NLRB Rules Severance Agreement Provisions Are Lawful; Boeing Work Rule Framework Not Applicable
The National Labor Relations Board held that two disputed provisions in the Employer’s severance agreements were not unlawful work rules. The Board reasoned that the agreements were optional and signing was not a condition of continued employment. Additionally, the agreements applied only to post-employment activities, had no impact on terms and conditions of employment, and did not affect pay or benefits accrued during employment.
Background: In Baylor University, the Employer offered voluntary severance agreements to discharged employees. The Board addressed two provisions in the severance agreements. First, the agreement included a “Confidentiality” provision stating that the signatory agreed to keep secret information related to operations, finances, and other information regarding employees. Second, the agreement contained a “No Participation in Claims” clause where the signatory agreed not to pursue, assist, or participate in claims brought by third parties against the Employer. Separating employees were not required to sign the severance agreements. If the separating employees did execute the agreement, however, they would receive severance pay and post-employment benefits to which they would not otherwise be entitled.
Analysis: Under the now familiar Boeing framework, work rules are divided into three categories, depending on whether they (1) are lawful, (2) warrant individualized scrutiny, or (3) are unlawful. An administrative law judge applied Boeing and concluded that the “Confidentiality” and “No Participation in Claims” provisions were unlawful Category 3 work rules.
The Board reversed the judge. Initially, the Board found that Boeing did not apply in this case. Rather, Boeing only applies where an employer allegedly makes or maintains an unlawful work rule. In this case, however, the Board concluded that the severance agreements differ from work rules in two ways. First, the agreement was not mandatory and signing it was not a condition of continued employment; instead, the agreement was optional and applied only in the event of separation. Second, the agreement pertained only to post-employment activities, and had no impact on terms or conditions of the signatory’s employment or benefits accrued during the signatory’s employment that the Employer would have been obligated to pay. Additionally, the proffer of the severance agreement was not unlawful because none of the individuals offered the agreement were unlawfully discharged for conduct protected by the National Labor Relations Act. Nor was the severance agreement offered under circumstances that would tend to infringe upon the employees’ or their coworkers’ right to engage in protected activities.
Lessons for Employers: The takeaway from this case is that the Board will not apply Boeing to severance agreement provisions. Employers are free to condition severance pay and other post-employment benefits to which employees would not otherwise be entitled on separating employees’ agreement to provisions similar to those addressed by the Board in this case. Employers should not, however, condition pay or benefits accrued during an individual’s employment on execution of a severance agreement.