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NLRB Rules that Standard Confidentiality and Non-Disparagement Provisions in Severance Agreements Violate Federal Law

Date

March 1, 2023

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3 minutes

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On February 21, 2023, the National Labor Relations Board (NLRB) issued its decision in McLaren Macomb [1], overturning recent precedent and finding that giving an employee a severance agreement containing commonly used confidentiality or non-disparagement provisions violates the employee’s rights under the National Labor Relations Act (NLRA). This decision means that employers that use severance agreements with non-supervisory employees need to review – and likely revise – their standard forms.

This case arose after a unionized hospital in Michigan furloughed nearly a dozen employees in June 2020, offering each of them a severance agreement in exchange for releasing employment claims. The severance agreements contained broad confidentiality and non-disparagement provisions that prohibited the employees from disclosing the terms of the severance agreement to any third parties and from making statements to other employees or to the general public which could disparage or harm the hospital or those affiliated with it.

The NLRB found that the confidentiality provision would prohibit an employee from discussing the agreement with union representatives and other employees and thus unlawfully restricted the employees’ right to communicate with others about their employment and to assist co-workers and former co-workers with workplace issues.

Similarly, the NLRB found that the non-disparagement provision was impermissible because it would prohibit statements beyond the “disloyal, reckless or maliciously untrue” statements by employees that the Supreme Court has found can be limited by an employer.

Because these provisions “interfere with, restrain or coerce employees’ exercise” of their rights, the NLRB found that giving an employee an agreement containing them violates the NLRA.  The NLRB’s decision in this case overturned recent precedent that looked to the circumstances of the severance agreement, rather than just to its text, to assess permissibility.

Who the Decision Covers – and Doesn’t Cover

The NLRB’s decision impacts all US employers that use severance agreements with non-supervisory employees – whether their workforce is unionized or not. It is important to note, though, that because the NLRA only applies to employees in non-supervisory roles and doesn’t cover supervisors, managers, and executive-level roles, severance agreements with these employees are not affected by the McLaren decision.

What does this mean for Severance Agreements going forward?

In light of the McLaren Macomb decision, it is critical that employers revisit standard separation agreements and adjust confidentiality and non-disparagement language.  However, what exactly employers choose to do in response will depend on their risk tolerance.  Employers wishing to avoid a potential violation altogether should remove confidentiality and non-disparagement provisions from their separation agreements with non-supervisory employees.  However, it remains to be seen whether adding a clear disclaimer that nothing in the agreement limits the employees’ rights under the NLRA (which the agreements in McLaren Macomb did not include) will suffice to avoid a violation.   As such, and until the NLRB speaks further, employers may choose to take some risk and use limited confidentiality and non-disparagement clauses together with a clear disclaimer rather than removing them all together.

Next Steps

The NLRB’s decision is subject to appeal, but, going forward, the NLRB is likely to closely scrutinize any severance agreement that includes confidentiality or non-disparagement provisions. In the wake of this decision, employers should consider taking the following steps:

  • Reviewing and updating form severance agreements that are used with non-supervisory employees.
  • Removing confidentiality and non-disparagement provisions from severance agreements if they restrict employees’ rights under the NLRA or (depending on risk tolerance) carefully tailoring such provisions to be as narrow as possible and adding a clear disclaimer that nothing in the agreement restricts the employee from assisting co-workers or former co-workers with workplace issues, from communicating with others about their employment, or from engaging in other protected concerted activity.
  • Including severability language in the severance agreement so that the remainder of the agreement remains intact even if the confidentiality or non-disparagement provision is deemed impermissible.

If you have questions about the NLRB’s decision, severance agreements, or other employment matters, do not hesitate to reach out to LP’s Employment & Executive Compensation Group.


[1] 372 NLRB No. 58.


Filed under: Employment & Executive Compensation

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