On January 5, 2023, the FTC proposed a rule banning, with limited exceptions, the use of non-compete clauses in employment contracts. Six weeks later, the National Labor Relations Board (the “Board”) issued a decision further limiting employers’ toolboxes by restricting the provisions permitted in severance agreements.

On February 21, 2023, in McLaren Macomb,^[1] the Board held that employers may not offer severance agreements requiring employees to broadly waive rights provided to them by the National Labor Relations Act (the “NLRA”). Specifically, the decision focused on a severance agreement that included the following broad non-disparagement and confidentiality 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.

In finding the proffered severance agreement including these provisions to be unlawful, the Board overruled the previous Board’s decisions in Baylor University Medical Center^[2] and IGT d/b/a/ International Game Technology.^[3] Before Baylor and IGT were decided in 2020, the Board had focused on the language of severance agreements when determining whether proffering those agreements impacted employee rights under the NRLA.^[4] In Baylor and IGT, the Board shifted its framework, and focused on the circumstances surrounding the proffering of the severance agreements rather than the language of the agreements themselves.

With McLaren Macomb, the Board returns to the pre-Baylor framework, so that “an employer violates Section 8(a)(1) of the Act when it proffers a severance agreement with provisions that would restrict employees’ exercise of their NRLA rights.” In such a case, where the severance agreement’s language “on its face” is problematic, the “mere proffer of the agreement itself violates the Act,” regardless of the surrounding circumstances.

Employers must take note of this significant return to the pre-Baylor standard and ensure that the language in severance agreements does not restrict employee rights. Non-disparagement provisions and confidentiality provisions are two of the main tools that employers use to protect their interests in severance agreements, so it is important to note that in McLaren Macomb, the Board does allow for the possibility of the continued use of those provisions – if they are “narrowly tailored” to “respect the range of those rights” protected by the NRLA.

[1]Case No. 07-CA-263041

[2]369 NLRB No. 43 (2020)

[3]370 NLRB No. 50 (2020)

[4] Violations of Sections 7 and 8(a)(1) of theNRLA are at issue in these severance agreement cases. Section 7 guarantees employees "the right toself-organization to form, join, or assist labor organizations, … and to engagein other concerted activities for the purpose of collective bargaining or othermutual aid or protection," as well as the right "to refrain from anyor all such activities." Section 8 a)(1) prohibits employers frominterfering with, restraining, or coercing “employees in the exercise of therights guaranteed in Section 7."