No Silence for Severance: NLRB Finds Unlawful Overbroad Non-Disparagement and Confidentiality Provisions of Severance Agreements

In an unsurprising move, the National Labor Relations Board (NLRB) has reinstated its prior precedent that employers may not offer non-management employees severance agreements that prohibit employees from making disparaging remarks about the company or disclosing the terms of the agreement.

The NLRB’s recent decision in McLaren Macomb has rendered unlawful the offering of severance agreements that “broadly require” the employee to whom it was proffered “to waive certain Section 7 [of the National Labor Relation Act] rights.” Critically, an agreement may be found to be unlawful upon the offer of the agreement (prior to execution) and irrespective of whether the employer engages in any actions to enforce such an agreement.

By way of general background, Section 7 of the National Labor Relations Act (NLRA) guarantees employees the right to organize, bargain collectively or other concerted activities for their mutual aid or protection as well as the right to refrain from such activities. Section 8 of the NLRA prohibits employers from interfering, restraining or coercing employees from exercising their Section 7 rights. Notably, Section 7 covers most private sector employees but generally does not cover government employees, agricultural laborers, independent contractors and supervisors.

In McLaren Macomb, the Board examined the non-disparagement and confidentiality provisions of a severance agreement offered to 11 furloughed hospital employees. With respect to the non-disparagement provision, the Board concluded that it interfered with employees' Section 7 rights “on its face” by prohibiting employees from making any statements which could “disparage or harm” the employer. This “far reaching proscription,” the Board found, could “encompass employee conduct regarding any labor issue, dispute or term and condition” in express violation of Section 8. Moreover, the Board found it problematic that the provision had no time limit.

For similar reasons, the Board concluded that the agreement’s confidentiality provision impermissibly infringed on employees’ Section 7 rights because its breadth could potentially prohibit the employee from discussing any illegal provisions of the agreement, including reporting such an unfair labor practice to the Board and discussing it with other co-workers.

Practically speaking, without further guidance from the Board, it is difficult to ascertain precisely how to craft enforceable non-disparagement and confidentiality provisions. However, the inclusion of disclaimers specifically allowing employees to exercise their Section 7 rights and participate in other related investigations and activities may help with enforceability. In addition, incorporating a limitation on time may also ease the Board’s concerns. It is unclear if the decision applies to severance agreements that have already been executed, but it seems unlikely given the Board’s own statute of limitations for pursuing claims (generally within six months of the violation) and the arguably inequitable nature of retroactive application.  


Working Overtime: Highly-paid daily-rate workers are entitled to overtime pay

The Supreme Court has ruled that a highly-paid worker earning more than $200,000 per year is entitled to overtime pay because he was paid solely on a daily-rate basis and was thus non-exempt under the Fair Labor Standards Act (FLSA).

In Helix Energy Solutions Group v. Hewitt, a 6-3 opinion authored by Justice Kagan, the Court addressed the question of whether a highly-compensated employee paid a guaranteed daily rate is paid on a “salary basis,” and is exempt from the overtime requirements of FLSA. The Court found that such compensation did not qualify as a salary for purposes of FLSA and the employee was entitled to overtime. 

The employee at the center of the case was Michael Hewitt, a “tool pusher” working for Helix Energy Solutions Group on an offshore oil rig. Hewitt reported to the rig’s captain and oversaw 12-14 workers. He typically worked 84 hours per week, seven days a week for a 28-day “hitch,” after which he had 28 days off. Hewitt was compensated on a daily-rate basis with no overtime. The daily rate ranged from $963 to $1,341. Under this compensation scheme, he earned more than $200,000 annually.

Hewitt brought suit under FLSA for his unpaid overtime. Helix asserted Hewitt was not entitled to overtime because he was a “bona fide executive, administrative, or professional” (EAP) employee and was thus exempt from FLSA’s overtime requirements. The Department of Labor defines an EAP as an employee who is 1) paid on a salary basis, 2) at or above a certain threshold ($455 per week at the time of this case), and 3) performs at least one duty that is executive, administrative, or professional. Here, the parties agreed that Hewitt met the last two factors, leaving only the question of whether he was paid on a salary basis.

Undertaking an in-depth analysis of FLSA’s definition of “salary basis,” the Court ultimately concluded that to qualify as being paid on a “salary basis,” an employee must be paid a guaranteed rate by the week or longer. The Act defines “salary” as a “predetermined amount,” which must be paid “without regard to the number of days or hours worked.” The Court found that “by definition,” a daily-rate worker is “paid for each day he works and no others,” rendering him non-exempt under the Act. The Court found that Helix could come into compliance by adding a weekly guaranteed rate or paying Hewitt a weekly salary, but that the company’s current structure (though generous) violated FLSA.

Practically speaking, this decision will primarily impact industries such as energy and health care (nursing associations filed amicus briefs in support of Hewitt). However, all employers should be aware that a highly-compensated employee paid on a per-day or per-shift basis is not exempt from FLSA’s stringent overtime requirements. When classifying an employee as exempt, employers must be cognizant of the three factors set forth by the Department of Labor, which are highly technical and fact specific. Moreover, a mis-qualification can result in significant back pay and liquidated damages against an employer. If there is any question about the classification of a given employee, it is advisable to consult counsel.

Hot Tip: Employers in Nevada should not withhold tips to compensate for drawer shortages

Employers in the Nevada’s service and gaming industries are constantly faced with the conundrum of how to address employee cash-drawer shortages. Such shortages impact an employer’s bottom line, and an employer’s first response is often to have employees make up such shortages from their tips or wages. However, employers should never withhold an employee’s tips and should be wary when garnishing wages to make up for drawer shortages.

Nevada law prohibits taking “all or part of any tips or gratuities bestowed upon employees…” See NRS 608.160(1). There are currently no exceptions to this law; however, NRS 608.110(1) permits withholding from wages or other deductions that are authorized in writing by the employee. Thus, payroll deductions are likely permissible as long as the deduction is authorized by the employee in writing during the pay period in which it is made and the deduction does not result in the employee being paid less than minimum wage for that pay period (in Nevada $10.50) or cut into any overtime the employee is owed. Note that the Nevada Supreme Court has specifically found that advance written authorization is insufficient; the written authorization must be obtained at the time of the withholding. See Coast Hotels & Casinos, Inc. v. Nevada State Lab. Comm'n, 117 Nev. 835, 842 (2001). Consult with counsel in drafting a policy on wage deductions for drawer shortages.