By Delaney M. Busch, Evan M. Piercey, Michael S. Arnold

Severance agreements offered to non-supervisory employees that include broad-based non-disparagement and confidentiality provisions are unlawful according to the National Labor Relations Board.  The Board’s decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), reverses Trump administration era Board decisions on this issue, and if upheld, may have far reaching consequences for both unionized and non-unionized workplaces.  We discuss the decision, its impact, and next steps for employers below, but in short: every employer should review its existing severance agreement templates and revise them as necessary. 

The Board Reestablished That Severance Agreements May Not Interfere With an Employee’s Exercise of Section 7 Rights Under the National Labor Relations Act (NLRA).

In McLaren Macomb, the Board emphasized that merely offering a severance agreement to an employee violates the NLRA where the agreement contains terms that have a reasonable tendency to interfere with, restrain, or coerce the employee in the exercise of the employee’s Section 7 rights.  Those rights include an employee’s right to discuss the terms and conditions of employment with co-workers, file unfair labor practice charges, assist other employees in doing so, or assist the Board with investigations.  These rights also extend to an employee’s ability to communicate with third parties, such as unions and the media. 

The Board Found That the Non-Disparagement and Confidentiality Provisions at Issue Impinged on Section 7 Rights. 

The Board found that the severance agreements at issue contained overbroad non-disclosure and non-disparagement clauses that unlawfully limited the exercise of the employees’ Section 7 rights. 

First, the Board took issue with the non-disparagement provision, which provided:

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.

In finding this provision facially unlawful, the Board explicitly highlighted the following issues: (i) the provision could be read to bar virtually any harmful statement about the employer, including statements that the employer violated the NLRA; (ii) the provision lacked any discernible definition of “disparagement,” let alone one “that cabins that term to its well-established NLRA definition” (for example, distinguishing between statements that harm the employer’s products vs. statements that seek to improve the employee’s terms and conditions of employment); and (iii) the provision applied broadly – not only to the employer, but also parents, affiliates, directors, employees, and agents, which could preclude an employee from filing an unfair labor charge or assisting the Board in its investigation of unfair labor practices against those actors.

The Board was no less vociferous in its denunciation of the confidentiality provision, which 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 of administrative agency of competent jurisdiction.

Here, the Board was troubled by the fact that the provision: (i) applied broadly to prevent disclosures of unlawful provisions of the agreement to “any third person,” including the Board, which could dissuade an employee from filing an unfair labor practice charge or assisting the Board in an investigation; and (ii) barred employees from discussing the terms of the severance agreement with former coworkers and others, which effectively precluded the employee from assisting coworkers with workplace issues concerning their employer and from communicating with others, including a relevant union (if any) and/or the Board about the their employment. 

To Be Clear: The Decision Does Not Bar Employers From Utilizing Non-Disparagement and Confidentiality Provisions, But It Does Seek to Limit Their Potential Reach.

In analyzing the Board’s decision, it becomes apparent that the overly broad nature of the two provisions at issue – that is, provisions with virtually no discernible limitations, was one of, if not the chief basis for finding the provisions unlawful.  Employers, therefore, should not come away thinking this is the end of non-disparagement and confidentiality provisions.  But their breadth will certainly be limited going forward, including in one very important respect: by limiting an employer’s ability to prohibit the disclosure of the terms of the agreement, including the severance amount, to co-workers for purposes of exercising their Section 7 rights.

While the Board did not provide a clear roadmap to drafting lawful confidentiality or non-disparagement provisions, employers should remember that we’ve been down this road before in other contexts.  For example, the Board has commented on appropriate non-disparagement policies in handbooks and advised employers to set policies that acknowledge the difference between preventing an employee from disparaging their products and services and insulting co-workers from preventing them from seeking to improve the terms and conditions of their employment. 

The key then for employers is to make sure these provisions are appropriately tailored – meaning they are either limited in scope in the first instance, or if broad-based, include explicit limiting language confirming that the employee may exercise their Section 7 rights.  Importantly, a general “savings” clause (e.g. “nothing herein is intended to prevent you from exercising your Section 7 rights”), is likely insufficient based on past Board precedent.  Instead, something more robust is needed to ensure the employee clearly understands their rights and the limits of these provisions.

As an Immediate Next Step, Employers Should Revisit Their Agreements To Determine What, if any, Revisions are Needed. 

Most separation agreements – unlike the ones at issue in McLaren Macomb – already include broad savings clauses to ensure compliance with a bevy of Federal, state and local laws and regulations (if yours don’t, please contact counsel immediately), so this will not be an entirely new concept for most employers.  But this decision does place additional pressure on employers to calibrate these provisions in a way that ensures compliance while still extracting real value. 

To do so, employers should review their existing severance agreements immediately with the assistance of employment counsel to determine whether, when, and to what extent, to include non-disparagement and confidentiality clauses in those agreements, and how best to revise them to comply with the Board’s decision in McLaren Macomb. 

There is not necessarily a one-size-fits-all approach.  For example, among other considerations, employers should consider whether to use one or both of these covenants, and if so, how broad to make them, depending on:

1. The type of separation / the reason for the separation (e.g., a RIF vs. an individual separation) – for example, if the company is conducting a mass layoff where the separation benefits are set using a widely-known formula, there may be less need to protect the confidentiality of the terms of that agreement. 

2. The type of worker – supervisors and independent contractors do not enjoy Section 7 rights and are not covered by this decision.     Thus, employers may still use broader-based provisions (subject to other applicable limitations) in those workers’ agreements where confidentiality and non-disparagement provisions may have greater value.  But employers should also contact counsel to make sure they understand who is exempted from the NLRA’s protections as a supervisor or contractor. 

3. The separation benefits being offered – where agreements have significant benefits attached, these provisions may be necessary, but for those with minimal benefits, employers should consider their value. 

Further, employers should also consider how best to ensure the continued enforceability of the underlying agreement, including the release of claims, should the confidentiality or non-disparagement provisions be later invalidated.

Employers Should Continue to Pay Close Attention to Further Developments and Think About This Issue in Other Contexts. 

Employers should not be surprised by the outcome here: more than a year ago, the Board’s General Counsel signaled in her enforcement agenda that she planned to target separation agreements.  But is this the last word on the matter?  Probably not.  We should expect an appeal of this decision.  Further, while the decision is effective immediately, its retroactive application is unclear, and we note that the Board’s own statutory rules limit employees from pursuing a charge that fail to relate back to a violation that occurred within the 6 months preceding the charge.  

The Board has also placed employer use of non-disparagement and confidentiality provisions in its crosshairs in other contexts: in handbooks, investigations, arbitration agreements, among others, and employers should stay tuned for further developments on that front.  Employers should also consider reviewing their other agreements (e.g. employment agreements, NDAs, equity agreements) and policies that may apply to non-supervisory employees and contain these types of provisions. 

Mintz’s Employment Practice will continue to monitor this issue closely and stands ready to assist employers as needed.