The National Labor Relations Board issued another ground-breaking decision on February 21, 2023, ruling that confidentiality and nondisparagement agreements commonly included in employment severance agreements may be deemed unlawful under the National Labor Relations Act (NLRA). In McLaren Macomb, 372 NLRB No. 58 (2023), a divided Board found that these provisions were unlawful infringements upon employees’ rights to discuss working conditions that are guaranteed by Section 7 of the NLRA. This decision will affect most private sector employees and employers nationwide, regardless of union or non-union status.
McLaren Macomb involved an employer that offered severance agreements to employees who were furloughed. The severance agreements contained confidentiality and non-disparagement provisions, which stated:
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 found that the mere offer of the severance agreements to employees containing these provisions violated the NLRA, regardless of whether the employees agreed to sign the severance agreements or the employer attempted to actually enforce the agreements.
The Board’s decision purportedly is based on the rights guaranteed to employees under Section 7 of the NLRA and the related prohibition on employers interfering with employees’ exercise of those rights. Section 7 confers broad rights, including the right of employees to speak with coworkers and to make public statements about working conditions. Based on these rights, employers cannot generally prohibit or interfere with employees’ ability to speak to others about working conditions during employment. The Board has traditionally found, under various and shifting standards over the years, that any such rules contained in an employee handbook and applied to current employees would violate the NLRA.
The Board has now expanded its rule prohibiting restrictions on employee speech to the realm of severance agreements. Essentially, the Board holds in McLaren Macomb that employees have the right to speak about the terms of severance agreements with co-workers, unions, and other third parties without interference from employers. In this regard, the Board stated “[a] severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.” Additionally, the Board found that confidentiality and non-disparagement provisions could chill employees’ participation in NLRB proceedings and investigations. Based on these principles, the Board found that the employer in McLaren Macomb violated the Act merely by offering the severance agreements containing those provisions to employees.
Although the decision is broad in its scope, there is much left unaddressed. The case did not address the effect on the severance agreements had the employees signed them or if the employer had attempted to enforce the agreements, including whether the employees would be required to return any severance monies they had received if they sought to invalidate the confidentiality and/or non-disparagement provisions. The decision hinted at, but did not fully clarify, potential “carve-out” language that would avoid a violation through describing employees’ rights. Such “carve-out” language may require such a broad explanation that it would completely undermine the original intent of the confidentiality and non-disparagement language. Moreover, specific to non-disparagement language, the Board noted that extreme statements contrary to the core interests of the employer fall outside the protection of the NLRA and may be prohibited by employers, including in severance agreements.
The NLRB decision is still subject to an appeal and may be vacated some time in the future by an appeals court. While the NLRB’s decisions affect union and non-union employees alike, the Board cannot generally reach supervisors, managers, and other employees who are exempt from coverage of the NLRA.
Given the broad scope of this recent decision, employers should consider its impact when drafting, offering and enforcing severance agreements.
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