NLRB Ruling Impacts Confidentiality and Non-disparagement Clauses in Severance Agreements
On February 21, 2023, the National Labor Relations Board (“NLRB” or the “Board”) issued a decision in McLaren Macomb restricting the ability of employers to include broad non-disparagement and confidentiality clauses in severance agreements if such clauses have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their rights under Section 7 of the National Labor Relations Act (“NLRA” or the “Act”). Section 7 of the Act provides non-managerial employees the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection, such as by discussing the terms and conditions of employment with others. Not only did the Board find the broad confidentiality and non-disparagement clauses unlawful due to their infringement on Section 7 rights, but it also held that simply offering an employee a severance agreement with this overbroad language was unlawful, even if the employee does not sign the agreement. And while the employees in McLaren Macomb were unionized, employers are reminded that all non-managerial and non-supervisory employees, not just those working in unionized environments, have Section 7 rights.
At issue in McLaren Macomb were severance agreements offered by the employer to eleven unionized employees who had been permanently furloughed as a result of the COVID-19 pandemic. The agreements offered each employee severance payments in exchange for a broad release of claims as well as the following confidentiality and non-disparagement provisions:
Confidentiality: “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. At all times hereafter, the Employee promises 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 Employee’s employment.”
Non-Disparagement: “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 agreement also provided for substantial monetary and injunctive sanctions in the event of a breach of these obligations by the employees. And beyond the general reference to employees’ rights to respond to a court or administrative agency in the confidentiality clause, it does not appear that the agreement contained any carveout permitting employees to make reports to governmental agencies or exercise their rights under the NLRA.
The Administrative Law Judge (“ALJ”) who heard the case applied the standard set out in the Board’s 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology. Applying Baylor and IGT, the ALJ concluded the confidentiality and non-disparagement provisions were lawful because (1) the agreements were voluntary, (2) the agreements were only offered to separated workers and did not impact their previously accrued benefits or compensation, and (3) there were no allegations that the agreements were provided under circumstances that would tend to infringe on Section 7 rights.
However, the Board, in reversing the ALJ’s decision, overruled Baylor and IGT and reinstated the standard that preceded those decisions: A severance agreement, and the employer’s proffer of such an agreement, is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights. Agreements containing such terms are unlawful even if the employee does not sign the agreement, and even if there is no indication of other unlawful conduct by the employer.
In reaching its decision, the Board commented that Section 7 rights extend to former employees, not just current employees, and also to employee efforts to improve terms and conditions of employment through channels outside the immediate employment relationship. These channels include administrative, judicial, legislative, and political forums, newspapers, the media, and social media, and communications to the public that that are part of or related to the terms and conditions of employment, regardless of if the individual speaking is in an employee/employer relationship. Such communications are protected as long as they are not “so disloyal, reckless, or maliciously untrue to lose the Act’s protection.”
The Board held that the non-disparagement provision here was unlawful because it would have a chilling tendency on employees’ future cooperation with Board investigations and litigation. The Board pointed to a number of factors supporting its conclusion: the non-disparagement clause (1) did not contain any definition of disparagement, (2) was not limited to matters regarding past employment with the employer, (3) applied to parties other than the employer (including parents and affiliates and their employees), and (4) contained no temporal limitation. The Board also noted that the non-disparagement clause would likely dissuade efforts by the former employees to raise or assist with complaints against the employer with their former co-workers, the Union, the Board, or any other government agency or the media.
In finding the confidentiality provision unlawful, the Board reasoned that the prohibition against discussing the agreement with “any third person” would reasonably coerce employees from filing an unfair labor practice charge with the Board or assisting with a Board investigation. In addition, the Board noted that the confidentiality clause would prohibit the employee from discussing the terms of the severance agreement with their former coworkers, who could find themselves in a similar situation contemplating signing a severance agreement, thereby impairing the rights of the subject employee’s former coworkers to call upon the employee for support in comparable circumstances. The Board also found that the confidentiality obligation would prohibit discussions with the employee’s union about the agreement, discussions of the agreement with a union that the employee may later become a member of, or discussions with coworkers at future sites of employment. Broadly, the Board concluded 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 Board, about their employment, unless such agreement is narrowly tailored to respect those Section 7 rights.
While it is clear from the McLaren Macomb decision that broad confidentiality and non-disparagement clauses are unlawful, it remains to be seen what type of restrictions will be permitted by the Board. In addition, because the severance agreements at issue did not appear to include a disclaimer permitting employees to engage in Section 7 activity, McLaren does not address the question of whether broad confidentiality and non-disparagement clauses can be saved by including language in severance agreements that specifically permit employees to engage in Section 7 activity. The Board’s General Counsel may issue a memorandum with more guidance on this topic, as they have done regarding the legality of various types of handbook rules. And the employer retains the right to appeal the Board’s decision to the U.S. Court of Appeals, which may provide additional guidance. We will continue to monitor this area for developments.
Employers should revisit their severance agreements to determine if they contain language which may be deemed unlawful by the Board and consider revisions to avoid potential negative scrutiny. Employers should discuss with counsel what options and approach may be advisable given the nature of their business and the separation at issue. If you have any questions about the Board ruling, or need assistance amending your severance agreements, please contact Amanda Baker at abaker@fglawllc.com or Kate Townley at ktownley@fglawllc.com or any other attorney at the Firm.
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