 7 of the Act.” This language has long been interpreted and understood to mean that employers may not threaten adverse consequences based on an employee’s exercise of his or her Section 7 rights.

The McClaren Macomb Setting

The employer operates a hospital in Michigan. During the pandemic the employer decided to lay off certain employees. There were eleven who were temporarily furloughed and then permanently furloughed. Upon the permanent furlough decision they were offered severance agreements that contained both confidentiality and nondisparagement language.

The confidentiality language provided: “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third party . . .”2, with the exception of spouse, legal or tax advisor or as compelled by law.

The non-disparagement provision stated: “At all times hereafter, the Employee agrees not to make statements to Employer’s employees, or to the general public, which could disparage or harm the image of the Employer, the parent and affiliated entities and their officers, directors, employees, agents and representatives.”3

The agreement further provided for financial and injunctive sanctions in the event the confidentiality or non-disparagement provisions were breached.

The Board held that the broad confidentiality and nondisparagement terms, with the threat of legal sanction upon breach, unlawfully threatened adverse consequences for activities that are protected by Section 7. For example, there was a prohibition against communicating terms to other employees. The Board observed that Section 7 has long protected employee communication with each other about terms and conditions of employment.

The terms prohibited communication with third parties, as well as any communication with others that could even potentially harm the employer’s image. The Board noted that Section 7 has long protected employee efforts to improve their lot as employees, and that such protected efforts can include communications with third parties such as “administrative, judicial, legislative, and political forums, newspapers, the media, social media, and communications to the public that are part of an ongoing labor dispute.”4

The Board ruled that the broad proscriptions in the confidentiality and non-disparagement terms on their face substantially interfered with and unduly “chilled” employees’ exercise of their Section 7 rights. Therefore, said the Board, the act of offering an agreement with those terms in it, even in the absence of any attempt at enforcement, was an unfair labor practice.

The decision applies to employees, who have Section 7 rights. It does not apply to supervisors, who do not have Section 7 rights under the Act. The Act contains its own specific definition of the term “supervisor.” The Board construes the term “supervisor” narrowly because persons in that role do not have Section 7 rights under the Act. In close cases an employer should engage in an analysis of whether the person in question is indeed a member of management under the Act. But where the person who is to be offered severance is clearly in the management ranks, McClaren Macomb does not apply.

Assuming that the persons in question are employees, it is still possible to include some narrowly drawn confidentiality and nondisparagement provisions. For example, employers can protect their trade secret and confidential business information such as manufacturing methods, confidential cost data, marketing plans, and the like.

With respect to non-disparagement, it is more difficult to craft acceptable language. The Act provides protection to communications that relate to a labor dispute so long as it “is not so disloyal, reckless, or maliciously untrue to lose the Act’s protection.”5 An employer who nevertheless wishes to include non-disparagement language in an agreement offered to employees should think carefully about the specific concerns to be addressed by the provision and (with assistance from labor counsel) craft the language accordingly.

Last but not least, including a disclaimer of intent to prohibit or discourage activity protected by the Act is not a silver bullet but is a good idea. In this regard, the Board’s General Counsel published a Guidance Memo on May 23, 2023, for those who may be interested to look further. The Memo recognized the potential value of disclaimers. That said, the sample language in the Memo is very lengthy and, in all candor, seems to be overkill. More concise but clear and specific language in the way of a disclaimer should be helpful.

About this column: “The cobbler’s children have no shoes.” This old expression refers to the fact that a busy cobbler will be so busy making shoes for his customers that he has no time to make some for his own children. This syndrome can also apply to lawyers who are so busy providing good service to their clients that they neglect management issues in their own offices. The goal of this column is to provide timely information on management issues. If you have an idea for a future column, please contact Caitlyn Elam at 546-4646.

continued from page 15 in-fda-approval-of-abortion-pill-c; Melissa Quinn, Texas federal judge halts FDA approval of abortion pill mifepristone; Biden administration filing appeal, CBS News (Apr. 8, 2023 9:41 PM), https://www.cbsnews.com/news/federal-judge-halts-fdaapproval-of-abortion-pill-mifepristone/ (“The American College of Obstetricians and Gynecologists notes medication abortion has been used by over 3 million women in the U.S. since FDA approval in 2000, and says it is ‘safe and effective.’”).

3 All. for Hippocratic Med. v. Food & Drug Admin., No. 23-10362, 2023 WL 2913725, at *1 (5th Cir. Apr. 12, 2023) (per curiam) (quoting 21 C.F.R. § 314.500).

4 Id. at *2.

5 Id.

6 Id.

7 The procedural history of this case at the administrative level is somewhat complicated and not outlined in detail here, as it is beyond this article’s scope. However, a helpful breakdown of that history, along with the timeline of the FDA’s actions regarding mifepristone and plaintiffs’ administrative challenges to them, can be found in the Fifth Circuit’s opinion. See id. at *3.

8 All. for Hippocratic Med. v. U.S. Food & Drug Admin., No. 2:22-CV-223-Z, 2023 WL 2825871, at *3 (N.D. Tex. Apr. 7, 2023).

9 Chemerinsky, supra note 1 (describing Judge Kacsmaryk’s December 2022 ruling “that it was unconstitutional for clinics receiving federal funds under a law enacted in 1970 to provide contraceptives to minors without parental consent,” which ignored Supreme Court precedent to the contrary).

10 Id. (describing other district court judges in Texas that conservative litigants have sought out in litigation).

11 A large portion of the opinion dealt with a variety preliminary legal issues (e.g., plaintiffs’ standing, whether part of their claims were timely, whether part of the FDA’s decision was judicially reviewable, whether plaintiffs failed to administratively exhaust their claims). See generally All. for Hippocratic Med., 2023 WL 2825871, at *3–15. For brevity’s sake, this article highlights the higher profile aspects of the district court’s substantive rulings.

12 Id. at *19.

13 Id. at *22.

14 Id. (internal quotation marks omitted).

15 Id. at *19.

16 18 U.S.C. § 1461.

17 All. for Hippocratic Med., 2023 WL 2825871, at *32.

18 All. for Hippocratic Med., 2023 WL 2913725, at *3.

19 Id. at *12 (“Plaintiffs’ right of action against the 2000 Approval . . . first accrued on March 29, 2016—the date FDA issued its final decision rejecting their . . . Petition . . . . But plaintiffs didn’t file suit until November 18, 2022, more than six months beyond the statute of limitations.” (citation omitted)). The district court previously determined that plaintiffs’ challenge was timely because it took the FDA over sixteen years to rule on their petition. See All. for Hippocratic Med., 2023 WL 2825871, at *9–12.

20 See All. for Hippocratic Med., 2023 WL 2913725, at *17–21.

21 Amy Howe, Court allows abortion pill to remain widely available while appeals proceed, SCOTUSblog (Apr. 21, 2023, 7:50 PM), https://www.scotusblog. com/2023/04/court-allows-abortion-pill-to-remain-widely-available-while-appealsproceed/

22 Justices Thomas and Alito would have denied the defendants’ request. See Howe, supra note 22.

23 Howe, supra note 22.

24 Totenberg, supra note 3 (noting that “[t]here is little likelihood that the appeals court will substantially change its view after oral arguments in the case,” and observing that its original order was “based, in part, on the Comstock Act”).

25 Quinn, supra note 3.

By: Lisa J. Hall Hodges, Doughty & Carson, PLLC