Employee agreementThe National Labor Relations Board (NLRB) issued a decision on February 21, 2023, that restored pre-Trump era precedent and prohibits employers from offering employees severance agreements that contain broad confidentiality and non-disparagement provisions.

In the case at issue, McLaren Macomb and Local 40, RN Staff Council Office and Professional Employees International Union, AFL-CIO, 372 NLRB No. 58 (2023) (McLaren), the issue was whether Michigan hospital operator McLaren Macomb violated the National Labor Relations Act (NLRA) when it offered severance agreements with broad confidentiality and non-disparagement requirements to 11 employees furloughed because of the COVID-19 pandemic.

The confidentiality provision contained in the agreement stated, “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 non-disclosure provision provided, in relevant part, “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.” The agreement further provided that payment of the severance was conditioned on the employee signing the agreement, and that the employee could face monetary and injunctive sanctions if he or she breached the confidentiality and non-disparagement provisions.

The NLRB took issue with the provisions and found they interfered with employees’ statutory rights by prohibiting communications about the employment relationship, including statements claiming that the employer violated the NLRA.

Unfortunately, the McLaren decision left many questions unanswered, such as whether the NLRB will apply its ruling retroactively and whether an overly broad confidentiality or non-disparagement clause will invalidate an entire severance agreement.

Accordingly, on March 22, 2023, NLRB General Counsel Jennifer Abruzzo issued a guidance memorandum (GC 23-05) addressing some of these questions. We have summarized the most important takeaways from the McLaren decision and the memorandum below:

  • Although the NLRB’s focus is on unions and union employees, non-union employees still have rights under the NLRA. As such, the McLaren decision applies to all employers regardless of whether they have a union-represented workforce. Similarly, the McLaren protections extend to current and former employees.
  • McLaren does not prohibit confidentiality and non-disparagement clauses in severance agreements altogether. Permissible confidentiality provisions are those that are narrowly tailored to restrict an employee from disclosing proprietary information or trade secrets for a specific period of time based on legitimate business justifications. The NLRB also indicated that requiring confidentiality with respect to the financial terms of a non-NLRB settlement agreement would not interfere with an employee’s NLRA Section 7 rights. A lawful non-disparagement clause is one that prohibits defamatory statements about the employer (defined as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity).
  • The mere act of offering a severance agreement with overly broad confidentiality and non-disparagement clauses violates the NLRA. This means, even if an employee does not sign the severance agreement, an employer’s conduct in providing the agreement is still unlawful. Also, employees cannot voluntarily choose to enter into such an agreement with these provisions or request broad confidentiality or non-disclosure requirements on their own.
  • The McLaren decision applies retroactively. Accordingly, severance agreements entered into prior to February 21, 2023, and containing unlawfully broad non-disclosure and non-disparagement provisions violate the NLRA. However, there is a six-month statute of limitations that applies to the act of offering of an agreement. As such, an employee’s time to file an unfair labor charge expires six months from the date they were provided with the agreement to sign. Alternatively, maintaining and/or enforcing a previously executed severance agreement with unlawful provisions continues to be a violation, and a charge alleging such would not be time-barred. If a former employee breaches a non-disparagement or confidentiality provision in a severance agreement signed prior to February 21, 2023, the employer should not take legal action to enforce the provision or address the breach without careful consideration.
  • Generally, an unlawful confidentiality or non-disparagement provision will not invalidate an entire severance agreement, regardless of whether there is a severability clause included. GC Abruzzo explained that Regions usually make decisions based solely on the unlawful provisions and would seek to void just those as opposed to the entire agreement.
  • McLaren does not apply to severance agreements issued to supervisors except in limited circumstances. While the protections of the NLRA do not generally extend to supervisors, (the definition of “employee” under the act was amended more than 70 years ago to exclude “any individual employed as a supervisor”), supervisors are protected against retaliation for refusing to commit an NLRA violation at an employer’s direction. As such, McLaren’s prohibitions against broad confidentiality and non-disparagement provisions in severance agreements do not apply to supervisors unless 1) a supervisor refuses to proffer an unlawfully overboard severance agreement to an employee at the employer’s request, or 2) a supervisor is offered an unlawfully overbroad severance agreement that would prevent the supervisor from discussing his or her refusal to commit an NLRA violation (i.e. participating in an NLRB proceeding). The NLRA defines supervisor as “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.”

Perhaps the most important takeaway from the McLaren decision and GC Abruzzo’s memorandum is that employers can continue to include confidentiality, non-disclosure and non-disparagement clauses in their severance and separation agreements, however, the scope of those provisions will largely depend on the particular facts of each circumstance in which an agreement is offered. If you have questions about how to address past severance agreements issued prior to McLaren, or if you need assistance drafting compliant agreements going forward, please contact one of the attorneys in our Employment & Labor group.