NLRB Restricts Employers' Use Of Non-Disparagement And Confidentiality Provisions In Severance Agreements
In a recent decision, McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board (“NLRB” or the “Board”) held that broadly worded confidentiality and non-disparagement provisions in employee severance agreements unlawfully restrain employees in the exercise of their rights under the National Labor Relations Act (“NLRA”).
The Board held that an employer’s mere offer of an agreement including such provisions violates an employee’s rights, under Section 7 of the NLRA, to engage in “concerted activities” – i.e., joint action aimed at bettering employees’ terms and conditions of employment. This is the case regardless of the circumstances surrounding the severance offer, or the fact that an employee can choose whether or not to accept the offer.
The McLaren Macomb decision overturned two NLRB decisions issued during the Trump administration (Baylor University Medical Center, 369 NLRB No. 43 (2020), and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020)) that had generally allowed employers to include broad confidentiality and non-disparagement provisions in severance agreements.
The Board’s McLaren Macomb holding applies to unionized as well as non-unionized employers. As such, all employers should take careful note of the decision and consider how their severance agreements may need to be modified.
In McLaren Macomb, the employer, a hospital operator, offered severance agreements to eleven unionized employees of a Michigan hospital whom it had permanently furloughed because of the COVID-19 pandemic. The employer made the severance offers directly to the affected employees, without going through their union.
The severance agreements contained provisions that broadly prohibited the employees from disclosing the terms of the agreement or making statements that could disparage or harm the employer’s image.
Specifically, each agreement’s confidentiality provision stated:
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.
Additionally, the agreements’ non-disparagement provision stated:
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 agreements also provided that if the employee violated either provision, he or she would be liable for actual damages, in addition to costs and attorneys’ fees, resulting from the violation.
Subsequently, the employees’ union filed an unfair labor practice charge with the NLRB, alleging that the employer had unlawfully bypassed the union by communicating the severance offers directly to the employees, and that the confidentiality and non-disparagement provisions of the severance agreements unlawfully restricted employees’ rights under Section 7 of the NLRA.
Citing its pre-2020 case precedents, the Board held that a severance 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.” The NLRB expressly rejected the requirement, under the Trump-era Baylor and IGT decisions, that an employer must be found to harbor animus against Section 7 activity in order for a severance agreement to be held unlawful. To the contrary, the Board held that an employer’s motive in terminating an employee, or the existence or absence of an intention on the employer’s part to deter Section 7 activity, is irrelevant in determining the legality of severance agreement provisions.
Applying this standard, the NLRB found the non-disparagement provision in McLaren Macomb’s severance agreements unlawful. The Board reasoned that this provision would unlawfully prohibit employees from assisting co-workers by making public statements about the workplace or aiding the Board in an investigation. On this point, the Board noted that employees may continue to enjoy Section 7 rights even after their employment has ended.
Likewise, the Board found that the confidentiality provision would inappropriately prohibit employees from disclosing unlawful provisions in the agreements, assisting the NLRB in an investigation, or discussing the terms of the severance agreement with co-workers and union representatives.
The Board stated that non-disparagement and confidentiality provisions in severance agreements may be acceptable if they include broad carve-out language – for instance, specifying that such provisions do not prohibit employees from acting in concert with co-workers or participating in an NLRB investigation.
Finally, the Board held that McLaren Macomb had violated the NLRA by offering the severance agreements directly to the employees, without going through their union. The Board emphasized, however, that it would have found the non-disparagement and confidentiality provisions in the agreements unlawful even if the employer had appropriately conveyed the severance offers through the union.
Implications Of Decision
One factor limiting the effect of the McLaren Macomb decision is that supervisors are excluded from coverage under the NLRA. For this reason, severance agreements with employees who qualify as supervisors under the statute will not be affected by the decision.
It is also important to note that the holding applies only to confidentiality provisions relating to the terms of a severance agreement. Provisions requiring employees to keep trade secrets and other proprietary business information confidential are not affected by the decision.
Nonetheless, the effects of the McLaren Macomb decision are likely to be far-reaching. Severance provisions that, up until now, have been common may be found to violate the NLRA. Depending on the circumstances, this may result in an order that the employer reinstate the employee, make the employee whole for lost wages and benefits, and post notices at the workplace.
Accordingly, employers should confer with their labor counsel to determine whether their standard severance agreements should be modified in light of the McLaren Macomb holding. Ultimately, employers may decide to (i) remove non-disparagement and confidentiality language from their agreements; (ii) retain such provisions while adding broad carve-out language as dictated by the NLRB; or (iii) make no immediate changes to their severance agreements and wait to see if the decision is rejected by the federal appellate courts or narrowed by future NLRB decisions.
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If you have questions or concerns about the McLaren Macomb decision or any related NLRA issues, please feel free to contact one of our experienced labor attorneys.