The National Labor Relations Board (NLRB) recently issued a decision radically changing how employers may use (or, more accurately, not use) nondisparagement and confidentiality clauses in severance agreements.
The Decision
In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB ruled that McLaren Macomb Hospital violated Section 8(a)(1) of the National Labor Relations Act (NLRA) by offering to non-supervisor employees being permanently furloughed severance agreements that broadly prohibited the employees from making statements that could disparage or harm the image of the hospital and prohibited them from disclosing the terms of the agreement. Specifically, the agreements contained the following 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 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.
Section 7 of the NLRA protects the rights of non-supervisory employees “to engage in … concerted activities for the purpose of mutual aid and protection.” Any interference with those rights violates Section 8(a)(1) of the NLRA. The NLRB concluded that the above-cited nondisparagement and confidentiality provisions “interfere[ed] with, restrain[ed], or coerc[ed] employees’ exercise of Section 7 rights” and thus, because the severance agreements conditioned the receipt of severance benefits on the employees’ acceptance of those “unlawful provisions,” the hospital’s mere “proffer” of the agreement to the employees violated Section 8(a)(1) of the NLRA.
Specifically, the NLRB found the nondisparagement provision at issue “on its face” interfered with Section 7 rights because it broadly prohibited the employees from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer,” noting that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act.” The NLRB further reasoned that the broad provision had a chilling effect on “efforts to assist fellow employees, which would include future cooperation with the Board’s investigation and litigation of unfair labor practices with regard to any matter arising under the NLRA at any time in the future.”
Likewise, the NLRB determined that the confidentiality provision precluded employees from “disclosing even the existence of an unlawful provision contained in the agreement,” thereby tending to coerce employees from filing unfair labor practice charges or assisting the NLRB in an investigation, in violation of their Section 7 rights. The NLRB also determined that the confidentiality provision, as written, prohibited employees from discussing the severance agreement with former coworkers who may receive similar agreements, thereby impairing “the rights of the subject employee’s former coworkers to call upon him for support in comparable circumstances.” Finally, the NLRB deemed the confidentiality provision unlawful as it prohibited the employee from discussing the terms of the agreement with the union.
The McLaren Macomb decision reversed the pre-Trump era precedent, Baylor University Medical Center and IGT d/b/a International Game Technology, where the NLRB determined that confidentiality and nondisparagement provisions were generally lawful in severance agreements as long as the circumstances under which the severance was presented to employees did not involve an employee discharged in violation of the NLRA or another unfair labor practice displaying animus towards the exercise of Section 7 activity.
The Practical Implications
First, employers should keep in mind that this decision does not apply to employees who are supervisors or managers because Section 7 rights only apply to non-supervisory employees. For non-supervisory employees, employers should promptly review and consider revising their template severance agreements with respect to confidentiality and nondisparagement clauses. Certainly, the removal of such clauses provides the best protection against a finding that the severance agreements are unlawful and unenforceable (including with respect to the release of the employer within the agreement).
Rather than completely eliminating such clauses, employers could attempt to reduce the risk associated with such clauses by doing the following:
- Limiting the scope of confidentiality agreements to just the amount of consideration provided by the employer.
- Limiting the scope of a nondisparagement clause to essentially prohibiting unlawful defamation.
- Including caveats that nothing in the agreement is intended to interfere with Section 7 rights or filing unfair labor practice charges with the NLRB.
- Including a severability clause that attempts to limit the impact of a finding that any particular provision of the severance agreement is unlawful.
