NLRB blocks class action settlement

By Vimbai Chikomo | Dec 28, 2015

The National Labor Relations Board (NLRB) recently exercised its authority in a settlement involving an employer’s use of confidentiality and non-disparagement language, and withheld its approval of the settlement.

On Oct. 27, the United States District Court for the Southern District of New York, found that the settlement agreement between Liberato Restaurant and a class of current and former employees was fair, but noted that the NLRB would “have to approve the dismissal of the NLRB actions,” which was part of the settlement.

“In addition to filing the underlying lawsuit, a number of employees also filed charges with the National Labor Relations Board that were still pending at the time of the Court’s order,” Erin Fowler, an associate at Franczek Radelet, said. “Because the settlement agreement contemplated a global settlement of all claims, including the dismissal of the NLRB Charges, the Court required NLRB approval of the settlement agreement.”

According to the settlement the employer agreed to settle the Fair Labor Standards Act (FLSA) class action lawsuit for $1 million. The suit alleged that the restaurant failed to pay employees overtime wages and tips.

As part of the agreement, the plaintiffs agreed to drop the charges they had filed with the NLRB, and both parties promised not to disclose the terms of the agreement to the public or disparage the other party, which is often seen in settlements involving labor and wages.

On Nov. 25, after reviewing the agreement, the NLRB informed both parties that the Board would not approve the agreement, explaining that the language in the non-disparagement and confidentiality provisions restricted the employees from discussing their terms and conditions of employment with other employees, which violated their rights under Section 7 of the National Labor Relations Act (NLRA).

Fowler explained that the NLRB offered two options for obtaining approval of the agreement.

“First, the parties could modify the non-disparagement and confidentiality provisions in their proposed agreement. The NLRB withheld its approval of the agreement on the basis that the non-disparagement and confidentiality provisions limited the employees’ ability to discuss with other employees their terms and conditions of employment, which unlawfully impinged upon the employees’ Section 7 rights guaranteed under the National Labor Relations Act,” she said.

Fowler stated that although the NLRB did not specifically address how the non-disparagement and confidentiality provisions should be modified, it pointed the parties to a 2006 Memorandum issued by the agency, which states that confidentiality agreements that prohibit disclosure of an agreement’s terms other than financial terms go against the NLRB’s core standards.

In addition, the memorandum states that an agreement limiting employees’ ability to make non-defamatory statements about their employer to other employees is not in line with the NLRB’s core standards, Fowler said.

“The second option presented by the NLRB was that the parties enter into the NLRB’s informal settlement agreement. With this option, the NLRB would not be required to take into account the terms of the parties’ proposed settlement agreement,” Fowler said.

Fowler, whose practice areas include Labor & Employment, told Legal News Line that this case highlights important points that should be noted.

“This is not something we see regularly. However, it is important to be aware of this case and the NLRB’s stance because many settlement agreements, including FLSA settlement agreements, contain the type of non-disparagement and confidentiality agreements discussed in this case,” she said.

Fowler also stated that when NLRB charges accompany federal wage and hour litigation, NLRB will most likely be required to sign off on the agreement before the court will approve any settlement.

“We do not know, at this time, how this may affect other types of settlement agreements in the future,” she said.

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