NLRB Holds that Employers May Not Offer Severance Agreements with Broad Confidentiality and Non-Disparagement Provisions

On February 21, 2023, the National Labor Relations Board (“NLRB” or the “Board”) issued a decision, McLaren Macomb, 372 NLRB No. 58 (2023), holding that employers may not offer employees severance agreements that contain what might otherwise be considered standard confidentiality or non-disparagement provisions because they arguably impinge upon rights provided under the National Labor Relations Act (“NLRA”). This decision reverses the previous Board’s decisions issued in 2020, holding that offering severance agreements with such provisions was not, standing alone, unlawful.

In McLaren Macomb, the employer offered severance agreements, to eleven (11) furloughed union employees, containing provisions that “broadly prohibited them from making statements that could disparage or harm the image of the [employer] and further prohibited them from disclosing the terms of the agreement.” Specifically, the severance agreements contained 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 Board found that the confidentiality provision violated the NLRA because it prohibited employees from engaging in various types of protected activity, such as speaking to co-workers or the NLRB, among others, concerning terms and conditions of employment. The Board similarly found that the non-disclosure provision at issue violated the NLRA because it too could be read to prohibit employees from engaging in protected discussions about workplace issues. More generally, the Board held that an employer violates Section 8(a)(1) of the Act merely by offering employees a severance agreement with terms that would restrict employees’ rights to communicate with coworkers and others about workplace issues, regardless of whether an employee agrees to the severance agreement or whether its provisions are enforced.

Prior to the McLaren decision, the previous Board focused on the circumstances under which the severance agreement was presented rather than focusing solely on the language of the agreement. In 2020, the Board held that employers in two cases, Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a/ International Game Technology, 370 NLRB No. 50 (2020), had not acted unlawfully by offering severance agreements containing similar confidentiality and non-disparagement provisions because (1) the agreements were entirely voluntary, and (2) the confidentiality and non-disparagement provisions only restricted postemployment activities and therefore did not interfere with employees’ exercising their Section 7 rights. The Board in Baylor University and IGT also considered the employer’s animus, or lack of animus, towards the exercise of Section 7 Rights as a relevant component of an allegation that the severance agreement violated Section 8(a)(1).

Going forward, the Board will analyze the terms in the severance agreement itself, assessing their potential upon employees in exercising their Section 7 rights, without necessarily considering whether the severance agreement was offered in an atmosphere free of potential coercion or anti-union animus.

In light of the Board’s sweeping decision in McLaren, all employers – both unionized and non-union – should review their standard severance agreements immediately to determine whether they comply with the Board’s ruling, and whether confidentiality, non-disparagement and similar provisions can be revised to avoid unintended violations of employee Section 7 rights while retaining their utility. The attorneys at Crowell & Moring can help you make this assessment and revise your standard agreements in light of this decision.