The continued efforts of the National Labor Relations Board (NLRB) to roll back pro-employer rulings issued during the Trump Administration took a big jump forward recently when the Board effectively barred the use of certain types of confidentiality and non-disparagement provisions in severance agreements.  As discussed more fully below, the Board relied upon prior NLRB precedent holding that such provisions violate employees’ Section 7 right to discuss their terms and conditions of employment and their working conditions with each other and other third parties.  This decision applies to both union and non-unionized workplaces, and it could materially impact, among other things, the incentive for employers to enter into severance or settlement agreements with departing employees.  

Background

Until 2020, NLRB precedent generally held that an employer violated the Act where its severance agreement contained provisions that had a reasonable tendency to interfere with, restrain, or coerce employees’ ability to exercise their rights under Section 7 of the NLRA.  In 2020, the Trump-era NLRB departed from that precedent and issued a pair of decisions holding that conventional confidentiality and non-disparagement provisions would be lawful as long as there were no surrounding circumstances that could be deemed coercive, such as an unlawful discharge or discrimination against the recipient of the severance agreement.  

Under these rulings, the inclusion of a typical confidentiality provision prohibiting employees from disclosing the existence or terms of the severance agreement or otherwise disclosing anything about their employment to a third party, and/or a typical non-disparagement provision barring employees from speaking negatively about the employer, was lawful, provided there were no other circumstances indicating coercion of the employee.  

That was until the NLRB’s recent decision in McLaren Macomb, 07-CA-263041 (February 21, 2023).  

The New Rule

In McLaren Macomb, the NLRB adopted a new rule for confidentiality and non-disparagement provisions in a severance agreement by holding that where an agreement “unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights” (such as confidentiality and non-disparagement provisions regularly included by employers), the employer violates the NLRA by merely proffering such an agreement, because doing so has a reasonable tendency to interfere with the exercise of Section 7 rights of the employee. 

In McLaren Macomb, 11 union employees working at a Michigan hospital were permanently furloughed. The employees were offered a severance agreement which included 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.”

Under the 2020 NLRB decisions, the foregoing provisions were lawful.  But the McLaren Macomb Board found the bolded portions of the confidentiality provision to be unlawful because they prohibited disclosure of the terms of the agreement to any third party, which could interfere with the employees’ exercise of their right to file an unfair labor practice charge or assist an NLRB investigation, and because they prevented employees from discussing the terms of the agreement with coworkers.  

The Board held the non-disparagement language to be unlawful because: (1) it was not limited to past employment matters with the employer, (2) it left “disparagement” undefined and therefore potentially restrictive of what the Board considers to be protected speech under the Act, (3) it was so overbroad as to include not just the employer itself but related entities, as well as other employees, officers, directors, etc., and (4) there was no temporal limitation on the non-disparagement requirement.

What employers does this decision apply to?

This ruling applies to all private employers, union and non-union, who have “employees” as defined by the NLRA.

What employees does this decision apply to?

This only applies to “employees” as defined by the NLRA and, therefore, does not apply to statutory supervisors and managers.  As such, confidentiality and non-disparagement clauses can still be utilized in separation agreements with supervisory personnel. 

Does this decision only apply to severance agreements?

While the McLaren Macomb decision specifically addressed such provisions in the context of severance agreements, it is likely that the Board would apply the same ruling to separation and settlement agreements.  In that regard, the Board did note a prior decision involving a settlement agreement which it deemed overturned by its new ruling.  

It is also anticipated that the Board will reverse additional Trump-era Board precedent addressing various employee handbook policies, and will apply the same “reasonable tendency to chill Section 7 rights” analysis that it applied in McLaren Macomb.  

Can employers still include conventional confidentiality and non-disparagement provisions in their separation agreements but avoid NLRA liability by not enforcing those terms?

This practice is not recommended. As noted, the NLRB now considers it unlawful coercion for an employer simply to offer a severance agreement that contains these provisions.  

Are ALL confidentiality and non-disparagement provisions unlawful?

Not necessarily. The Board did note that “narrowly-tailored” non-disparagement or confidentiality provisions could be permissible. The Board, however, did not define “narrowly-tailored” in this context, nor did it provide guidance or examples to employers as to what would constitute acceptable provisions.  Board precedent suggests that non-disparagement provisions limited to malicious and false statements about the employer might pass muster under the new standard.  It is hoped that greater clarity will be provided by the NLRB as additional cases are decided under the new standard.  

What are suggested next steps for employers?

Employers are left with a number of options to consider, depending on the facts and circumstances confronting them, as well as what they are interested in protecting and their risk tolerance.  Completely removing confidentiality and non-disparagement language from their severance agreements would obviously be the safest move, but would just as obviously deprive the employer of any protection otherwise afforded by those provisions.  

For employers who do wish to retain some degree of confidentiality and non-disparagement protection, the best option is to work with counsel to discuss language options that might meet their particular objectives without running afoul of McLaren Macomb. 

Many questions remain, including whether a severability clause would be sufficient to avoid NLRA liability for otherwise unlawful severance agreement provisions and whether McLaren Macomb will be applied retroactively to existing agreements.