Companies can no longer gag workers in severance deals

This week the federal government struck down a key labor law ruling that could have important ramifications for Elon Musk and other tech industry moguls. 

On Tuesday, nearly a dozen former McLaren Macomb hospital staff represented by a AFL-CIO-affiliated trade union won their argument that a severance deal enforcing a gag rule deterred them from exercising their statutory rights in exchange for benefits.

It comes at a key time when tech companies like Tesla, which often rely on their progressive image to attract both customers and workers, are laying off hundreds—and sometimes thousands—of their employees. Often the employees’ exit deal includes lengthy and prohibitive non-disparagement clauses to prevent the media from covering their labor practices.

One attorney representing 100 Twitter employees laid off by Elon Musk called it a “truly historic” decision penalizing companies that muzzle workers’ speech.

“Where a severance agreement conditions receipt of benefits on a promise of non-disparagement—e.g. a promise not to bad mouth the company or its leaders—it’s UNLAWFUL,” wrote Lisa Bloom, founder of The Bloom Firm, in a thread posted to social media on Wednesday. “Best part: even OFFERING it is illegal, even if the worker does not sign. This is what Twitter did.” 

The decision by the National Labor Relations Board returns interpretation of U.S. law to the status quo ante prior to an NLRB ruling in 2020 under the Trump administration.

In a statement, NLRB board chair Lauren McFerran argued it has long been understood that employers cannot ask individual workers to choose between receiving benefits and exercising their rights under the National Labor Relations Act.

“Today’s decision upholds this important principle and restores longstanding precedent,” McFerran said, representing the majority opinion. 

The ruling is the latest signal that President Joe Biden’s administration is intent on reversing many of the policies harmful to organized labor enacted under Donald Trump. This is a key constituency the Democrats effectively lost when the ex-Presidernt won over white working class voters in the Rust Belt with promises of trade wars and an end to offshoring industry jobs to China. 

Since Biden entered the White House two years ago, the NLRB has gone from a body that—under Trump—diluted the very workers’ rights it was designed to protect during the Great Depression to one that now aggressively challenges corporate labor practices deemed unfair by trade unions. 

What is the NLRB and what purpose does it serve?

The National Labor Relations Board is an independent federal agency vested with the power to safeguard employees’ rights to organize for better working conditions and seek collective bargaining. It was formed in 1935, the same year trade unions were legalized in the United States. 

During the Trump’s administration, the NLRB became an ally of corporate America. According to the Economic Policy Institute, it delivered on all top 10 demands to roll back workers’ rights issued in a U.S. Chamber of Commerce wish list.

In one of his very first acts the day of his inauguration, Biden sacked NLRB General Counsel Peter Robb. Union allies that had helped win back white working class Trump voters demanded his head after Robb in their view failed to investigate and prosecute unfair labor practices. (Trump appointees do still wield some influence: Tuesday’s dissenting opinion was written by Marvin Kaplan, the sole remaining NLRB board holdover from his administration.)

The new political tide at the NLRB does not bode well for CEOs like Starbucks boss Howard Schultz or Musk, both vocal opponent of trade unions.

Tesla for example has long relied on its credentials as a climate change advocate to win over wealthy progressive customers tired of supporting the fossil fuel industry by purchasing combustion engine cars. 

It’s not helpful then when headlines emerge that may question the company’s narrative as a good corporate citizen. As a result, Musk resorted to legthy non-disparagement clauses in termination agreements that could have been legally challenged were employees informed of their rights. 

This week’s ruling might change that. “You get a high profile case like this and a lot more people may become aware of it,” New York Times labor reporter Noam Scheiber told CBS News on Wednesday.

It could even prevent a future administration, Democrat or Republican, from once again tossing aside historical precedent. “By spreading the word and raising awareness you might actually make it tougher to reverse it in the future,” Scheiber added. 

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