NLRB Limits Use of Broad Non-Disparagement and Confidentiality Provisions in Severance Agreements Offered to Employees

Since the #MeToo movement started in 2017, a number of state and federal statutes have imposed restrictions on or banned the use of confidentiality and non-disparagement clauses in employment-related agreements. Continuing this trend, on February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023) which further restricts the use of these clauses in severance agreements. The NLRB in McLaren Macomb held that employers may not present employees with severance agreements that include overly broad non-disparagement or confidentiality provisions that restrict the employees’ exercise of their rights under Section 7 of the National Labor Relations Act (“NLRA”). In so doing, the NLRB expressly overruled a more employer-friendly standard used by the NLRB during the Trump administration.

In McLaren Macomb, the employer offered severance agreements to a group of bargaining unit employees who had been permanently furloughed. The employees were required to sign the severance agreements in order to receive the severance amounts offered by the employer. In addition to a release of the employees’ employment-related claims, the severance agreements contained provisions that broadly prohibited the employees from disparaging the employer and required confidentiality with respect to the terms of the agreements.

Specifically, the severance agreements at issue included the following 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 NLRB held that “a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.” In doing so, the NLRB reasoned that an employer’s mere offer of a severance agreement that includes unlawfully broad provisions is itself an attempt to deter employees from exercising their statutory rights because employees may feel they must give up their rights in order to get the benefits provided in the agreement.

The NLRB explained that the non-disparagement clause at issue “on its face substantially interferes with employees’ Section 7 rights” because “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the [NLRA].” The NLRB reasoned that “the comprehensive ban” included in the agreements “would encompass employee conduct regarding any labor issue, dispute, or term and condition of employment” of the employer. The broad ban, the NLRB added, thereby has “a clear chilling tendency on the exercise of Section 7 rights” that extends to efforts to assist fellow employees, future cooperation with NLRB investigations and litigation of unfair labor practices. The NLRB further noted that the non-disparagement clause “expansively applies” to statements relating to the employer’s parents and affiliated entities and their officers, directors, employees, agents and representatives and had no temporal limitation.

With respect to the confidentiality provision in the severance agreement, the NLRB explained that this prohibition on disclosing the terms of the agreement “to any third person” would “reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the [employer’s] use of the severance agreement, including the nondisparagement provision.” The Board also determined the confidentiality provision to be unlawful because it would prohibit employees from discussing the severance agreement with former coworkers who may receive similar severance agreements, from assisting coworkers with workplace issues concerning their employer, and from communicating with third parties such as union representatives, the NLRB or other employees seeking to organize.

As noted above, McLaren Macomb reverses several Trump-era NLRB rulings that had permitted employers to include confidentiality and non-disparagement provisions in severance agreements. The ruling applies to workers who have Section 7 rights—regardless of whether they are unionized—but does not encompass independent contractors; most supervisors; public sector employees; and agricultural workers, who are not covered by the NLRA.

Finally, it is noteworthy that the NLRB in McLaren Macomb was not tasked with assessing, and offered no guidance on, commonly used provisions in severance agreements in which the parties include an explicit carve-out that, notwithstanding confidentiality and non-disparagement provisions in the agreement, the employees are not waiving their rights to engage in protected concerted activities under Section 7 of the NLRA.