NLRB takes aim at confidentiality and nondisparagement clauses in separation agreements

On February 21, 2023, the NLRB issued its opinion in McLaren Macomb and corresponding press release, Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights.

The case involved the following provisions in separation agreements offered to 11 permanently furloughed bargaining unit employees:

6. Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction. 

7. Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose in- formation, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. 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 Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

Uhhhh, you mean totally normal, standard boilerplate, confidentiality and nondisclosure/

Not official use.

nondisparagement provisions that you'd find it just about any separation agreement? Yes, those. 

Welp, the NLRB takes issue with these clauses, concluding:

[T]he nondisparagement and confidentiality provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights. Because the agreement conditioned the receipt of severance benefits on the employees’ acceptance of those unlawful provi- sions, we find that the Respondent’s proffer of the agreement to employees violated Section 8(a)(1) of the Act.

In layman's terms, the employees were offered benefits in exchange for giving up their rights to discuss the terms and conditions of employment with their former colleagues and to publicly protest the conditions. The NLRB has concluded that even offering such a deal is a violation of the NLRA. 

Should you abandon such boilerplate clauses? Not so fast! First, not all workers are covered by the NLRA (state employees, supervisors, independent contractors, etc.). Second, the courts might have something to say about this ruling. Third, you can draft the clauses to carve out certain protected activity (which substantially reduces the effectiveness of the clauses, but may save an employer from the NLRB's wrath).  

SCOTUS: Day Rate does not meet salary basis requirement

I'm not sure how this is possible, but I tend to agree with the majority and both dissents in the latest Supreme Court decision. Yesterday, SCOTUS issued its opinion in Helix Energy Solutions Group, Inc. v. Hewitt. 

The case dealt with a highly compensated employee who earned over $200,000 annually and performed executive duties. The employer treated him as an exempt employee and did not pay him overtime. The employee, however, was paid a daily rate of $963 (which changed at one point to $1,341). 

The "critical question," according to the majority, was whether this daily rate met the "salary basis test" - to be an exempt employee under the white collar (and corresponding highly compensated employee) exemptions, an employee must be paid on a salary basis. Per the FLSA regs:

Justice Kagan

An employee will be considered to be paid on a ‘salary basis’ . . . if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.”

29 CFR §541.602(a). 

Ultimately, the majority (opinion by Justice Kagan) reached the rather uncontroversial conclusion that paying someone a set rate "per day" does not meet the requirement that they be paid a weekly salary. 

Justice Gorsuch, however, had a rather compelling dissent noting that SCOTUS granted certiorari to decide a totally different question (and the briefs barely touched on the majority's "critical question") - he would have dismissed the case as improvidently granted. 

Justices Kavanaugh and Alito likewise make a compelling argument based on the actual facts of this particular employee. Here, the employee was paid more (at least $963) than the weekly salary requirement  (then $455) for any day he worked. Thus, any week in which he worked he would necessarily be guaranteed an amount in excess of the salary requirement for that week. Indeed, "this case would be different if Hewitt had been guaranteed, say, only $250 per day that he worked."

Pennsylvania regs expand antidiscrimination law definition of "sex"

Last time, I wrote about the new regs regarding race discrimination under the Pennsylvania Human Relations Act (PHRA) (and the housing and public accommodations provisions). Guess what? The new regs also address "sex."

You can read the full regs here. Under the new regulations, the term "sex" now includes:

• Pregnancy, including "the use of assisted reproductive technology; the state of being in gestation; childbirth; breastfeeding; the postpartum period after childbirth; and medical conditions related to pregnancy";
• Sex assigned at birth;
• Gender Identity or expression;
• "Affectional or sexual orientation," defined as "male, female, or nonbinarv heterosexuality, homosexuality, bisexuality, or asexuality by inclination, practice. identity, or expression, having a history thereof, or being perceived, presumed, or identified by others as having such an orientation"; and
• "Differences of sex development, variations of sex characteristics, or other intersex characteristics."

Pennsylvania expands definition of "race" in anti-discrimination law

Pennsylvania’s Independent Regulatory Review Commission approved changes to the regulations defining "race" in Pennsylvania's workplace anti-discrimination law, the Pennsylvania Human Relations Act (PHRA). The changes will also impact housing and public accommodations provision, but this is an employment law blog, soooo. Also note that additional changes address sex and sexual orientation, and religious creeds, but more on that later this week...

You can read the actual proposal here. Most notably, the regulations prohibit discrimination on the basis of "ethnic characteristics," "traits associated with race," and "interracial marriage and association."

"Traits associated with race" include "hair texture and protective hairstyles, such as braids, locks, and twists."

"Ethnic characteristics" include "physical characteristics such as skin and hair color, body size, and facial features typical of persons of a particular cultural or social background: linguistic characteristics such as language or dialect; behavioral or cultural characteristics such as religion or customs: environmental characteristics such as living in the same area or region."

Just for good measure, they also threw in, "Hispanic ancestry, national origin, or ethnic characteristics, including, but not limited to, persons of Mexican, Puerto Rican, Central or South American, or other Spanish origin or culture."

FTC to ban most noncompetes

Boy, that escalated quickly! On Wednesday, the Federal Trade Commission (FTC) issued a news release on its first lawsuits to halt enforcement of allegedly unlawful noncompetes. Yesterday, the FTC announced that it plans to ban (almost) all noncompetes. 

You can read the proposed rule here. Some points of interest:

• Whether a contract is covered by the prohibition hinges on a "functional test" that looks at whether a contract clause "has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer."

• 
  The definition of noncompete generally does not include non-disclosure agreements, non-solicitation agreements, or training reimbursement agreements - but they might be banned if they meet the functional test above);

• The noncompete prohibition would apply to "workers," defined broadly to include employees, volunteers, inters, independent contractors, etc.;

• Employers must rescind existing noncompetes, including notice to the employee (or covered former employee) that the noncompete is "no longer in effect and may not be enforced." This must be done in writing (paper or electronic), and the rule includes model language;

• The rule does not apply to noncompetes entered into by a person selling all or substantially all of a business entity or its operating assets. 

Don't panic yet! This is just a proposed rule and it will be a little while before a final rule is published, if at all. It will almost certainly afford employees some time period in which to come into compliance. That said, employers may want to think long and hard about shelling out a bunch of money to entice an employee into signing a noncompete that may be invalid in a few months.  

If you're a real glutton for punishment, you can read the full Non-Compete Clause Rule Notice of Proposed Rulemaking here. 

FTC enters the noncompete wars

Yesterday, the Federal Trade Commission (FTC) issued a news release: FTC Cracks Down on Companies That Impose Harmful Noncompete Restrictions on Thousands of Workers. This marks "the first time that the agency has sued to halt unlawful noncompete restrictions." So, why has the FTC entered into an area that is primarily governed by state contract (and public policy) law?

The news release primarily points to the standard public policy considerations that already make noncompetes "disfavored" in Pennsylvania - they harm employees by limiting their ability to seek new employment (sometimes with higher wages or better conditions) and prevent businesses from acquiring new talent to compete. That said, noncompetes are still generally enforceable so long as they are tied to a legitimate p[rotectable business interest and reasonably limited in terms of  scope, geographic area, and time. 

Not official use.

The FTC claims that the noncompetes in question "constituted an unfair method of competition under Section 5 of the FTC Act." One of the cases focused primarily on lower wage security guards. Some of the specific factors highlighted by the FTC, include:

• Hourly wage employees earning at or near minimum wage;
• High penalties for breach, including a $100,000 penalty in the employer's standard agreement;
• A fairly large 100-mile radius (what constitutes a reasonable geographic limitation will vary a lot depending on the circumstances); and
• Efforts to enforce the noncompetes through litigation to prevent employees from seeking higher wages at competitors (by suing both the employees and the competitors).

Another case dealt with glass manufacturers. The employer locked down more than 1,000 employees with noncompetes. The contracts covered the whole United States for one year, and banned workers from having any involvement with a business that sold similar products or services. 

The third case dealt with a manufacturer of glass food and beverage containers. The company had 700 employees with noncompetes, who could not provide "same or substantially similar services" anywhere in the U.S., Canada, or Mexico for a period of two years to any business "involved with or that supports the sale, design, development, manufacture, or production of glass containers."

Enforcing noncompetes was complicated enough under state law. Now, employers have to consider whether an enforcement action will draw fire from the FTC. 

NLRB, Privacy, and Electronic Surveillance

NLRB General Counsel Issues Memo on Unlawful Electronic Surveillance and Automated Management Practices - you can read the memo here. 

Advances in technology, and the proliferation of remote work tools have led to a ton of employer electronic surveillance:

For instance, some employers record workers’ conversations and track their movements using wearable devices, cameras, radio-frequency identification badges and GPS tracking devices.  And some employers monitor employees’ computers with keyloggers and software that takes screenshots, webcam photos, or audio recordings throughout the day.

For the most part, employers may monitor their employees for productivity, attendance, etc. Surveillance does, however, present a few NLRA concerns. 

For example, as the memo notes:

Not official use.

• Photographing employees engaged in protected activity (e.g., picketing, handbilling) may chill such activity. Such surveillance may violate the NLRA "absent proper justification."
• "[I]t is well established that an employer violates Section 8(a)(1) if it institutes new monitoring technologies in response to activity protected by Section 7; utilizes technologies already in place for the purpose of discovering that activity, including by reviewing security-camera footage or employees’ social-media accounts; or creates the impression that it is doing such things."
• Employers may not discipline or terminate employees who engage in protected concerted activity to protest surveillance. 

So, what's new? Well, the NLRB General Counsel is recommending a new framework with two main components:

1. The employer would presumptively violate the NLRA where "the employer’s surveillance and management practices, viewed as a whole, would tend to interfere with or prevent a reasonable employee from engaging in activity protected by the Act." The employer then bears the burden of establishing "that the practices at issue are narrowly tailored to address a legitimate business need—i.e., that its need cannot be met through means less damaging to employee rights." Even then, the NLRB would still "balance the respective interests of the employer and the employees to determine whether the Act permits the employer’s practices."

2. If the employer somehow runs the gauntlet in No. 1, then it would still be required to disclose "the technologies it uses to monitor and manage [the employees], its reasons for doing so, and how it is using the information it obtains" (unless the employer shows that "special circumstances require covert use of the technologies"). 

Is this one of the NLRB's New Year's resolutions? I guess we'll find out soon enough.