Author: Scott Horton

Scott has been practicing Labor & Employment law in New York for almost 20 years. He has represented over 400 employers and authored 100s of articles and presentations and wrote the book New York Management Law: The Practical Guide to Employment Law for Business Owners and Managers. Nothing on this blog can be considered legal advice. If you want legal advice, you need to retain an attorney.

Severance Agreements

NLRB Deems Many Severance Agreements Unlawful

A February 21, 2023, decision by the National Labor Relations Board found it unlawful for employers to include some routine provisions in severance agreements. NLRB General Counsel Jennifer Abruzzo issued a memorandum dated March 22, 2023, elaborating on her broad interpretation of the ruling. Consequently, employers may now face federal labor law claims if they even offer a severance agreement to an employee that includes previously common restrictions.

McClaren Macomb Decision

In McClaren Macomb, 372 NLRB No. 58, the NLRB found that a hospital committed an unfair labor practice in violation of the National Labor Relations Act merely by offering a severance agreement to 11 permanently furloughed employees. The NLRB deemed the proposed agreements unlawful because they contained these non-disclosure and non-disparagement provisions:

  • “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.”
  • “Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, 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.

The severance agreement also identified penalties if the employee violated those provisions, including paying the employer’s attorneys fees.

The Board held that these provisions unlawfully interfere with employees’ exercise of rights protected by Section 7 of the NLRA. Section 7 rights include protection for employees engaging in concerted activity for their mutual aid and protection. The NLRB emphasized that just offering the agreement was unlawful even though the employees didn’t sign it and thus didn’t become bound by its terms.

General Counsel Memorandum 23-05

General Counsel Abruzzo has already established through earlier actions and memorandums that she has extremely pro-labor views of the NLRA. She demonstrated these sentiments again through this memorandum elaborating on the Board’s McClaren Macomb decision. Though not formally binding, the GC’s memo establishes her prosecutorial viewpoint and puts employers on notice that she will challenge a broad array of severance agreement provisions.

Here are summarized versions GC Abruzzo’s answers to the following questions:

Are severance agreements now banned?

No, as long as they’re limited to a release of the signing employee’s employment claims arising before the date of the agreement. But once seemingly any of the various other common components of severance agreements are added, her view shifts.

Do the circumstances surrounding the severance offer matter?

Probably not, as “an employer can have no legitimate interest in maintaining a facially unlawful provision in a severance agreement.”

What if the employee doesn’t sign the agreement?

As the Board held, it doesn’t matter. “[T]he proffer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights such as the right to engage in future protected concerted activities and the right to file or assist in the investigation and prosecution of charges with the Board.”

What about severance agreements offered to supervisors?

Even these may be unlawful. Typically, the NLRA doesn’t protect “supervisors,” as defined by the law. However, the GC still has a (highly dubious) theory of how offering a severance agreement with prohibited language to a supervisor nonetheless constitutes an unfair labor practice.

How does this affect severance agreements before the February 2023 McClaren Macomb decision?

They could also be challenged. The GC even suggests she could prosecute back beyond the standard 6-month NLRA statute of limitations where the severance agreement provisions have ongoing effect. She notes that the NLRB has “settled cases involving severance agreements which had unlawfully broad terms that chilled the exercise of Section 7 rights by requiring the employer to notify its former employees that the overbroad provisions in their severance agreements no longer applied.” But she does not guarantee that would be the extent of the potential penalties.

Would the entire severance agreement be null and void due to just one overbroad provision?

It depends. The GC suggests the NLRB “generally make[s] decisions based solely on the unlawful provisions and would seek to have those voided out as opposed to the entire agreement, regardless of whether there is a severability clause or not”. She further offers that “while it may not cure a technical violation of an unlawful proffer, employers should consider remedying such violations now by contacting employees subject to severance agreements with overly broad provisions and advising them that the provisions are null and void and that they will not seek to enforce the agreements or pursue any penalties, monetary or otherwise, for breaches of those unlawful provisions.”

Why does the NLRA protect former employees in this situation?

Good question. Because the Board said so. But the GC adds, “In addition, former employees can play an important role in providing evidence to the NLRB and otherwise sharing information about the working conditions they experienced, in a way that constitutes both mutual aid and protection.”

Can the NLRB come between private contracting parties?

Yes, though the General Counsel doesn’t really answer that. Instead, she shifts the focus to the Board’s role “to address the inequality of bargaining power between employees, who do not possess full freedom of association or actual liberty of contract, and their employers . . . .”

What if employees request broad confidentiality or non-disparagement clauses?

They can ask, but the employer can’t provide it. Per the GC, “In that unlikely scenario, I would reiterate that the Board protects public rights that cannot be waived in a manner that prevents future exercise of those rights regardless of who initially raised the issue.” She also notes that unions could not waive these rights on behalf of employees.

What about other forms of employer-employee communications?

Pre-employment agreements or offer letters could be unlawful on the same theories as severance agreements.

Could any confidentiality provision in a severance agreement be lawful?

Yes, but not really. “Confidentiality clauses that are narrowly-tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.” Such restrictions were likely already in place before the severance agreement, which may only be restating them for clarification/reiteration. The typical purpose of a confidentiality agreement in a severance agreement, especially if used to settle a pending claim, is to prevent public dissemination of information related to the employee’s potential claims against the employer. Any such restrictions would now likely violate McClaren Macomb.

Could any non-disparagement provision in a severance agreement be lawful?

Yes, but not really. “[A] narrowly-tailored, justified, non-disparagement provision that is limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful.” That is a non-defamation provision, not a non-disparagement provision. And state laws already protect against defamation, so there’s probably not much to be gained by putting such a clause in a severance agreement–especially at risk that the GC will somehow still find it’s overbroad.

Would a savings clause or disclaimer save overbroad provisions in a severance agreement?

Probably not. The General Counsel might be somewhat persuaded by a very extensive recitation of all possible rights protected by the NLRA and clear language that no such rights are being limited. However, there’s no guarantee that will help, and it’s unlikely many employers would be interested in taking that approach.

Does the GC view any other common severance agreement provisions as problematic?

Yes, of course. In particular, she points to non-compete clauses; no solicitation clauses; no-poaching clauses; broad liability releases and covenants not to sue; and cooperation requirements. There’s hope some of these might be acceptable in some situations, but employers proceed at their own risk.

Employer Response

What does all of this mean? Private companies in the U.S. have reason to fear that the NLRB will object to the severance agreements they’ve regularly used in the past. The same legal issues likely apply to settlement agreements used to resolve pending lawsuits and administrative proceedings.

If you use severance agreements with your separating employees, you should review them and reconsider your approach given these new pronouncements. However, that doesn’t necessarily mean every employer should adopt new agreements that don’t include confidentiality, non-disparagement, and other potentially challengeable provisions. NLRB rulings are not final, and there may be court challenges to the theories applied in McClaren Macomb and by the General Counsel. But it is critical to carefully weigh the risks and rewards of various approaches with the assistance of experienced labor counsel.

 

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Warehouse Worker Protection Act

New York Warehouse Worker Protection Act Amended

The New York Warehouse Worker Protection Act limits employers’ ability to monitor warehouse employees’ productivity using quotas. Covered employers must notify employees in writing of all quotas against which they’re measured and the potential consequences of not meeting them. This new law temporarily took effect on February 19, 2023. As a result of chapter amendments, its implementation will now be delayed until June 19, 2023, with significant changes.

Covered Workplaces

Employers are subject to the Warehouse Worker Protection Act if they employ either:

  • 100 or more employees at a single warehouse distribution center; or
  • 1,000 or more employees at one or more warehouse distribution centers in the State.

“Warehouse distribution center” is defined by reference to applicable North American Industry Classification System (NAICS) codes. Establishments falling under the following NAICS codes are covered:

Employees exempt from New York minimum wage and overtime requirements are not counted in determining coverage. Even if subject to quotas, the provisions of the Warehouse Worker Protection Act don’t apply to them. Drivers and couriers are also excluded from coverage.

“Quotas”

The Warehouse Worker Protection Act defines “quota” as “a work standard” which:

  • an employee is assigned or required to perform: at a specified productivity speed; or a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period; or under which the employee may suffer an adverse employment action if they fail to complete the performance standard; or
  • an employee’s actions are categorized between time performing tasks and not performing tasks, and the employee’s failure to complete a task performance standard or recommendation may have an adverse impact on the employee’s continued employment or the conditions of such employment.

Notice of Quotas

By July 19, 2023 (or, if later, upon hire), covered employers must provide each employee a written description of each quota to which the employee is subject. The description must include:

  • quantified number of tasks to be performed or materials to be produced or handled,
  • specified time period, and
  • any potential adverse employment actions that could result from failure to meet the quota.

If the employer changes any quota, it must provide an updated written description of each quota within two business days of the change.

The written description must be provided in English and the employee’s primary language.

Whenever an employer disciplines an employee for not meeting a quota, it must provide the employee with the applicable quota.

Additional Provisions

The Warehouse Worker Protection Act includes additional parameters related to employee quotas. These restrictions generally prohibit employers from implementing quotas that prevent compliance with meal or rest periods or bathroom use, including reasonable travel time to and from bathroom facilities.

Current employees have the right to request a copy of the written description of their quotas. If a current or former employee believes they have been disciplined for failing to meet a quota or that meeting a quota caused a violation of their right to a meal, rest period, or use of the bathroom, they have the right to request and receive all of the following:

  • written descriptions of each quota to which the employee is subject;
  • the most recent 90 days of the employee’s own work speed data; and
  • the aggregate work speed data for similar employees at the same establishment for the same time period.

Employers must also maintain quota records for three years sufficient to ensure compliance with requests for data.

Companies must provide the requested information “as soon as practicable, but no later than fourteen calendar days from the date of the request.” They may not retaliate against employees for requesting quota information or making a complaint alleging a violation of the Act.

Note that the Warehouse Worker Protection Act confirms that it does not require any employer to use quotas or to create/preserve data if it doesn’t monitor employee performance based on quotas.

Warehouse Employer Action Required

The Warehouse Worker Protection Act could apply to employers across numerous industries, including transportation, logistics, and a broad array of wholesale businesses. If your warehouse operations are large enough to qualify, you must plan to either provide the requisite quota information to employees or decide not to apply productivity quotas. Warehouses that continue to use quotas must be particularly careful to identify all possible consequences to an employee who doesn’t meet their quota and include them in the required written description. Not listing a form of discipline may prevent the employer from implementing it later.

 

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HR Compliance

Tackling HR Compliance for Your Small Business

As an employment lawyer, I spend much of my time communicating with excellent human resources professionals. HR compliance is an underappreciated function in many organizations, though not necessarily by choice. Here are some general observations on how companies can struggle with their human resources practices and when hiring a dedicated HR professional for your growing small business may be a good idea.

Limitations on Good HR Compliance

Human resources compliance refers to the process of ensuring that a company adheres to all relevant laws, regulations, and standards when it comes to managing its employees. Some of the key factors that can impair HR compliance within a company include:

  1. Lack of awareness or understanding of the relevant laws and regulations: Companies may not be aware of all the laws and regulations that apply to their HR practices or may not understand how to comply with these requirements.
  2. Limited resources: Companies may not have the resources or staff required to fully implement HR compliance programs, including the development and implementation of policies and procedures, training and education, and ongoing monitoring and reporting.
  3. Inadequate systems and processes: Companies may not have well-developed systems and processes in place to support HR compliance, including procedures for tracking and reporting incidents, responding to complaints, and conducting investigations.
  4. Resistance to change: Companies may resist change, especially if they have been operating in a particular way for a long time. This resistance may create delays in adopting new HR compliance practices or changing established processes.

How Can You Improve Your HR Compliance?

To overcome these challenges, companies can take several steps to improve their HR compliance, including:

  1. Conducting a comprehensive review of their HR practices and policies to identify potential risks or areas for improvement.
  2. Establishing clear policies and procedures to ensure that all HR practices comply with the relevant laws and regulations.
  3. Providing training and education to employees on the relevant laws and regulations and the company’s policies and procedures.
  4. Implementing systems and processes to track and report incidents and respond to complaints and investigations.
  5. Involving employees in improving HR compliance by seeking their feedback and suggestions and involving them, as appropriate, in the development and implementation of new policies and procedures.

Hiring Your First HR Professional

As your company grows, you must ensure that you have the right resources and support to manage your workforce effectively. One of the critical decisions you’ll need to make as you grow is when and how to hire your first HR professional.

How Many Employees?

There’s no one-size-fits-all answer to when it’s time to hire your first HR professional, as it will depend on the size and needs of your company. There is no specific number of employees a company must have before hiring a dedicated HR staff member. However, as a company grows and the number of employees increases, the need for HR support also increases, because HR plays a critical role in managing and supporting a company’s most valuable asset, its people.

For smaller companies with fewer than 50 employees, it may be reasonable to assign HR responsibilities to a manager or administrative staff member with other duties. However, as the company grows and the number of employees increases, the need for specialized HR support also increases, and it may be more cost-effective to hire a dedicated HR professional.

Ultimately, the decision to hire an HR professional should be based on the company’s specific needs and resources, as well as its plans for future growth.

Additional Factors

Here are a few key indicators that it may be time to bring in an HR professional:

  1. Your company is growing rapidly: As your company grows, so does the complexity of managing your workforce. You may struggle to keep up with increasing HR-related tasks and responsibilities.
  2. You’re spending too much time on HR tasks: If you’re spending an increasing amount of time on HR-related tasks, such as recruiting and onboarding new employees, it may be time to bring in an HR professional to help lighten the load.
  3. Your company is facing HR challenges: If your company is facing personnel difficulties, such as high turnover, disputes with employees, or legal compliance issues, you may need to bring in an HR professional who can help you resolve these challenges and prevent them from recurring in the future.

How to Hire Your First HR Professional

Once you’ve decided that it’s time to hire your first HR professional, consider taking the following steps to ensure that you find the right candidate:

  1. Define the role: Clearly define the role and responsibilities of the HR professional you’re looking to hire. This step will help you ensure that you understand clearly what you need from the person you bring on board and then attract suitable candidates for that position.
  2. Create a job description: Write a comprehensive job description that includes the key responsibilities, qualifications, and experience that you’re looking for in a candidate. This will help you attract the right candidates and enable them to understand what the position demands.
  3. Utilize your network: Leverage your professional network to find potential candidates. Ask for referrals from colleagues, business partners, and friends, and consider reaching out to HR professionals with whom you’ve worked in the past.
  4. Offer competitive compensation: Be sure to offer a competitive compensation package that includes a salary, benefits, and any other perks that are important to you and candidates at the level you’re seeking.

Don’t Stop Improving

Whether you’ve hired the first or tenth member of your human resources department, there’s always room to improve your company’s HR compliance. You can review and repeat many of the steps above to continue to make strides in this area. Of course, the applicable laws and regulations of the workplace will also continue to develop. So make sure your human resources team subscribes to our newsletter to receive important updates in this area.