By: Arthur Telegen, Cary Burke, and Alex Reganata
On February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) once again issued new precedent when holding that the mere proffer of a draft severance agreement containing broad confidentiality and non-disparagement provisions violated the National Labor Relations Act (“NLRA” or “Act”). The severance agreement provisions before the Board contained extremely broad restrictions and arose in the context of underlying unfair labor practices (“ULPs”) that included circumventing a certified bargaining representative. It remains to be seen, therefore, whether the Board will seek to invalidate more narrowly-tailored confidentiality and non-disparagement provisions.
At issue in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), were the legality of certain provisions contained in form severance agreements proffered to 11 furloughed bargaining unit members (in addition to various ULP allegations). These provisions, which were broad, boilerplate style provisions, were found by the Board to have forbidden virtually all communications about the agreement or any legal proceedings based on the terminations, as well as any statements that would “disparage” or “harm the image” of the employer. The Board also noted that any violation of these provisions would result in “substantial monetary or injunctive relief,” even though the severance amounts were quite small. To further complicate matters, the employer failed to inform the employees’ union of the proposed agreements or negotiate over the effects of their layoff, which all Board members agreed was required in this case.
With these facts before it, the Democratic majority overruled two Trump-Board decisions and held that the provisions at issue under this fact pattern violated the Act. With respect to the non-disparagement provision, the Board reasoned that “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act.” Further, according to the Board, “any statement asserting that the [employer] had violated the Act” included “employee conduct regarding any labor issue, dispute, or term and condition of employment” and interfered with “efforts to assist fellow employees, which would include future cooperation with the Board’s investigation.” The Board found the confidentiality provision to be unlawful because it prevented employees from “disclosing even the existence of an unlawful provision contained in the agreement,” which would interfere with their ability to file Board charges or participate in an investigation. Moreover, the Board determined that the confidentiality provision would have interfered with the ability of employees to speak with their co-workers and their union (if any) about the contents of their severance agreement.
The Board also held that the employer’s mere proffer of the draft agreements violated the Act in this instance. On this point, the Board reasoned that the employer’s proffer of the agreements containing offending provisions, even absent acceptance of the offending terms, “coerced” the employees from exercising their Section 7 rights to communicate with others regarding their terms and conditions of employment.
What is not so clear is how much will change for most employers. As a starting point, the decision – and the Act — applies only to “employees” under the Act, and not to supervisors or managerial employees (with Section 2(11) containing a definition of “supervisor”). Thus, this decision has no discernable impact on settlement agreements with supervisors and management. Additionally, it remains to be seen whether the same restrictions would apply to settlement agreements negotiated with plaintiff’s counsel or with a union. Beyond this, most well-advised employers already use severance templates that provide exceptions to confidentiality provisions that impinge on such matters as speaking to investigators, participating in agency hearings, or filing charges with federal agencies.
What may be more important is that the decision serves as a reminder that employers should take care to draft such agreements to serve only necessary business interests. In particular, it might be worth considering whether a confidentiality or non-disparagement clause in a severance agreement with a non-supervisory employee is truly necessary to protect the employer’s interests. Sometimes, they might be. In other instances, though, such as where the agreements are issued as part of a large scale reduction in force (RIF) or when an employee did not have access to confidential information or trade secrets, those provisions may have little value and may be limited or eliminated. Employers also should be mindful of federal and state laws that might further restrict the scope of their confidentiality or non-disparagement policies, including the federal Speak Out Act.
In the end, the Board has not yet slammed the door on well-tailored severance arrangements that protect employer confidentiality interests while limiting their impact on Section 7 rights. We suggest for the moment that employers take a hard look at their severance forms, and hold their ground on carefully tailored, business-required restrictions.
Employers with questions can reach out to their Seyfarth lawyer or other able counsel for assistance.