The National Labor Relations Board last week sent employers into a frenzy over their severance agreements when it declared most standard nondisparagement and confidentiality provisions unlawful and held that even the mere proffer of severance agreements containing such provisions to employees violates federal labor law. The Board’s decision impacts private sector employers in union and nonunion workplaces.

The Board’s decision Feb. 21 in McLaren Macomb reverses a set of cases decided in 2020 by a then-Republican-controlled Board, which held that severance agreements containing coercive language, without more, were not unlawful.[1] In those cases, the Board considered only whether the circumstances surrounding the offer of the agreement were coercive – not whether the language itself was coercive. In McLaren Macomb,the Board’s now-Democratic majority said it was returning to well-established precedent that the plain language of an agreement containing a broad waiver of employee rights will, in and of itself, be unlawful.

McLaren Macomb’s Unlawful Severance Provisions

The Board invalidated the following provisions in McLaren Macomb’s severance agreement, which the hospital had offered to several unionized employees who were furloughed in 2020:

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. …[A]t 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 agreement also provided for substantial monetary and injunctive sanctions against employees who breached these provisions.

The Board explained in its decision that these provisions restricted the furloughed employees’ statutorily protected rights to file charges with the NLRB, assist other employees with filing charges and assist in the Board’s investigative process. The agreement also restricted the furloughed workers from discussing the terms of their agreements with “any third person,” which would include former colleagues, a union, the NLRB, the media, and others – a restriction prohibited by the National Labor Relations Act.

The Board made clear that neither the voluntary nature of the agreement nor the fact that an employee has already separated from employment when the offer is presented are material to its analysis if the language contained in the agreement itself is coercive or unlawful. The Board stopped short of barring nondisparagement and confidentiality provisions altogether, instead dictating that such provisions must be narrowly tailored to respect employees’ statutory rights. Nevertheless, practitioners and employers may be able to draw some guidance about what might pass muster from the Board’s critique of McLaren Macomb’s severance agreement.

In particular, the Board said the company’s nondisparagement clause was “sweepingly broad” because it was not limited to matters of past employment, did not define disparagement in a way that the Board has deemed acceptable (i.e., limited to statements that are reckless or maliciously untrue), lacked temporal limitation and applied not only to the employer but also to its “parents, affiliated entities, officers, directors, employees, agents, representatives.” Likewise, the confidentiality provision’s ban on speaking to “any third party” on its face was problematic because it restricted employees from engaging in a basic right under the Act – that is, the right to improve their lot as employees through channels outside the immediate employee-employer relationship.

The Board was silent about whether its decision will apply retroactively to existing severance agreements, but the NLRA’s six-month statute of limitations period would serve to limit liability. The Board’s decision is subject to appeal, but at this time, it is extant law and we expect that the NLRB will be scrutinizing severance agreements that come across its desk (the NLRB does not have independent investigative authority).

Key Takeaways for Employers

• Not all employers and employees are affected by this decision. The Board’s jurisdiction covers only the private sector and exempts certain categories of employees such as independent contractors and supervisors as defined by Section 2(11) of the NLRA.
• The decision affects union and nonunion workplaces alike.
• Employers may wish to take this opportunity to evaluate the need for broad nondisparagement and confidentiality provisions in their separation and severance agreements, and may consider narrowing or removing those provisions for non-supervisors to comply with the NLRB’s recent decision.
• Employers who want to keep some form of protection in these areas should review prior NLRB decisions and guidance to determine what narrow provisions might be acceptable.
• Historically, broad disclaimers (i.e., informing employees subject to the agreement that the confidentiality and nondisparagement provisions are not meant to restrict them in the exercise of their Section 7 rights) have not been viewed as sufficient to save a provision the NLRB viewed as unlawful, and likely would not suffice in this case.
• Employers should continue including severability clauses in their agreements, though the Board did not address in McLaren Macomb whether or how severability clauses might save a severance agreement containing unlawful provisions.

Miles & Stockbridge’s labor lawyers routinely assist employers with NLRB matters, collective bargaining, and other issues affecting unionized workplaces.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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