NLRB Invalidates Common Confidentiality and Non-Disparagement Clauses in Severance Agreements

In McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), the National Labor Relations Board (NLRB) held that an employer’s inclusion of overbroad non-disclosure, confidentiality and non-disparagement provisions in severance agreements unlawfully infringed upon employees’ Section 7 rights, and thus violated the NLRA.

The Case
In McClaren Macomb, the employer (a hospital in Michigan) furloughed 11 union employees during the COVID-19 pandemic and presented the employees with severance agreements conditioning payment of severance on execution of the agreement. The agreement included a general release of claims, along with broad confidentiality and non-disparagement provisions, which precluded employees from (1) disclosing the terms of the agreement 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,” and (2) “at all times hereafter […] mak[ing] statements to Employer’s employees or to the general public which could disparage or harm the image of Employer” or any affiliated entities.

Decision and Reasoning
The administrative law judge (ALJ) who initially heard and decided the case determined that “the confidentiality and non-disclosure provisions in McLaren’s severance agreements were lawful. The agreements were voluntary, only offered to separated workers, and did not impact their previously accrued benefits.”

The NLRB reversed the ALJ’s decision on this point and overruled two previous NLRB decisions, Baylor University Medical Center and IGT d/b/a International Game Technology (both decided in 2020 during the Trump administration), which held that an employer could lawfully offer a severance agreement to employees that required an employee to waive Section 7 rights via confidentiality and non-disparagement clauses, so long as there was no showing of additional unlawful conduct by the employer.

The Board went so far as to hold that the mere act of offering a severance agreement with such terms was an unfair labor practice without any further proof of employer wrongdoing, because the act of “conditioning receipt of those benefits on acceptance of unlawfully coercive terms” was coercive in and of itself, and thus an 8(a)(1) violation of the Act.

In addressing the non-disclosure/non-disparagement provision, the Board stated that prohibiting communication among employees was an express violation of Section 7. The Board also took issue with the provision’s expansive reach (applying to statements that might disparage not only the hospital, but also the hospital’s affiliated entities, officers, directors, employees, agents and representatives) and its lack of temporal limitation (applying “at all times hereafter”).

With regard to the confidentiality provision, the Board reasoned that the language was so broad that it precluded employees “from disclosing even the existence of an unlawful provision contained in the agreement,” and that its bar on communications with coworkers and others, including the employees’ union, had an “impermissible chilling effect” on the employee’s ability to engage in Section 7 rights.

McClaren Macomb expressly overturned both Baylor and IGT, and returned the focus of the analysis to the language of the provisions within the severance agreement, not the employer’s intent, or the existence of any other unlawful acts by the employer.

Procedural Posture and Potential Future Litigation
The Board’s decision is subject to appeal to an appropriate U.S. Circuit Court of Appeal, and then, potentially, to the U.S. Supreme Court. Whether as part of this case, or another case in the future, it is likely that the McClaren Macomb decision will be reviewed by a federal court in the future and potentially scaled back.

McClaren Macomb Applies to Statutory “Employees”—Whether or Not Unionized
As noted above, both unionized and non-unionized employees who fall within the NLRA’s definition of “employee” are afforded Section 7 rights and protections under the Act, and thus, McClaren Macomb will impact virtually all employers, regardless of whether any employees are formally represented by a union or seeking unionization.

There is some good news for employers in that the NLRA only applies to statutory “employees”—which, by definition, does not include supervisors, managers or executives, as well as certain other “confidential” employees (e.g., HR and certain finance employees). Independent contractors are also excluded from the NLRB’s jurisdiction.

Severance agreements entered into with any such individuals therefor will not be subject to the NLRB’s new standards discussed herein.

Open Questions
The Board’s decision leaves many unanswered questions, with two being perhaps the most notable and pressing for employers: First, can severance agreements that have already been signed by employees be retroactively invalidated by the decision? And, second, to what extent can an employer permissibly include confidentiality and non-disparagement provisions in severance agreements going forward? We may see advice from the NLRB’s General Counsel on these topics. 

Recommendations for Employers
In light of the McLaren Macomb decision, employers should review their severance and separation agreements and consider making changes to bring their agreements for non-supervisory employees more in line with the decision. Although the NLRB failed to provide clear guidelines as to whether and to what extent any confidentiality and/or non-disparagement clauses would be deemed lawful, it would behoove employers to ensure that any confidentiality and non-disparagement provisions are narrowly tailored, and that carve-outs are included for any statutory right that cannot be waived as a matter of law.

Given the importance and uncertainty surrounding this area of law at this time, employers are advised to consult with labor and employment counsel to review and revise their severance agreements to ensure maximum protection and enforceability.