All employers (yes, including non-unionized employers) need to consider removing from any severance agreements entered into with employees leaving the organization, generalized language that prohibits the employee from disparaging the organization (or its affiliates, officers, directors, employees, and the like) as well as requiring the employee to keep the severance agreement, events leading up to it, and any negotiations as confidential. In McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board (NLRB) (under Biden) has overruled several 2020 cases during which the NLRB (under Trump) had found such provisions permissible.
Under the NLRB’s new rule, the “mere proffer” of a severance agreement that conditions the employee receiving their severance pay on the “forfeiture of statutory rights”, which includes, now says the NLRB, accepting overbroad confidentiality and nondisparagement language, violates the National Labor Relations Act (NLRA).
In McLaren, a unionized teaching hospital permanently furloughed a group of union employees, presenting each with a severance agreement and general release. The agreement 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.
Despite being relatively standard severance agreement terms under prior NLRB precedent, the NLRB found the provisions unlawful and ordered McLaren to “cease and desist” from presenting employees with a severance agreement including the bolded provisions above.
Regarding the nondisparagement provision, the NLRB explained that because “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act,” the nondisparagement provision violated employees’ Section 7 Rights. Further, the NLRB objected to the breadth of the Hospital’s nondisparagement clause, noting that it was “not even limited to matters regarding past employment with the [Hospital],” and would ultimately “encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Hospital.” The NLRB also noted that the provision had no temporal limitation and applied not only to the Hospital, but to its parents, affiliated entities and their officers, directors, employees, agents and representatives.
Regarding the confidentiality provision, the NLRB found it overly broad because it prohibited employees from disclosing the terms of the agreement to “any third person” which would prohibit employees from “disclosing even the existence of an unlawful provision contained in the agreement,” which could deter employees from filing unfair labor practice charges or assisting the NLRB in an investigation. Further, the NLRB read the provision to prohibit employees from discussing the existence or terms of the severance agreement with others, including union officials or other employees who may have received similar agreements.
Notably, neither the confidentiality clause nor the nondisparagement clause in McLaren contained a disclaimer regarding preservation of an employee’s rights under the NLRA (and therefore, the NLRB did not address the possible impact of such a disclaimer on the legality of the provisions).
Some Final Important Points
The NLRB did not clarify if this decision applies to agreements that were proffered or executed prior to February 21, 2023. Given there is a six month window of time for an unfair labor practice charge to be filed, those executed outside that window will be safe.
Because the NLRA applies only to “employees” as defined within the statute, this decision does not apply to agreements with executives, managers, supervisors or independent contractors.
While this case arose in the context of a severance agreement, it is virtually certain the NLRB will extend its reach to any other similar agreements with employees that contain similar language.
To be clear, the NLRB did not hold that all confidentiality and nondisparagement clauses violate the NLRA, but the specific language above did for the reasons the NLRB explained. As such, confidentiality and nondisparagement provisions that are properly worded to address the concerns raised by the NLRB, as well as including robust disclaimer language that the agreement is not infringing on an employees rights protected by the NLRA, could pass muster. This is when consulting with your employment counsel would be critical.