Employers Should Review Common Severance Agreement Terms Due to New NLRB Decision

Historically, employers have routinely included confidentiality and non-disparagement provisions in severance agreements with departing employees. Such provisions can be important for protecting sensitive personnel data or proprietary business information from disclosure. But in light of a recent National Labor Relations Board (NLRB) decision, employers in both unionized and non-union workplaces should review their agreements and consider whether these provisions require modification. Most private sector employers are covered under the National Labor Relations Act (NLRA), which the NLRB administers. However, the law does not apply to government employees. Within a covered workforce, the NLRA exempts most “supervisors,” as well as agricultural laborers and independent contractors.

Depending on the specific terms of the agreement, confidentiality and non-disparagement provisions may: (1) require the signing employee to keep the contents of the agreement (including the severance amount) and the severance agreement itself confidential; and (2) prohibit the signing employee from disparaging the employer or its officers, directors, employees, agents, and representatives. Starting about 10 years ago, some states and the federal government began enacting legislation restricting how and when employers may use confidentiality and non-disparagement provisions in employment agreements—mostly in relation to sexual harassment claims. However, during the Trump administration, the NLRB actually bucked that trend, giving employers more leeway to use restrictive terms in severance agreements. Now, under President Biden, the NLRB is returning to prior precedent.

NLRB Finds Overbroad Agreement Terms May Chill NLRA Section 7 Rights

On February 21, 2023, the NLRB issued its decision in McLaren Macomb, 372 NLRB No. 58 (2023), returning to longstanding precedent holding that employers may not offer employees severance agreements that require employees to broadly waive their rights under the NLRA.

Following the onset of the Covid-19 pandemic, McLaren Macomb, a unionized hospital in Michigan, permanently furloughed 11 employees and presented each of them with a severance agreement that included the following clauses:

Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

Non-Disclosure. 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 NLRB determined that both clauses were unlawful because they were too broad and tended to “chill” the exercise of rights under Section 7 of the NLRA, which protects the rights of employees to collectively band together in an effort to improve conditions in the workplace.  Specifically, Section 7 guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”  The NLRB found that the mere “proffering” of a severance agreement containing the contested provisions amounted to an independent unlawful labor practice. The McLaren decision reverses the previous Board’s 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology, which had departed from prior precedent in finding that employers would only violate the NLRA by entering into such provisions if they also committed a separate unfair labor practice discriminating against workers.

In reaching its conclusion, the NLRB explained that public statements by employees about the workplace are central to the exercise of employee rights under the NLRA. Thus, the NLRB found the non-disparagement clause too broad because it prohibited the employees from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer”—including any statement asserting that the company had violated the NLRA. The NLRB also noted that the provision failed to (1) be limited to matters regarding past employment with the employer; (2) define disparagement to meet the NLRB’s definition (i.e., so disloyal, reckless or maliciously untrue as to lose the Act's protection); (3) be limited to the employer (as it also applied to the employer’s affiliated entities and their officers, directors, employees, agents, and representatives); and (4) be limited temporally.

The NLRB also explained that a severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer and from communicating with others, including a union and the NLRB, about their employment. Thus, the NLRB found the confidentiality provision prohibiting employees from disclosing “to any third person” the terms of the agreement—including any unlawful provisions—overbroad.

Takeaways

In light of the NLRB’s recent decision in McLaren Macomb, employers may be found to have committed an unfair labor practice simply by offering employees severance agreements with broad confidentiality and non-disparagement provisions, even if the employer does not seek to enforce them. While the NLRB has not clearly stated what scope of provisions they would view as lawful, we expect the NLRB General Counsel to release advisory memoranda in the coming months with such additional guidance.

In the meantime, employers may consider narrowing their confidentiality and non-disparagement provisions in severance agreements by adding disclaimers to those clauses, such as broadly confirming they do not prohibit the exercise of employee rights under Section 7 of the NLRA, defining disparagement to meet the NLRB’s definition, or excluding communications with the NLRB from the confidentiality provision. Of course, such disclaimers may deprive the provisions of their value to the employer.

While McLaren did not address whether the unlawful provisions were severable, employers should nonetheless consider using severability clauses in their severance agreements to possibly avoid the entire agreement being voided if certain provisions are deemed unlawful. Employers concerned about past severance agreements entered into containing similarly broad provisions will likely be able to argue that they proffered the severance agreement at a time when the law allowed such provisions.

Additionally, individuals must bring NLRA claims within six months of the offense, meaning complaints about agreements entered into more than six months ago are likely to be time-barred.