On February 21, 2023, the National Labor Relations Board (NLRB) issued a divided opinion restricting the use of non-disparagement and confidentiality provisions in severance agreements. The Board’s decision in McLaren Macomb reversed two Trump-era decisions which found that limits on speech in severance agreements were legal because agreements with these clauses were entirely voluntary.
The Board’s opinion addresses the use of severance agreements by McLaren Macomb, a Michigan hospital that was forced to permanently furlough 11 employees in response to COVID-19. The 11 furloughed employees were represented by the local branch of the AFL-CIO. Each of the furloughed employees was presented with a severance agreement for various amounts that contained the following two provisions:
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 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.
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.
Upon review of these provisions, the Board found that the provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights under the National Labor Relations Act (NLRA). Specifically, the Board found that the provisions implicated several rights provided to employees under Section 7 of the NLRA including: (1) the right to engage in protected concerted activity, (2) the right to file unfair labor practice charges with the NLRB, (3) the right to assist other employees in filing such charges, and (4) the right to assist in the Board’s investigative process.
Under the Board decisions, employers will no longer be able to include (1) broad confidentiality clauses which require a former employee to keep quiet about the terms of a severance agreement or (2) broad non-disparagement clauses that prohibit a former employee from discussing the terms and conditions of their employment with third parties in their severance agreements. There are exceptions to this rule. Although the rule applies to all private sector employees, both union and non-union alike, the decision does not apply to supervisors and managers as defined under the NLRA. In addition, the Board also left a narrow exception for severance agreements with confidentiality and non-disparagement agreements that are narrowly tailored, but declined to provide a definition for narrowly tailored.
Although the Board’s decision is subject to appeal, the ruling became effective immediately. Now that the Board has returned to pre-2020 precedent, many employers have begun to ask what they can do to avoid an unfair labor practice charge in light of this change in the law.
First, employers should review their severance and separation agreements that contain confidentiality and non-disparagement clauses and consult with in-house or outside counsel to determine the best way forward in light of the McLaren decision. This may include omitting such provisions until the NLRB General Counsel issues an advisory memo with examples of lawful severance provisions. It is anticipated that the General Counsel will issue such guidance in the coming months.
It may also include revising such agreements to include narrowly tailored confidentiality or non-disparagement provisions. While the Board has not defined “narrowly tailored” in this context, its decision suggests that carving out certain activities protected by Section 7 of the NLRA, such as discussing the terms and conditions of employment with third parties, filing unfair labor practice charges, assisting others in filing such charges, or assisting in the Board’s investigative process, may be a good starting point for drafting a narrowly tailored agreement.
Second, employers should be sure to include severability provisions in their severance agreements to ensure that any finding that a portion of the severance agreement is unlawful would not also result in the voiding of the entire agreement.
The retroactive implications of this decision on past severance agreements is also still unclear. Employers should take note, however, that the Board’s procedural rules limit an unfair labor practice charge to six months after a violation has occurred. So, any charge stemming from the proffering of severance agreements containing confidentiality or non-disparagement agreements older than six months is unlikely. Despite this limitation, employers would be wise to remain cautious and consult with legal counsel when attempting to enforce broad confidentiality or non-disparagement provisions in existing severance agreements, as attempting to enforce those agreements now could re-start the running of the six-month limitation period.
The Board’s decision can be found here. In the coming months, additional guidance may be provided by the Board’s General Counsel and/or by the Sixth Circuit Court of Appeals, or the Court of Appeals for the District of Columbia, if the decision is appealed, as is expected.
