On February 21, 2023, the National Labor Relations Board (the "Board") issued a decision restricting the use of confidentiality and non-disparagement provisions in severance agreements with departing employees. The Board's decision in McLaren Macomb, which reversed recent precedent and applies to both union and non-union workplaces, held that it is unlawful for an employer to present to an employee a severance agreement that includes a confidentiality or non-disparagement provision that would have an "impermissible chilling tendency" on the employee's Section 7 rights under the National Labor Relations Act ("NLRA"). In light of this decision, employers should immediately review their form severance agreements (and other agreements containing confidentiality and non-disparagement provisions) to determine whether updates are needed.
Background
Section 7 of the NLRA, which applies to both union and non-union workplaces, protects nonsupervisory employees' rights to engage in "concerted activity" for the purpose of collective bargaining or other mutual aid or protection, which includes not only the right to join or assist a union and bargain collectively, but also to work with one another to address work-related issues, such as pay or working conditions, and to speak about those issues.
In the case before the Board, McLaren Macomb – a company operating a hospital in Michigan – permanently furloughed eleven union employees and, in connection with this layoff, offered each of them severance pay in exchange for signing a severance agreement. The severance agreement contained a confidentiality provision that required the employee to agree not to disclose the terms of the agreement unless legally compelled to do so, and a non-disparagement provision that required the employee to agree not to make statements to other McLaren employees or the public "which could disparage or harm" the image of McLaren. The agreement also included a provision providing for monetary and injunctive relief if the employee breached the non-disparagement or confidentiality provision.
Board Decision
The Board held that the confidentiality and non-disparagement provisions violated the NLRA due to their potential chilling effect on the employees' exercise of their Section 7 rights. Specifically, the Board found that the confidentiality provision's prohibition on disclosing the terms of the severance agreement could prevent an employee from filing an unfair labor practice charge, assisting in a Board investigation, or engaging in other concerted activity (including, observed the Board, discussing the terms of the severance agreement with former co-workers who were also deciding whether to accept the severance agreement). Similarly, the Board found that the non-disparagement's prohibition on making public statements disparaging the employer could interfere with an employee's Section 7 rights because it could preclude them from making statements asserting that their employer had engaged in unfair labor practices.
Significantly, the NLRB held – overturning recent precedent and restoring an earlier body of NLRB case law – that an employer's "mere proffer" of a severance agreement containing an overbroad confidentiality or non-disparagement provision is sufficient to constitute an unfair labor practice because by so doing the employer has conditioned the receipt of benefits on an employee's forfeiture of statutory rights.
Implications for Employers
In light of the McLaren decision, employers will need to review their existing agreements that contain confidentiality and non-disparagement provisions and consider what changes may be advisable to avoid challenge and maximize the chances of enforcement. Employers are reminded in this regard, however, that the NLRA excludes from its definition of "employee" those who are employed as supervisors, as well as independent contractors, such that the decision should have no effect on the permissibility of confidentiality and non-disparagement provisions in agreements with such individuals.
Employers should also note that the confidentiality and non-disparagement provisions reviewed by the NLRB in the McLaren decision did not contain any carve-outs or disclaimers pertaining to an employee's rights under the NLRA. Comprehensive confidentiality and non-disparagement provisions may still be permissible, even in agreements with non-supervisory employees, as long as the agreement makes clear that neither provision in any way interferes with or restrains an employee's exercise of Section 7 rights.
Employers that elect to retain confidentiality and non-disparagement provisions in their agreements should ensure that severability provisions are also included, so that, even if the confidentiality and/or non-disparagement provisions were to be struck down, the rest of the agreement – including, importantly, the release of claims provision – would be upheld.
While it is unclear whether the McLaren decision will apply retroactively to agreements that were entered into prior to February 21, 2023, there is a relatively small window of risk for such previous agreements, given that unfair labor practice charges must generally be filed within six months. Moreover, the remedies for an unfair labor practice charge stemming from provisions in a former employee's severance agreement would likely include only the NLRB's traditional remedies of ordering an employer to cease and desist from the unlawful behavior and to post a notice of employee rights (though pursuant to the Board's recent decision in Thryv, Inc., the Board can now order an employer to pay for any "direct or foreseeable pecuniary harms" incurred by the employee).
Next Steps
Given that the McLaren decision overturned recent precedent and left open questions about the precise contours of the Board's prohibition on confidentiality and non-disparagement provisions, we expect both an appeal of this decision and further decisions clarifying the permissible scope of confidentiality and non-disparagement provisions in non-supervisory employee agreements. We also think it likely that the NLRB General Counsel will issue related guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
