Labor Board Curbs Gag Rules in Severance Agreements

The National Labor Relations Board has ruled that it is generally illegal for companies to offer severance agreements that prohibit workers from making potentially disparaging statements about the employer or from disclosing details of the agreement.

The ruling by the board, which has a Democratic majority, overturns a pair of 2020 decisions, when the board was controlled by Republicans and found that such severance agreements were not illegal on their face. It continues the labor board’s worker- and union-friendly trajectory under appointees of President Biden.

The earlier decisions held that the severance agreements were illegal only if accompanied by other circumstances making them suspect, such as the possibility that they were being used to cover up the illegal firing of employees who tried to form a union.

Still, Anne Lofaso, a professor of labor law at West Virginia University, said the latest decision was limited to rights under the National Labor Relations Act, such as employees’ rights to draw attention to unsafe working conditions, or to engage in other activities that protect or benefit workers as a group.

She said an employer could still offer workers a severance agreement requiring them to give up their right to sue over, say, race discrimination under the Civil Rights Act of 1964.

In the ruling, issued Tuesday, the board said it was returning to longstanding precedent. The 2020 standard, it said, ignored the fact that a severance package with confidentiality or nondisparagement provisions could on its own “unlawfully restrain and coerce” workers’ labor rights.

“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,” the board’s chairman, Lauren McFerran, said in a statement.

Charlotte Garden, a professor of labor law at the University of Minnesota, said the 2020 approach had effectively tried to “narrow the rule to situations where an employer was trying to cover up their own previous unlawful activity and prohibit employees from talking about it.” The current ruling, she added, takes a broader view of when employees have the right to speak out.

The ruling could have a direct impact on severance agreements that seek to prevent former employees from publicly discussing sexual harassment or sexual assault accusations. The labor board is likely to consider those agreements illegal.

Such agreements were also at odds with labor law at the outset of the #MeToo era in the late 2010s, before the 2020 shift in approach. But many employees covered by those agreements were most likely either unaware that they could challenge them or reluctant to do so because labor board cases often take years to be resolved.

As a result, Professor Garden said, Tuesday’s decision “would need to become part of the public consciousness” in order to meaningfully change employees’ behavior.

The case involved a Michigan hospital that permanently furloughed 11 union members during the pandemic. To receive severance benefits, they were required to sign an agreement that barred them from making statements that could disparage the hospital and from sharing the terms of the agreement.

In furloughing the workers and offering them the agreement, the hospital also bypassed the union, depriving it of a chance to negotiate the terms, according to Tuesday’s ruling.

In his dissent, Marvin Kaplan, the board’s lone Republican, argued that offering the severance agreement was illegal because the hospital circumvented the union, but not specifically because of its nondisclosure and nondisparagement provisions.

Under Mr. Biden’s appointees, the labor board has moved relatively quickly to reinstate workers who it determines have been fired illegally. It has also issued rulings effectively expanding the financial remedies available to such workers and making it easier for a subset of employees within a workplace to unionize.

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