It is hardly a secret that most employers routinely incorporate confidentiality and non-disparagement obligations in severance agreements for departing employees. On February 21, 2023, the National Labor Relations Board (NLRB) shined its spotlight on this practice and issued a decision that may affect whether and how employers incorporate these terms into severance agreements in the future – at least in the near term.
The NLRB’s McLaren Macomb decision evaluated the particular language used in severance agreements that 11 bargaining unit employees received in connection with a permanent furlough. The NLRB concluded that “the nondisparagement and confidentiality provisions of that agreement interfere with, restrain, or coerce employees’ exercise of Section 7 rights” in violation of Sections 7 and 8(a)(1) of the NLRA.
Section 7 of the NLRA guarantees employees the right to, among other things, engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection, as well as the right to refrain from any or all such activities. Section 8(a)(1) makes interference with that right an unfair labor practice.
In reaching its conclusion, the Board evaluated the following clauses:
6. 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.
7. 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 NLRB noted its longstanding position that even proffering agreements containing such broad prohibitions to employees constitutes “unlawfully coercive” conduct. In addition, the NLRB noted its “long-settled” position (overruling a pair of 2020 decisions by the Trump-era NLRB) that any provision of a severance agreement that has a “reasonable tendency to interfere with, restrain, or coerce the exercise of employee rights under Section 7 of the [NLRA]” is unlawful. According to the Board, the analysis begins with the Section 7 protections employees are entitled to exercise under the NLRA. Specifically, Section 7 offers protection to employees communicating with a wide range of third parties including: administrative, judicial, legislative and political agencies; the media (including social media); and communications with the public that are part of ongoing labor disputes so long as the communications are not so “disloyal, reckless, or maliciously untrue as to lose the Act’s protection.” The NLRB noted its obligation to preserve those protections necessitated its review of severance agreements that potentially violate Section 8(a)(1) of the NLRA.
The NLRB highlighted specific reasons that the above clauses violate Section 8(a)(1) of the NLRA. First, as to the non-disparagement restriction, the NLRB focused on the broad language of the restriction. Specifically the prohibition on “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer” constituted a violation of the employees’ central rights under the NLRA. In other words, the language of the agreement failed to define “disparagement” adequately and, as a result, constituted a comprehensive ban on “conduct regarding any labor issue, dispute, or term and condition of employment.” Second, the NLRB noted that the offending provisions did not only inure to the benefit of the employer but also broadly proscribed statements towards the employer’s parents, affiliated entities, officers, directors, employees, agents and representatives. Third, the NLRB focused on the lack of temporal limitation, finding that it had a perpetual chilling effect on future conduct. Without a time limitation, the NLRB concluded that the language resulted in a “sweeping bar” that prevented the furloughed employees from raising or assisting with complaints about the employer with their “former co-workers, the Union, the [NLRB], any other government agency, the media, or almost anyone else.” Although less detailed, the NLRB found the confidentiality provision unlawful for similarly reasons—primarily the overbroad aspect of the prohibition on communication.
It is worth noting that the NLRB’s recent decision does not apply to all employees, only nonmanagerial employees with Section 7 rights under the NLRA. Further, the NLRB stopped short of explaining what type of language employers could include in order to incorporate a non-disparagement or similar provision that does not infringe upon an employee’s Section 7 rights. Therefore, it is imperative that employers review their current practices when drafting and utilizing severance agreements (as well as other kinds of employment agreements) in order to ensure that they comply with the most recent authorities from the NLRB in this regard.
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