NLRB Imposes Broad Restrictions On Severance Agreements

On February 21, 2023, the National Labor Relations Board (NLRB or the Board) in McLaren Macomb  (372 NLRB No. 58) held that severance agreements containing broad non-disparagement and confidentiality provisions are unlawful under the National Labor Relations Act (NLRA or the Act) because they interfere with employees in their exercise of rights guaranteed under Section 7 of the Act.

 

The confidentiality and non-disparagement clauses at issue in McLaren are as follows: In June 2020, McLaren permanently furloughed 11 union-represented employees and offered them a severance agreement providing for payments in exchange for a release of employment claims. The severance agreements contained the following provisions that were found to be unlawful.

 

  • 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 concluded that broad confidentiality and non-disparagement provisions are unlawful because they tend to chill employees’ exercise of their Section 7 rights which include engaging in concerted activity and discussion about the workplace and the terms and conditions of employment.

 

The NLRB concluded that the confidentiality provision violated the Act because it would unlawfully prohibit employees from reporting unfair labor practices to the Board or from assisting the Board in investigations of such charges.

 

As for the non-disparagement provision, the Board found that it interfered with Section 7 because statements by employees about the workplace are central to the exercise of rights under the Act. The Board noted that since the non-disparagement provision was not limited to  employee communications that are “so disloyal, reckless or maliciously untrue”, the non-disparagement provision could limit employees’ publicizing a labor dispute, assisting other employees, and cooperating with Board investigations and litigation.

 

The mere offer of a severance agreement with terms that would restrict an employee’s Section 7 rights is an independent unfair labor practice regardless of whether the employee accepts the agreement.

 

Existing Agreements: The Board’s rules require employees to bring charges of unlawful labor practices within six months of the violation. This would suggest that any severance agreements signed more than 6 months ago are not subject to challenge, as long as an employer does not take any action to enforce an impermissible or unlawful provision.

 

If an employee files a claim with the NLRB regarding a severance agreement entered into prior to the McLaren ruling, an employer could argue against retroactive enforcement of the new standard because the NLRB permitted such provisions at the time the agreement was provided to the employee.

 

Pending unsigned agreements should be reviewed to determine if they should be amended or rescinded.

 

Employer Takeaways: 

 

McLaren decision does not apply to all workers

The NLRA protects only workers qualifying under the Act’s definition of employee. This excludes executives,  managers, supervisors, independent contractors, individuals employed by a parent or a spouse.  Except for any other non NLRA legal requirements, severance agreements with such workers may still contain confidentiality and non-disparagement provisions.

 

Employers likely have some protection against disparagement under McLaren

The Board in McLaren cited precedent holding that Section 7 does not protect an employee’s disloyalty or public criticism that is maliciously motivated

 

Options for Going Forward

There is no one size fits all answer. Ultimately, how an employer decides to proceed will require an assessment of a number of factors including the facts surrounding the employer’s offer of the severance agreement and the employer’s risk tolerance.

 

An employer could opt to remove all non-disparagement and confidentiality provisions from their agreements

 

If an employer’s business needs require confidentiality and non-disparagement provisions in its severance agreements, such provisions should be narrowly drafted i.e., a non-disparagement clause that is limited to an employee not disparaging a company’s products or services.

 

The severance agreement should expressly permit the employee freedom to file and support the filing of labor practices charges with the NLRB, as well as clearly stating that the severance agreement does not prevent the employee from bringing a regulatory or governmental agency charge, or from participating or cooperating in a regulatory or governmental investigation, or otherwise assisting the government in workplace investigations.

 

Include a strong disclaimer clause, explaining employee rights, and  expressly stating that the agreement does not and is not intended to prohibit employees from making statements or engaging in activities protected by the NLRA.

 

Severability language should also be included that provides that any provisions found to be invalid, unlawful or unenforceable shall be construed narrowly , and that the parties intend that the remainder of the provisions and the agreement shall be considered unaffected and shall continue to be given  force and effect.

 

The McLaren decision makes it clear that going forward, the NLRB will closely scrutinize Severance agreements and any restrictions those agreements place on employees’ rights under the Act.  However, even post-McLaren, it is possible that narrowly-tailored confidentiality and non-disparagement provisions may survive an NLRB challenge.

 

The content was provided by WPCCA legal counsel and is for general informational purposes only. Readers should consult with their own legal counsel for company specific legal advice.

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