- On February 21, 2023, the National Labor Relations Board (“NLRB” or the “Board”) issued a decision prohibiting employers from using broad non-disparagement and/or confidentiality clauses in severance agreements.
- The decision significantly restricts the rights of employers to propose and negotiate severance and other agreements with employees that contain confidentiality and non-disparagement provisions as well as employers’ ability to enforce them.
- The decision applies to union and non-union private sector employers, but does not restrict employers from including these clauses in agreements with supervisors and managers.
- In light of this decision, employers should review their form severance, separation, settlement and other agreements containing non-disparagement and confidentiality clauses and consider revisions to ensure compliance with the NLRB’s more restrictive rule.
On February 21, 2023, the NLRB issued a decision significantly restricting employers’ use of non-disparagement and confidentiality provisions in its agreements with its non-supervisory employees. As a result of the decision, employers should review their form severance and other agreements used with these employees to ensure compliance with the Board’s restrictive ruling, regardless of whether their workplaces are unionized.
The case, McLaren Macomb, 372 NLRB No. 58, involved the permanent furlough by McLaren Macomb of 11 union employees at a Michigan hospital in the midst of the COVID-19 pandemic. McLaren presented each of the furloughed employees with a “Severance Agreement, Waiver and Release” that offered to pay differing severance amounts to each employee if they signed the agreement. The agreement contained two common provisions requiring confidentiality about the terms of the agreement and broadly prohibiting disparagement of the hospital. The confidentiality provision provided:
The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouses, or as necessary to professional advisors for purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
The agreement further provided:
At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.
The agreements were presented directly to the employees, not their union representatives, and provided for substantial monetary and injunctive sanctions against employees who breached the confidentiality and non-disparagement proscriptions. The furloughed employees ultimately challenged the severance agreements, claiming that they violated the National Labor Relations Act (“NLRA” or the “Act”).
Not only did the NLRB rule that McLaren violated the Act by failing to engage the employees’ union in bargaining regarding the furloughs and their effects and communicating directly with the employees regarding the severance agreements, but it found that McLaren violated Section 8(a)(1) of the Act by merely offering the employees a severance agreement containing confidentiality and non-disparagement provisions that the Board found required employees to broadly give up their rights under Section 7 of the Act. Those rights included, according to the Board, their rights to engage in protected concerted activity, including discussing terms and conditions of employment with coworkers, and attempting to improve terms and conditions of employment through channels outside the immediate employee-employer relationship; to file unfair labor practice charges with the NLRB; to assist other employees in filing charges; and to assist in the Board’s investigative process.
According to the Board, McLaren’s confidentiality provision improperly prohibited employees from disclosing the existence and terms of the agreement “to any third person,” which it found could be read to include union representatives and former coworkers who could find themselves in a similar predicament. As to the non-disparagement provision, the Board ruled that it improperly prohibited the employees from making negative or potentially harmful or disparaging statements to their former coworkers and the general public not only about McLaren, but also its parents, its affiliates and their respective officers, directors, employees, agents and representatives. This would include, for example, a statement that McLaren proffered a severance agreement with unlawful provisions and about any other labor issue, dispute or terms or condition of employment with McLaren. According to the Board, these provisions and the related fear of violating the agreement would have a tendency to chill employee efforts to assist their coworkers, including in connection with the Board’s investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future. According to the Board, the mere act of offering agreements with such provisions—regardless of the presence or absence of additional unlawful conduct by the employer and/or the circumstances under which the agreement was presented to the employee—was an unlawful attempt to deter employees from exercising their statutory rights at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement.
The McLaren Macomb decision expressly overrules two Trump-era Board decisions where the NLRB determined that agreements with non-disparagement clauses were “entirely voluntary” and lawful. In the 2020 decisions, the Board had focused, among other things, on whether the agreement was voluntary; whether it pertained exclusively to post-employment activities and, thus, had no impact on terms and conditions of employment; and whether there were allegations that the employees to whom the agreement was presented had been unlawfully discharged or that the agreement was proffered coercively. Those decisions were flawed, the NLRB stated in McLaren Macomb, and a simplified test should apply to such agreements: whether the agreement contains unlawful terms that have a reasonable tendency to interfere with, restrain or coerce employees in the exercise of their Section 7 rights. If so, the proffer of such an agreement to employees is unlawful. When determining whether an agreement is unlawful, the Board “will examine the language of the agreement, including whether any relinquishment of Section 7 rights is narrowly tailored.” No showing of animus, other unlawful practices or actual coercion is required. An agreement with language that fails this test is unlawful regardless of whether the employee accepts the agreement.
Importantly, the Board’s decision does not prevent employers from offering agreements with such provisions to managers and supervisors, as defined in the Act, as managers and supervisors do not have Section 7 rights under the NLRA. But confidentiality and non-disparagement provisions in agreements with managers and supervisors that are so broad as to prohibit them from aiding or assisting in the Board’s processes could be unlawful and interfere with the rights of NLRA-covered employees seeking their assistance in unfair labor practice proceedings or investigations.
In light of the McLaren Macomb decision, employers should review their form severance, separation, settlement and other agreements containing confidentiality and non-disparagement provisions and consider whether they need to be revised in light of the new test set forth in McLaren Macomb. Until more guidance is provided as to the meaning of “narrowly tailored,” employers should look to NLRB-approved settlement agreements and Board precedent to identify likely permissible terms of confidentiality and non-disparagement agreements. For example, the NLRB has previously approved confidentiality and non-disparagement provisions with the following characteristics:
- Confidentiality and non-disparagement provisions that specifically and clearly carve-out activities protected by Section 7 of the NLRA, such as discussing terms and conditions of employment with coworkers and third parties, filing unfair labor practices, assisting other employees in filing charges and assisting in the Board’s investigative process.
- Non-disparagement provisions restricted to the types of disloyal statements historically recognized by the Board as unprotected, such as maliciously false statements and attacks on the employer’s products, services or customers.
- Confidentiality provisions that broadly prohibit the disclosure of the financial or monetary terms of the agreement.
Agreements like these are likely to satisfy McLaren Macomb. In addition, employers should consider including severability provisions in their agreements to help ensure that a finding that certain provisions of the agreement are unlawful (i.e., the confidentiality and non-disparagement provisions) cannot be used as a basis for striking down other provisions, such as the general waiver and release of claims.
This post was originally published by Foley Hoag.