In a recent decision, the National Labor Relations Board (“Board”) ruled that overly broad confidentiality and non-disparagement clauses in severance agreements are unlawful. In fact, even the mere offering of a severance agreement with these clauses is unlawful. Employers typically include these clauses in severance agreements either to restrict an employee from discussing the severance terms with coworkers or to restrict the employee from publishing false or defamatory comments about the employer following the employee’s departure from the company. The Board reasoned that these two clauses, if drafted too broadly, might cast too wide a net and have a “chilling effect” on an employee’s exercise of their protected rights under the National Labor Relations Act (“Act”). This ruling applies to severance agreements offered in union and non-union private-sector workplaces.
The McLaren Macomb Decision
In McLaren Macomb, an employer offered severance agreements to employees laid off during the COVID-19 pandemic. In order to receive the severance payments, the former employees were required to keep the terms of the agreement confidential and to refrain from making statements about the employer that would disparage it or harm the image of the employer or “its parent company or affiliated entities and their officers, directors, employees, agents or representatives.” The NLRB held that the Act requires a review of the specific language of these provisions to determine if the language interferes with employees’ exercise of rights under the Act, such as discouraging existing employees from obtaining assistance from former employees subject to confidentiality provisions to address workplace conditions. In its decision, the Board ruled that:
Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed.
Consequently, the Board found that the severance agreement terms, specifically the broad confidentiality and non-disparagement provisions, precluded the exercise of the employees’ section 7 rights and therefore violated the Act.
McLaren Macomb overruled two prior NLRB decisions previously issued under the Trump administration. In Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020), the Board ruled that these confidentiality and non-disparagement provisions are not per se unlawful in severance agreements. Rather, the Board reviewed the circumstances under which the severance agreement had been presented to the employee to determine whether the confidentiality and non-disparagement provisions could withstand scrutiny under the Act. In Baylor, the Board held that severance agreements containing these provisions are unlawful when an employer has engaged in conduct in violation of the Act, or when an employer has committed a coercive or discriminatory labor practice, and then seeks to obtain the silence of employees by way of these two provisions. The Board in Baylor also reviewed the employer’s animus towards the exercising Section 7 rights when determining the legality of a severance agreement at issue. The Board took a similar approach in IGT shortly after issuing the Baylor decision.
Guidance Published by the Board’s General Counsel
Naturally, this decision has been a cause for concern for employers and has raised questions. In response, the Board’s General Counsel (“GC”) issued a memorandum to NLRB Regions on March 22, 2023, with guidance. Major takeaways from this guidance include the following:
- Severance agreements that only seek to waive an employee’s right to pursue employment claims arising up to and including the effective date of the agreement continue to be acceptable.
- The McLaren decision has retroactive application. The guidance clarifies that the unlawful proffer of a severance agreement with one of these overly broad clauses will be subject to a six (6) month statute of limitation in accordance with the Act. However, an employer’s efforts to maintain or enforce a severance agreement with one of these unlawful clauses may be considered a “continuing” unfair labor practice (“ULP”) and not subject to the six (6) month statute of limitations. In other words, a former employee who was issued a severance agreement with one of these unlawful provisions could, in theory, have an ongoing claim even though the agreement was issued to the employee more than six (6) months ago.
- The McLaren decision may provide protections for supervisors to the extent that the supervisor was issued a severance agreement that interferes with the supervisor’s right to participate in a Board investigation.
- That employers could consider proactively notifying former employees with signed severance agreements that any potentially unlawful provisions are null and void. However, this step requires a careful legal review of the provisions in the particular severance agreement and the risks before this irreversible step should be contemplated.
Next Steps for Employers
Following the McLaren Macomb decision, employers must now avoid unlawful restrictions in their severance agreements. The Board’s language in the McLaren Macomb decision mentions the following concerns explicitly:
- Language that creates a reasonably tendency to interfere, restrain, and coerce employees’ exercise of rights under Act;
- Overly broad language related to confidentiality, such as preventing the discussion of terms with a former coworker in a similar predicament; and
- Prohibitions of disparaging remarks which could be detrimental to an employer but beneficial to assist former or future coworkers in resolving a complaint of unlawful conduct.
While the Board’s decision could be challenged in one or more appellate courts at some point in 2023, a final decision – either affirming or overturning the NLRB rule – could take several years or more. For now, employers are encouraged to consult with an employment attorney to review of their existing severance agreements before taking any action and before offering any new agreements to determine if any changes are necessary.