March 08, 2023

NLRB Rules Broad - Yet Common - Confidentiality and Non-Disparagement Provisions in Severance Agreements Are Unlawful

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On Feb. 21, the National Labor Relations Board (NLRB) ruled that severance agreements with broad - yet common - confidentiality and non-disparagement provisions are unlawful. Employers routinely include confidentiality and non-disparagement provisions in separation or severance agreements that generally prohibit a departing employee from disclosing the terms of the agreement or disparaging the company in exchange for a payment to which the employee would not otherwise be entitled. The decision applies to separation agreements with both Union-represented employees and non-Union employees at virtually all private-sector employers in the United States due to the law's broad applicability to employers engaged in interstate commerce under the National Labor Relations Act (NLRA).

In McLaren Macomb, a Michigan hospital permanently furloughed 11 employees in the midst of the COVID-19 pandemic and offered each of them a severance agreement. The severance agreement contained a confidentiality provision prohibiting each employee from disclosing the terms of the agreement to any third person. It also contained a provision prohibiting the employee from making "statements to the Employer's employees or to the general public which could disparage or harm the image of [the] Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives."

The NLRB found that both the confidentiality and non-disparagement provisions were unlawful because - according to the Board - they had a chilling effect on the employees' exercise of their rights under the NLRA, including the right to disclose that the employer had violated the NLRA, to file charges or assist with Board investigations, and to discuss the terms of the severance agreement or prior employment with former coworkers. As a remedy for this violation of the law, the NLRB ordered the employer to cease using the severance agreements with these provisions, and to post a notice of its violation.

The NLRB's decision reverses its prior rulings in Baylor University Medical Center and IGT d/b/a International Game Technology, both issued in 2020, where it found that offering similar severance agreements to employees was not unlawful, by itself. In McLaren Macomb the NLRB expressly rejects the reasoning of the Trump-era rulings that severance agreements with these types of provisions are lawful because they are voluntary, do not explicitly prohibit protected conduct, and apply only to post-employment activity. Going forward, "a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers' [mere] proffer of such agreements to employees is unlawful," regardless of whether the employee has been separated for lawful reasons or whether the employer actually seeks to enforce the agreement.

Notably, because the NLRA does not apply to "supervisors," the NLRB's decision does not impact these types of provisions in agreements with managers, executives, and other senior personnel. See 29 U.S.C. § 152(3). Whether an employee is a supervisor under the NLRA is often a fact-intensive inquiry that employers may need to make prior to presenting an employee with a severance or separation agreement.

Employers should keep the NLRB's decision in McLaren Macomb in mind when preparing severance agreements - and all employment agreements generally. Employers should also be aware that the NLRB is currently assessing whether it should adopt a similar standard for all work rules, including confidentiality and non-disparagement policies.[1] The NLRB's decision in McLaren Macomb (or other decisions applying it) is potentially subject to review in the federal courts of appeal. Until there are definitive court rulings, employers will need to carefully assess the risks associated with having broad confidentiality and non-disparagement provisions in both published policies and separation agreements applicable to non-supervisory employees.

[1]See Stericyle, Inc. and Teamsters Loc. 628, 371 NLRB No. 48 (N.L.R.B. Jan. 6, 2022) (inviting briefs "to consider whether the Board should adopt a new legal standard to apply in cases where an employer's maintenance of a facially-neutral work rule is alleged to violate Section 8(a)(1) of the National Labor Relations Act").

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