Alerts

Severing from Precedent: NLRB Restricts Employers' Ability to Include Standard Confidentiality and Non-Disparagement Provisions in Severance Agreements

Alerts / February 23, 2023
Key Takeaways
  • The National Labor Relations Board issued a decision in McLaren Macomb that reversed several Trump-era rulings allowing employers to proffer severance agreements to employees containing broad confidentiality and non-disparagement provisions.
  • The Board’s decision holds that the “mere proffer” of a severance agreement containing a confidentiality and/or non-disparagement provision is unlawful where the clause is drafted too broadly and would “chill” an employee’s ability to exercise NLRA Section 7 rights.
  • This is a far-reaching decision that impacts both union and non-union businesses; thus, employers should assess the confidentiality and non-disparagement language included in their severance agreements to ensure they are carefully and narrowly tailored so as not to run afoul of the Board’s ruling.

On February 21, the National Labor Relations Board (“NLRB” or “Board”), as anticipated, issued a decision in McLaren Macomb that reversed several Trump-era rulings that generally had allowed employers to proffer severance agreements to employees containing broad confidentiality and non-disparagement provisions.

Now, in determining whether these common severance provisions are lawful, the Board will scrutinize whether any relinquishment of Section 7 rights is narrowly tailored and will focus on whether the provision is so artfully drafted that no reasonable employee would interpret it to “interfere with, restrain, or coerce” his/her exercise of rights under Section 7 of the National Labor Relations Act (“NLRA”) (or, stated more simply, the right of employees to come together to organize or to discuss shared concerns regarding the workplace).

What Changed?

Claiming to rely on a “backdrop of nearly a century of settled law,” the Board’s majority in the McLaren Macomb decision expressly overruled several prior decisions, which found it lawful to offer employees the option to voluntarily enter into broad confidentiality and non-disparagement provisions as part of a severance agreement.  Under the Baylor and IGT cases, whether such provisions unlawfully restrain an employee from exercising Section 7 rights was analyzed under the specific circumstances in which the agreement was presented to employees. To find a violation under these now-overruled cases, an employer would have had to commit a separate unfair labor practice against its employee, harbor animus against Section 7 activity, or coercively proffer the agreement.

What’s the Rule Now?

The McLaren Macomb decision holds that the “mere proffer” of a severance agreement containing a confidentiality and/or non-disparagement provision is unlawful where the clause is drafted too broadly and would “chill” or have a “reasonable tendency” to obstruct the exercise of Section 7 rights. It is of no moment that an employee does not sign the agreement, or the employer does not attempt to enforce the provision – the simple act of offering it to the employee may be deemed unlawful.

Here, more specifically, the Board took issue with not limiting the non-disparagement provision to matters regarding past employment, not setting forth any temporal restriction, and not defining the term “disparagement” under its well-established NLRA definition (so “disloyal, reckless or maliciously untrue as to lose the Act’s protection”). Similarly, the Board found the confidentiality provision to be problematic because it contained a broad prohibition against disclosing the terms to any third person, in contravention of public policy allowing all persons with knowledge of unfair labor practices to be free from coercion in cooperating with the Board. The confidentiality provision also was found to wrongly prohibit the employees from discussing severance terms with former coworkers or with their union.

Bottom Line for Employers

Whether operating in a union or non-union setting (reminder: NLRA Section 7 rights apply (generally) to private sector, non-supervisory employees in both), employers should assess the confidentiality and non-disparagement language included in their severance agreements to ensure they are carefully and narrowly tailored so as not to run afoul of the Board’s ruling. While this decision is far-reaching, employers will take some comfort that it has no specific impact on severance agreements offered to managerial employees, as they are specifically excluded under the NLRA.

Although the Board’s decision does not apply retroactively, employers should review any severance agreements containing confidentiality and non-disparagement provisions that have already been sent to employees to execute but for which the deadline to sign has not yet come, and determine whether they should revise and reissue them.

Should you need to discuss this significant decision and its effect on your organization’s severance agreement language in greater detail, the BakerHostetler Labor & Employment team is available to assist.

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