LATEST NEWS
NLRB Decision Upends the Legality of Severance Agreements Containing Confidentiality and Non-disparagement Provisions
February 26, 2023
Last week, the National Labor Relations Board (NLRB) issued a tide-turning decision in McClaren Macomb finding that severance agreements are unlawful if they broadly restrict an employee’s right to discuss the agreement (confidentiality) or speak negatively about their former employer (non-disparagement). Specifically, the NLRB held that a severance agreement containing broadly-drafted confidentiality and/or non-disparagement provisions is unlawful because such terms tend to interfere with workers’ organizing rights under Section 7 of the National Labor Relations Act (NLRA). The McClaren decision applies to both unionized and non-union private workplaces.
It is important to note that this decision does not affect workers who do not have Section 7 rights, including independent contractors, managers, most supervisors, and public sector employees, among others.
In light of this sweeping decision, private employers who utilize standard severance agreements containing confidentiality and/or non-disparagement provisions need to closely examine the language of those provisions. Here are a few things for employers to keep in mind:
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Even if you haven’t sought to enforce a confidentiality or non-disparagement provision in a severance agreement, the agreement may still violate Section 7. McClaren held that merely “proffering” a severance agreement containing such overly-restrictive provisions constitutes an unlawful labor practice, because the act of conditioning receipt of benefits on the acceptance of what it considered to be unlawful terms waiving organizing rights was deemed coercive in and of itself.
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It is possible, but not definite, that a severance agreement containing confidentiality and non-disparagement provisions could still be legal if those provisions are sufficiently narrowed and/or contain a disclaimer preserving the employee’s Section 7 rights. The confidentiality and non-disparagement provisions in the McClaren case were drafted broadly, and neither were accompanied by a disclaimer stating these provisions do not prevent the employee from enforcing their Section 7 rights. While the decision did not directly state that such a disclaimer could have saved these provisions, it does leave the door cracked to the possibility that such a disclaimer, if carefully drafted, might allow the inclusion of non-disparagement and confidentiality provisions. The question is, would such disclaimers need to be so broad that they would essentially render the confidentiality and non-disparagement provisions practically unenforceable. Similarly, any narrowing of such provisions would likely need to be so limiting as to obviate the employer’s purpose for including them – for instance, the McClaren decision found that a confidentiality clause prohibiting disclosure to any third party, which would include the employee’s labor union and former co-workers was unlawfully restrictive.
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Existing severance agreements containing confidentiality and non-disparagement provisions, while not specifically excluded from the McClaren decision’s coverage, are unlikely to be invalidated by it. Mainly, this is because the NLRB’s procedural rules effectively bar workers from bringing charges unless they relate back to a violation occurring within the past six months. Additionally, it is reasonable to assume that if a severance agreement took effect at a time when confidentiality and non-disparagement provisions were allowed, the employer would have a valid defense to any complaint seeking retroactive application of the new restriction on such provisions.
Given all of the above, and in the absence of further guidance from the NLRB’s General Counsel (which we expect to follow in the coming months), there is no definite answer to the dilemma the McClaren decision raises for employers. As to a severance agreement presented to any employees who have Section 7 rights, employers may take a number of approaches:
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Risk-averse employers who do not want to take any chances with a possible NLRA violation may decide to immediately stop including confidentiality and non-disparagement provisions in their severance agreements.
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Others may decide to keep such provisions in but narrow them as much as possible and add strong disclaimer language.
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Still others may decide to keep their broad confidentiality and non-disparagement provisions as-is, at least until further guidance is issued, given the deterrent value of such provisions and the unlikelihood of the employee to bring a complaint that could disgorge their severance benefits.
Yeng Collins Law will continue to monitor the impact of the McLaren decision as it unfolds and as further guidance is issued and will provide updates as needed. In the meantime, if you have questions, we are available to provide advice that will best position you on this still-uneven ground.
Untold Tales: Q4 2022 Legal Developments We Did NOT Blog About
January 24, 2023
As we wade into 2023 (hard to believe January is almost over!), we’d like to take note of a few legal developments that occurred in the fourth quarter of last year that we haven’t yet shared with you:
The Fourth Circuit Held that Gender Dysphoria Is Covered by the ADA
Employers in Virginia should know that they will not only be navigating Title VII when dealing with transgender employees, but also potentially requests for accommodation under the Americans with Disabilities Act (ADA), based on the Fourth Circuit’s decision in Williams v. Kincaid. Although the case was decided in August 2022, it was cemented as Fourth Circuit law when a full panel rehearing was denied in October.
The Williams case holds that transgender people who experience gender dysphoria that results in physical distress or requires the use of a physical treatment are protected under the ADA.
New Proposed DOL Independent Contractor Test
On October 13, 2022, the Department of Labor issued a proposed new rule establishing the test for when employers may properly classify workers as independent contractors rather than employees. The proposed rule, which is very similar to the Obama-era test, focuses on the “economic realities of the workers’ relationship with the employer,” and frames a worker’s economic dependence on their employer as the “ultimate inquiry” for the test. If it takes effect, the new rule would entirely replace the current rule, which was issued in the last days of the Trump administration.
Independent contractors are paid on an hourly or per-project basis and are not entitled to healthcare benefits, retirement benefits or most labor protections. However, the rise of the gig economy has created a class of worker that effectively works full time for a company but is still considered an independent contractor. The proposed rule would likely change that, providing these workers with benefits and labor protections under federal law.
Speak Out Act
The Speak Out Act, signed into law by President Biden on Dec. 7, 2022, makes pre-dispute nondisclosure and non-disparagement clauses in employment contracts or severance agreements unenforceable with respect to claims or allegations of sexual assault and sexual harassment.
In practical terms, this means that prospective non-disclose agreements between employees and employers that include restrictions on disclosing sexual misconduct are no longer enforceable. Similarly, prospective non-disparagement clauses prohibiting employees from speaking negatively about the employer or other employees are unenforceable. Such clauses would also be unenforceable in severance agreements, provided the separation was not prompted by allegations of sexual assault or harassment.
Employers wishing to include non-disclosure and non-disparagement clauses in their employment agreements may still do so with respect to other topics, provided they carve out sexual assault and sexual misconduct.
Because it only applies to pre-dispute clauses, the Speak Out Act does not prohibit employers who are settling claims alleging sexual assault or sexual harassment from negotiating for and enforcing non-disclosure and non-disparagement clauses in the applicable settlement agreements. Indeed, these clauses are often critical in getting such disputes resolved.
Proposed FTC Rule Would Make Non-Competes a No-Go
January 10, 2023
On January 5, 2023, the Federal Trade Commission (FTC) proposed a sweeping rule that would:
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ban employers and workers from entering future non-compete agreements (except in limited circumstances in connection with the sale of business); and
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invalidate existing non-compete agreements between employers and their current and former workers.
If the rule takes effect, it would deem non-competes between employers and workers “an unfair method of competition” prohibited by Section 5 of the FTC Act.
In support of the proposed rule, the FTC argues that noncompete clauses “hinder innovation and business dynamism in multiple ways – from preventing would-be entrepreneurs from forming competing businesses, to inhibiting workers from bringing innovative ideas to new companies.” But the U.S. Chamber of Commerce calls the proposed rule a “blatantly unlawful” restriction on the right of employers and employees to contract freely.
As of July 1, 2020, Virginia law bars employers from entering and enforcing non-competes with “low-wage employees” (currently, those making less than $67, 080 annually). However, the use of non-compete agreements by Virginia employers continues to be commonplace for higher-paid workers, including independent contractors. The FTC proposed rule would upend this status quo, preventing employers from entering into non-compete clauses with workers at all pay levels. Additionally, unlike the Virginia prohibition on non-competes for low wage earners, which grandfathers all agreements made before July 1, 2020, the FTC rule would require employers to rescind all existing non-compete agreements with workers. Furthermore, because the rule applies to “workers” and not just “employees,” it is written to include independent contractors.
Once the FTC publishes the proposed rule in the Federal Register, it will allow a 60-day public comment period. It can then finalize the rule based on input received. As currently drafted, once finalized and published, the rule would require employers to comply within 180 days. However, enforcement of any final rule could be delayed or prevented entirely by legal challenges.
For now, employers should carefully examine their current reliance on non-compete agreements and consider a tentative plan for implementing less restrictive covenants, such as non-disclosure agreements and non-solicitation agreements, that would achieve many of the same objectives as a non-compete while remaining enforceable in the event the rule, or a modified but similar version thereof, takes effect. On the other hand, employees whose ability to move jobs within their industry in the next few years is curtailed by a non-compete agreement should monitor the progress of this proposed rule closely and may wish to seek legal counsel now regarding the current limits and enforceability of their agreement.
Virginia Overtime Wage Act Creates Substantial Exposure for Employers and Greater Availability of Damages for Employees
June 21, 2021
The new Virginia Overtime Wage Act (VOWA) will go into effect July 1, 2021, and similar to the federal Fair Labor Standards Act (FLSA), the VOWA requires employers to pay nonexempt workers overtime at a rate of one-and-a-half times their regular rate of pay for any hours worked over 40 hours in a single workweek.
The VOWA is more favorable to employees than the FLSA in three notable respects:
(1) The VOWA has a 3 year statute of limitations, whereas the FLSA has a 2 year statute of limitations, with a 3 year statute of limitations only available if the employee can prove the violation was willful.
(2) The VOWA provides for greater remedies than the FLSA. The VOWA makes liquidated damages automatic, whereas the FLSA provides employers with a good faith defense against liquidated damages. Additionally, the VOWA allows for treble damages for "knowingly" failing to comply, however, those damages are not available under the FLSA.
(3) As to nonexempt salaried workers, the VOWA calculates the worker's regular rate of pay as one-fortieth of all wages paid for a particular week (regardless of the number of hours worked) and requires time-and-a-half overtime pay, whereas the FLSA calculates the worker's regular rate of pay by dividing the salary by the total number of hours worked and allows overtime pay as half-time only.
Fluctuating workweeks likely do not comply with the VOWA, and any piece rate and day rate arrangements should be reevaluated to ensure compliance with the VOWA. There are exemption defenses available to employers for employees that are executive, administrative, professional or outside sales, among others. The VOWA also expressly authorizes collective actions.
CDC Updates Recommended Isolation and Quarantine Guidance
January 5, 2022
On January 4, 2022, the CDC updated it's recommended isolation and quarantine guidance.
If your employee has been in close contact with someone who has tested positive for COVID-19:
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OPTION 1: If the employee is fully vaccinated, he/she does not need to quarantine. The employee should still:
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(1) wear a mask around others for 10 days from the date of his/her last close contact, and
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(2) get tested at least 5 days after the last close contact. If the test is positive, or if he/she develops COVID-19 symptoms, the employee should isolate for 5 days, then wear a mask around others for an additional 5 days. If the test is negative, the employee can return to work but should wear a mask around others until 10 days from the date of the last close contact.
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OPTION 2: If the employee (a) had confirmed COVID-19 within the last 90 days, (b) has recovered, and (c) is not experiencing any COVID-19 symptoms, the employee does not need to quarantine or get tested after the close contact. The employee should wear a mask around others for 10 days from the date of the last close contact.
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OPTION 3: If the employee is not vaccinated or is not fully vaccinated, he/she should:
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(1) quarantine for at least 5 days from the last close contact, and
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(2) get tested:
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(i) at least 5 days after the last contact, if there are no symptoms. If the employee tests negative, he/she can return to work but should wear a mask around others until 10 days after the last close contact. If the employee tests positive, he/she should isolate for 5 days from the positive test result, then wear a mask around others for an additional 5 days; or
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(ii) immediately if symptoms develop. The employee should isolate for at least 5 days from the date the symptoms began, then wear a mask around others for an additional 5 days.
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If the employee does not want to be tested or cannot locate a test, he/she should quarantine for 5 days from the last close contact and, if no symptoms develop, can return to work but should wear a mask for 10 days after the last close contact.
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Paycheck Protection Program Extension Act of 2021 Extends the Program until May 31, 2021
April 6, 2021
Businesses can now apply for a PPP loan until May 31, 2021, with an additional thirty (30) days provided for the Small Business Administration to process applications that are still pending.
Extended COVID-19 Related Leave Provisions Provided For Under the American Rescue Plan Act of 2021
March 16, 2021
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the Plan), which expanded the availability of paid leave previously provided through the Families First Coronavirus Relief Act (FFCRA). The Plan allows an employer to voluntarily provide Emergency Sick Leave (ESL) and Emergency Family and Medical Leave Act Leave (EFMLA), and to claim the related tax credit for the wages associated with the use of that leave, between April 1, 2021 through September 30, 2021.
The FFCRA provided for paid leave for these qualifying reasons:
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to comply with a federal, state, or local quarantine or isolation order related to COVID-19;
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to self-quarantine if advised to do so by a healthcare provider;
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to obtain a medical diagnosis if experiencing COVID-19 symptoms;
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to care for an individual required to be quarantined if that individual is subject to a quarantine or isolation order or has been advised by a medical provider to self-quarantine; or
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to care for your child if the child's school or child care center is closed due to COVID-19.
The Plan now allows the 10 days of paid leave under the ESL and the 12 weeks of paid leave under the EFMLA to also be used for these additional qualifying reasons:
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obtaining a COVID-19 vaccine;
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recovering from an injury, disability, illness or condition related to a COVID-19 vaccination; or
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seeking or awaiting results of a COVID-19 test or diagnosis either because the employee has been exposed or the employer requested the test or diagnosis.
Beginning April 1, 2021, employees have access to a new bank of 10 days of ESL and are therefore eligible for this leave even if they have previously taken 10 days of paid leave under the ESL.
The first two weeks of the EFMLA no longer need to be unpaid.
U.S. Department of Labor Delays Effective Date of New Tip Pool and Tip Credit Regulations
March 1, 2021
On February 24, 2021, the U.S. DOL announced it would delay until April 30th the implementation of the tip pool and tip credit regulations that were set to go into effect on March 1st. The new regulations would allow non-tipped employees to be paid as little as $2.13/hr and be included in a tip pool to receive tips that would compensate them up to the higher minimum wage. These regulations would also remove limits on how many hours of non-tipped work a tipped employee can perform while being paid at a rate of $2.13/hr. Finally, the regulations include new recordkeeping and notice requirements for employers. It is anticipated that these regulations will assist employers in the service industry struggling during the COVID-19 pandemic.
Robust Avenue to Recover Unpaid Wages Under the Virginia Wage Payment Act
March 1, 2021
Employees in Virginia can now file suit in state court to recover unpaid wages, bonuses and commissions. If successful, the employee could recover not only the unpaid wages, but also liquidated damages (up to three times the amount of unpaid wages for knowing violations), prejudgment interest, and reasonable attorneys' fees and costs. An employer acts knowingly if it has actual knowledge, deliberately ignores the truth or recklessly disregards the truth.