It’s Time to Update Your Organization’s Employment Agreements and Policies

In recent years, courts, legislatures and government agencies have been busy scrutinizing the enforceability of employment agreements and policies, most notably severance agreements, restrictive covenant agreements, and arbitration agreements.  The result has been a disruption of long-standing legal principles that have guided the drafting of these policies and agreements.  Here’s what you need to know.     

Severance Agreements

On February 21, 2023, the National Labor Relations Board issued a decision, McLaren Macomb, that significantly restricts an employer’s right to present employees with or enforce severance agreements that contain provisions preventing employees from discussing the terms of the agreement (“confidentiality provisions”) or making any statement that is disparaging of the employer (“non-disparagement provisions”). The Board found that these types of provisions are typically drafted so broadly that they tend to “chill” the exercise of employees’ rights to collectively band together in an effort to improve working conditions (also known as NLRA Section 7 rights). 

A few key takeaways from the decision:

  • It applies to both unionized and non-unionized workplaces and to both current and former employees
  • It does not apply to most supervisors/managers, or public sector employees  
  • The mere presentation of an agreement that includes an overly broad confidentiality or non-disclosure provision is an unlawful act
  • A “narrowly tailored” confidentiality and non-disparagement provision, coupled with a comprehensive disclaimer making it clear Section 7 rights are protected, may survive legal scrutiny under this decision; unfortunately, the Board did not describe what a “narrowly tailored” provision looks like
  • This decision is a harbinger of the NLRB taking a more aggressive role in striking down all workplace policies and agreements that the Board deems to have a reasonable tendency to interfere with, restrain or coerce employees in the exercise of their Section 7 rights

The NLRB’s McLaren Macomb decision follows on the heels of a federal law enacted in December 2022, the Speak Out Act, that invalidates confidentiality and non-disparagement provisions in any employment policy or agreement as applied to pre-dispute allegations of sexual harassment and sexual assault.  Many states have enacted similar bans.

Restrictive Covenant Agreements (RCAs)

Courts, government agencies and state legislatures have increasingly taken a hostile view of employee RCAs, particularly non-compete restrictions that prevent employees from working in their chosen profession when an employment relationship ends.  A number of states have either banned non-competes for certain workers, or severely limited their application. In January 2023, the Federal Trade Commission proposed a new rule that would ban employers from imposing non-competes on anyone who works for the employer, including employees and independent contractors, whether paid or unpaid, except in limited circumstances. It would also require employers to rescind existing non-competes and affirmatively inform workers they are no longer in effect.

Arbitration Agreements

At the same time many types of employee agreements and policies are coming under attack, there has been a steady stream of court cases expanding the enforceability of compulsory arbitration agreements in the employment context.  For example, in 2011, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) protects an employer’s right to include a class action waiver in its arbitration agreement.  Last week, the Ninth Circuit Court of Appeals ruled that a California law prohibiting employers from requiring employees to sign arbitration agreements as a condition of their employment is unenforceable due to its inherent conflict with federal law. 

Bucking this trend in favor of expanding the enforceability of employee arbitration agreements, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act in March 2022.  The Act invalidates pre-dispute arbitration agreements relating to employee claims of sexual harassment and sexual assault.  The Act also invalidates any agreement that requires employees to prospectively waive their right to participate in a joint, class or collective action in any forum for actions relating to sexual assault or sexual harassment claims.    

Telework Agreements

In February 2023, the U.S. Department of Labor (DOL) issued a Field Assistance Bulletin providing guidance on properly paying non-exempt (i.e., hourly) teleworkers.  The DOL clarified that the Fair Labor Standard Act (FLSA) break rules apply to teleworkers.  The rules specify that short breaks of 20 minutes or less are generally counted as compensable hours worked.  Longer breaks during which the worker is completely relieved from duty and are long enough to enable the worker to use the time effectively for their own purposes are not hours worked.  The Bulletin advises that “to be completely relieved from duty, the employees must be told in advance that they may leave the job and they will not have to commence work until a specified hour has arrived.”  To ensure the employer is aware of employee work time, the Bulletin suggests that an employer establish a reporting procedure that tracks both scheduled and unscheduled work time.  Employers should communicate these time reporting expectations in writing; for teleworkers, it makes sense to do so in a telework agreement.          

Bottom Line:  Given the legal developments outlined in this update, it’s time for your organization to carefully review its employment policies and agreements to ensure they are legally compliant and designed to provide maximum protection to avoid legal claims.  If your organization does not have a compulsory arbitration agreement, it’s time to seriously consider implementing one.  We stand ready to assist you in this effort.