Confidentiality provisions are frequently included in severance agreements, as are non-disparagement provisions, which are intended to discourage former employees from making derogatory comments about their employer post-employment. On February 21, 2023, the National Labor Relations Board (NLRB or Board) sharply narrowed the application of confidentiality and non-disparagement provisions in severance agreements in its decision in McLaren Macomb Hospital. A month later, the NLRB General Counsel issued guidance on this decision.
The McLaren decision involved severance agreements offered to furloughed employees, which prohibited them from making statements that could disparage the employer and from disclosing the terms of the severance agreement itself. The Board held that simply offering a severance agreement that requires employees to broadly give up their rights under section 7 of the National Labor Relations Act (NLRA or Act) violates the Act because conditioning the benefits of a severance agreement on the “forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights.” Section 7 provides:
“Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in section 8(a)(3).”
The NLRB General Counsel provides clarification: not all confidentiality and non-disparagement provisions are unlawful
After McLaren, employers and attorneys alike had questions about its unclear impact and where to go from there. On March 22, 2023, the NLRB’s General Counsel issued a clarifying memorandum (GC Memo). Specifically, severance agreements with confidentiality and non-disparagement provisions are not outright unlawful. However, they must be narrowly tailored, i.e., for a limited period of time and based on legitimate business justifications. Otherwise, they may interfere with the employees’ Section 7 rights, including the right to engage in protected, concerted activity.
The GC Memo clarifies that certain confidentiality and non-disparagement provisions are permissible in severance agreements. Confidentiality clauses may prohibit the dissemination of proprietary or trade secret information, as well as the financial terms of the severance agreement. Non-disparagement clauses may prohibit employee statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”
The GC Memo confirms that the McLaren decision will be applied retroactively, meaning severance agreements dated prior to the decision may be challenged. And, although there is a six-month statute of limitations period for the NLRB to bring an unfair labor practice (ULP) charge based on an unlawful agreement, the GC Memo takes the position that ULP charges for existing unlawful agreements will never be time-barred against employers who “maintain” or “enforce” a previously-entered severance agreement with unlawful provisions.
Not limited to severance agreements
Finally, the GC Memo clarifies that McLaren applies to all employer communications that might interfere with Section 7 rights. This includes non-compete clauses; non-solicitation clauses; no poaching clauses; overly broad liability releases and covenants not to sue; cooperation requirements (i.e., requiring employees to refrain from exercising their Section 7 rights such as testifying in connection with a ULP charge), and even pre-employment and offer letters.
Section 7 does not apply to supervisory employees. Nevertheless, McLaren instructs that it is illegal to retaliate against supervisory employees for refusing to sign an unlawful agreement. Also, it is unclear whether employers may simply sever unlawful provisions from severance agreements, or whether the entire agreement is subject to being rescinded.
McLaren underscores the NLRB’s pro-employee stance. Prudent employers should engage labor counsel to review their current and past severance agreements to ensure compliance and, if in violation, whether to contact affected current and former non-supervisory employees.
The attorneys at Duggan McHugh are available to provide guidance to employers in determining whether they should amend their severance agreements and the best practices going forward regarding these agreements.