NLRB Holds That Severance Agreements With Confidentiality or Non-Disparagement Provisions Are Unlawful

Advisory

On February 21, 2023, the National Labor Relations Board (the Board) issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023), holding that, under the National Labor Relations Act (the Act), it is unlawful for employers to offer severance agreements that include broad confidentiality and non-disparagement provisions.

The new decision—which applies to all employees, regardless of union status—overturned two recent Trump-era Board decisions, Baylor University Medical Center (Baylor) and International Game Technology (IGT), which had permitted such provisions. This swing back to an Obama-era policy should cause employers to review their severance agreements to ensure they comply with the Board’s current framework.

The Decision

In McLaren Macomb, McLaren Macomb Hospital permanently furloughed eleven employees, offering them each a severance agreement which conditioned benefits on acceptance of confidentiality and non-disparagement provisions that, in turn, prohibited employees from (i) disclosing the terms of the agreement to any third party other than their spouse, attorney, or tax provider¹ and (ii) disclosing confidential information the employees had learned by reason of their employment.² In relevant part, the administrative law judge (ALJ), relying on Baylor and IGT precedent, found that there was no violation for proffering the severance agreements to the employees. The NLRB disagreed with the ALJ and instead reinstated the pre-Baylor and IGT analytical framework, which looks at whether the agreement offer “had a reasonable tendency to interfere with, restrain or coerce employees’ exercise of” their rights under the Act. The Board held that, under this framework, even the act of offering a severance agreement conditioned on such broad and wide-ranging confidentiality and non-disparagement terms violated the Act insofar as these provisions “interfere[d] with, restrain[ed], or coerce[d] employees’ exercise of Section 7 rights.” Because the mere act of offering such an agreement violated the Act, the Board held it was irrelevant to its decision whether the employee ultimately accepted the offer.

Key Reactions

In light of the McLaren Macomb decision, employers should take a second look at their severance agreements to ensure that any agreements with confidentiality and/or non-disparagement provisions also contain express reservation of rights sections protecting an employee’s right to engage in activity protected under the Act. Such sections should include clear statements explaining that nothing in the agreement prohibits employees from engaging in protected activity, such as:

discussing or commenting on labor issues or the terms and conditions of employment at the company;
filing an unfair labor practice charge; or
providing assistance in Board investigations (including providing information to the Board).

Employers who wish to continue using confidentiality and non-disparagement clauses should also make sure the clauses are narrowly tailored; to give just one example, non-disparagement provisions should provide a clear definition of “disparagement” that complies with existing Board and Supreme Court precedent holding that disparagement constitutes communications that are so “disloyal, reckless or maliciously untrue” so as to fall outside the Act’s protections.

While the Board did not expressly state that its holding would apply retroactively, employers should be aware that some employees may view McLaren Macomb as an opportunity to violate existing confidentiality and/or non-disparagement provisions without penalty. Also unclear is whether an employee may waive his or her Section 7 rights by having the agreement reviewed by counsel.

That being said, it is important to remember that not all workers are considered “employees” for purposes of the Act, so the decision may not be as wide-ranging as it seems on first blush. For example, “supervisors” are not considered “employees” under the Act and thus, the McLaren Macomb decision should not apply to severance agreements with these workers.³ Other classes of workers excluded from coverage under the Act include public-sector employees, agricultural and domestic workers, independent contractors, and employees of air and rail carriers covered by the Railway Labor Act.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

The full confidentiality provision at issue in the agreement read: “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.”
The full non-disparagement provision at issue in the agreement read: “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 term “supervisor” under the Act means “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” 29 U.S.C. § 152. Employees are considered supervisors (and therefore excluded from coverage under the Act), if (i) they hold the authority to engage in any one of the 12 enumerated supervisory functions; (ii) their exercise of authority is not of a “merely routine or clerical nature, but requires the use of independent judgment;” and (iii) their authority is held in the interest of the employer. NLRB v. Kentucky River Community Care, Inc., 532 U.S. 706, 712-13 (2001).