National Labor Relations Board Finds Employer’s Offer of Severance Agreements Unlawful Due to Their Confidentiality and Non-Disparagement Provisions
Employers―in both unionized and non-unionized settings―are considering, after the February 21, 2023 decision by the National Labor Relation Board (NLRB), whether to continue to include confidentiality and non-disparagement provisions in severance and separation agreements. The NLRB’s decision, finding that many such agreements violate section 7 of the National Labor Relations Act (the “Act”), received widespread media coverage. However, the decision’s actual impact may be more limited than portrayed. Employers should evaluate the decision with a view toward its impact on their individual workforces and policies.
In McLaren Macomb, No. 07-CA-263041 (NLRB Feb. 21, 2023), the employer operated a hospital in Michigan with a unionized workforce. During the COVID-19 pandemic, the employer temporarily ceased performing certain medical procedures and using nonessential personnel. As a result, it permanently furloughed eleven employees deemed nonessential. The employer offered to each of the eleven furloughed employees a severance package which included the following confidentiality and non-disparagement 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.
The employer contended the above provisions were lawful under standards established by the Trump-era NLRB. However, the NLRB, now dominated by a majority of members appointed by President Biden, held that the provisions have a tendency to “interfere with or restrain” the employees from engaging in conduct protected by the Act, such as by publicly discussing their terms and conditions of employment or disclosing the severance agreement to the NLRB. The NLRB therefore concluded that the confidentiality and non-disparagement provisions were overbroad, and the employer violated Section 8(a)(1) of the Act by offering the severance agreements to the furloughed employees.
In so holding, the NLRB specifically overturned two Trump-era NLRB decisions from 2020, Baylor University Medical Center and IGT d/b/a International Game Technology. Those cases held confidentiality and non-disparagement provisions are illegal only when the employer committed a separate unfair labor practice by implementing such conditions, under circumstances that involved anti-union animus or the restraint of an employee’s rights under the Act. The current Biden-era NLRB has now held it will determine the legality of severance agreement provisions “regardless of the surrounding circumstances,” and that no separate unfair labor practice finding is required.
The McLaren Macomb decision gives pause to any employer intending to include confidentiality and non-disparagement provisions in severance agreements. However, the decision is limited in some respects:
- Managers, most supervisors, all public sector employees, and most agricultural workers are not covered by the Act, which means severance agreements offered to such employees are not subject to NLRB scrutiny. An employer must therefore consider, before offering a severance agreement containing a non-disparagement or confidentiality provision, whether the employee is covered by the Act. Keep in mind that the Act applies to both unionized and non-unionized workforces.
- The NLRB’s decision stopped short of holding that all confidentiality and non-disparagement provisions violate the Act, but also provides little clarity on acceptable provisions. Accordingly, the current NLRB will examine the particular language of the agreement, “including whether any relinquishment of Section 7 rights is narrowly tailored.” In this respect, the Board suggested that a disclaimer in a severance agreement would need at a minimum to specifically allow the employee to: (i) participate in Section 7 activity including making truthful statements about the terms and conditions of employment; (ii) file an unfair labor practice (ULP) charge; (iii) assist others in doing so; and (iv) otherwise cooperate with the NLRB’s investigative process. Employers should anticipate an NLRB General Counsel advisory memo or other clarification from the agency regarding the McLaren Macomb decision. Any General Counsel advisory memo may include examples of confidentiality and non-disparagement provisions the General Counsel deems permissible.
- The Act bars employees from bringing unfair labor practice charges that do not involve an alleged violation within the past six months. Severance agreements entered into more than six months ago would likely be subject to a statute of limitations defense.
- The NLRB’s decisions are not “self-executing.” This decision will likely be appealed to a federal court of appeals, which has the authority to enforce the decision or set it aside.
- This is not the NLRB’s first effort to police otherwise common or unexceptional company policies. NLRB members are appointed by the President of the United States, subject to Senate confirmation. The Obama-era NLRB subjected employee handbook policies, whether in a unionized or nonunionized company, to a historically extreme level of scrutiny, only to have the Trump-era NLRB relax those standards in 2017. McLaren Macomb was decided by a divided NLRB, with the majority comprising the NLRB’s three Democrats. Just as the 2020 Trump-era decisions, Baylor University and IGT, were overturned by the current Biden-era NLRB, the shelf-life of the McLaren Macomb decision will depend on its acceptance (or rejection) by a federal appeals court, and by the NLRB’s future political makeup.
What Employers Should Consider
Employers considering whether to require non-disparagement or confidentiality provisions in severance agreements should not overreact to this decision. Many such agreements involve supervisors and therefore are not subject to the Act. Such provisions can be more carefully drafted than the generic provisions at issue in McLaren Macomb. And provisions applicable to non-supervisory personnel can include a disclaimer provision of the sort suggested by the decision. Each employer should consider whether the benefit to such provisions, especially the non-disparagement provision, is really worth the effort or risk. Many lower level, hourly personnel do not have access to truly important, confidential information, and many employees are already bound by existing non-disclosure or similar agreements. Those preexisting agreements can be “saved” or incorporated into the severance agreement by reference. Depending on the circumstances, an employer may not have a great concern about a former, lower-level employee “disparaging” the company, although that is not always the case.
Employers also must be aware that some states already have generally-applicable restrictions on the inclusion of nondisclosure and confidentiality provisions in various types of employer-employee documentation. For example, California law imposes such restrictions on both confidentiality and non-disparagement agreements (as well as post-employment agreements not to compete). Among other things, California law requires specific language be included in non-disparagement provisions in most employee separation agreements:
- Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.
If you have any questions regarding the NLRB’s decision or would like assistance in reviewing your employee severance agreements, contact your Quarles attorney or: