What Happens When Precedent Has a Short Half Life

When are legal precedents not very durable? Often when they are established by the National Labor Relations Board (“NLRB”). Here’s an example that will have widespread impact, far beyond the bounds of employer-union relations, the traditional province of the NLRB.

Following the onset of COVID-19, government-issued regulations prohibited medical providers from performing certain elective and out-patient procedures and barred non-essential employees from working in a hospital. As a result, McLaren Macomb, a Michigan hospital, furloughed 11 employees deemed non-essential. It did so without first notifying their union.

The hospital presented all 11 with severance agreements, offering to pay each a different severance amount. All of them signed. The agreements contained releases of liability as well as broadly worded confidentiality provisions by which the employees were barred from disclosing the terms of the severance agreements and non-disparagement clauses prohibiting them from making “statements to [the hospital’s] employees or to the general public which would disparage or harm the image of [the hospital].”

It turns out that the hospital committed a host of employment practices prohibited by the National Labor Relations Act (“NLRA”), commonly known as unfair labor practices. For example, the hospital permanently furloughed the 11 employees without first notifying their union; it dealt with them directly, not through the union, in connection with the severance agreements. As a consequence, the NLRB ordered that the 11 be reinstated. The NLRB followed well-established precedent in doing so.

Having reinstated the 11, the NLRB could have stopped there. Instead, it went on to reach a conclusion that is certainly the most controversial of its rulings: that the mere proffer of the severance agreements containing the confidentiality and non-disparagement clauses was in and of itself an unfair labor practice, a violation of the employees’ Section 7 rights.

Section 7 of the National Labor Relations Act[1] broadly protects the rights of employees to engage in “concerted activities” when two or more employees take action for their “mutual aid or protection.” This right is afforded to all employees, not just those who are members of unions. Indeed, they need not even work for the same employer.

With one of its four voting members dissenting, the NLRB reasoned that a broad non-disparagement provision in a severance agreement violated the NLRA because “public statements by employees about the workplace are central to the exercise of employee rights under the Act.” Section 7, the NLRB found, protects employees who communicate with third-parties (including on social media) regarding the terms and conditions of their employment, an ongoing labor dispute and even their former coworkers. Thus, conditioning receipt of severance benefits on acceptance of a non-disparagement clause has the effect of chilling the ability of employees to communicate as to the terms of their employment. Likewise, barring disclosure of the terms of the severance agreement was unlawful because it too discouraged the exercise of Section 7 rights.[2]

In ruling as it did, the NLRB overruled decisions it reached just two years earlier,[3] which in turn overruled cases decided as recently as 2018.[4] The speed of these reversals is nothing short of head spinning.

Under what is known as “Chevron deference,” named after the Supreme Court case which established the doctrine,[5] a court will defer to an administrative agency’s interpretation of a statue as to an issue on which the law is silent where the agency’s action was based on a reasonable construction of the law. That standard is pretty permissive, but how does it work where the same agency comes to diametrically opposed interpretations in a matter of a few years? It may seem counterintuitive, but a reviewing court might find both interpretations of Section 7 rights reasonable given that statute’s broad language.

The Supreme Court will probably not sit this one out. When it does have the opportunity, it’s not likely to be as deferential as the Chevron rule would require. The majority of the current justices take a dimmer view of broad administrative interpretations of statutes than their predecessors.[6]

But the prospect of courts’ sorting all of this out—a process which may take years—does nothing to resolve practical difficulties which will surely follow in the wake of the McLaren Macomb decision. Confidentiality and non-disparagement clauses are a common feature of employment agreements, severance agreements and agreements settling employer-employee disputes. They’re practically boilerplate. So how do these recent rulings affect existing contracts, especially those entered into within the NLRB’s six-month statute of limitations?[7] Is it possible to cure the problem by including a disclaimer to the effect that the agreement does not prevent employees from enforcing their rights to free association under the NLRA? Can these agreements be rescinded in part to avoid an unfair labor practice charge? Do you include these clauses in future agreements given the known regulatory risks?

If all of this were not confusing enough, this state of affairs has given rise to concerns of employers and their representatives that the NLRB will also overrule Boeing Co.,[8] in which the Board held that review of a facially neutral work rule, employer policy or employee handbook provision should consider the potential impact of the rule and its legitimate justification. In that case the NLRB overruled a 2004 precedent under which a neutral rule was found impermissible if it could be “reasonably construed” by an employee to discourage the exercise of protected rights.[9] The Boeing rule, many fear, is about to be discarded after just six years.

If you suspect all of this is about politics, and has little to do with what the authors of the NLRA really intended, your suspicions are probably justified. And if you needed more evidence, consider this: the three current members of the NLRB who constituted the majority in the McLaren Macomb case were appointed by President Biden. It also should come as no surprise that the sole dissenter in the case was appointed by President Trump.

A respect for precedent has a long pedigree in the American legal system. In the Federalist No. 78 Alexander Hamilton wrote that it is necessary to maintain respect for the rule of law and prevent the exercise of arbitrary discretion. The NLRB, whatever its composition, pretty obviously does not have much regard for these values. It seems there is a better way to make law.

[1] 29 U.S.C. §157. [2]McLaren Macomb, Case 07-CA, 263041 (Feb. 21, 2023). [3]Baylor Univ. Medical Center, 369 NLRB No. 43 (2020); IGT d/b/a Int’l Game Technology, 370 NLRB No. 50 (2020). [4]Shamrock Foods Co., 366 NLRB 117, enfd. 779 Fed. Appx. 752 (D.C. Cir. 2019). [5]Chevron U.S.A. Inc. the National Resources Defense Counsel, Inc., 467 U.S. 837 (1984). [6] See West Virginia v. Environmental Protection Agency, 142 S. Ct .2587 (2022). [7]29 U.S.C. §160(b). [8] 365 NLRB 154 (2017). [9] Lutheran Heritage Village—Livonia, 343 NLRB 646 (2004).