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NLRB Ends Permissible Use of Broad Non-Disparagement and Confidentiality Provisions in Severance Agreements

Last week the National Labor Relations Board (“NLRB”) issued a significant decision in McLaren Macomb and Local 40 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL-CIO (“McLaren Macomb”) that will impact the permissible scope of non-disparagement and confidentiality provisions in severance agreements.  This change is particularly relevant as employers are increasingly deploying severance agreements in the face of a recessionary economy with an increase in layoffs. The NLRB’s decision emphasized 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 [under the National Labor Relations Act], and that employers’ proffer of such agreements to employees is unlawful.”  This holding, which reinstated the pre-Trump Administration standard, primarily focused on the use of broad non-disparagement and confidentiality provisions in severance agreements.  Notably, the NLRB not only held that such broad provisions are unlawful, but also that the mere proffer of such an agreement to an employee constitutes a violation of the National Labor Relations Act (“the Act”).

Background of McLaren Macomb Decision

In McLaren Macomb, the employer hospital engaged in a number of impermissible actions when furloughing 11 employees, including but not limited to offering the furloughed employees severance agreements without involving the union.  For purposes of this article, the relevant facts relate to the language contained in the severance agreements.

The severance agreements in this case included broad non-disparagement and confidentiality provisions.  The non-disparagement provision stated 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, its parent and affiliated entities and their officers, directors, employees, agents and representatives.”  Furthermore, the confidentiality provision 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 purpose of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

Section 7 of the Act guarantees that “Employees shall have the right to  . . . engage in other concerted activities for the purpose of . . . mutual aid or protection . . .”  While challenges pertaining to Section 7 rights typically arise in the context of unionization, these rights extend to all statutory employees’ ability to discuss the terms and conditions of their employment. The Act defines employees broadly except it does not include, among others, supervisors, employees in the rail and airline industries, and independent contractors.  It is in this context that the NLRB addressed the two provisions in the severance agreements in McLaren Macomb.

Impermissibly Broad Provisions

The NLRB highlighted the principle that “It is axiomatic that discussing terms and conditions of employment with coworkers lies at the heart of protected Section 7 activity.” In analyzing the two provisions, the NLRB identified aspects of both that limited employees’ and former employees’ ability to discuss the terms and conditions of their departure from the employer.  The broad limitations contained in the provisions “would restrict employees’ exercise of their NLRA rights.”

In the non-disparagement provision, the NLRB emphasized that the “broad provision at issue here prohibits the employee from making any ‘statements to [the] Employer’s employees or to the general public which could disparage or hurt the image of [the] Employer’—including, it would seem, any statement asserting that the Respondent had violated the Act (as by, for example, proffering a settlement agreement with unlawful provisions).” The NLRB went on: “This far-reaching proscription—which is not even limited to matters regarding past employment with the [hospital]—provides no definition of disparagement that cabins that term to its well-established NLRA definition under NLRB v. Electrical Workers Local 1229 (Jefferson Standard Broadcasting Co.).”

In a glimpse of what kind of language the NLRB might deem permissible, the NLRB noted that its prior precedent has held that “To lose the Act’s protection as an act of disloyalty, an employee’s public criticism of an employer must evidence a malicious motive” or be “maliciously untrue, i.e., if they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”

Like the non-disparagement provision, the NLRB held that the confidentiality provision prohibits the employee from “disclosing the terms of the agreement ‘to any third person.’” By muffling even a former employee’s ability to discuss the terms relating to the employee’s departure, the confidentiality provision served as a restraint on the employees’ ability to exercise their Section 7 Rights.

Short-Term Practical Impact of Decision

While the NLRB’s decision addressed a narrow set of circumstances, a severance agreement for statutory employees, its implications may be far reaching.  Employers should consider the following, regardless of whether their work force is unionized:

  • whether they need to redraft language in any existing severance agreement templates it proffers to employees to ensure that it does not infringe on statutory employees’ Section 7 Rights;
  • whether this decision would apply to supervisors and other non-statutory employees;
  • whether these limitations extend beyond severance agreements to include employment agreements, proprietary information agreements, handbook policies, and arbitration agreements;
  • whether the NLRB’s decision will be applied retroactively.

It is anticipated that in the coming weeks or months, the NLRB’s General Counsel will issue guidance to employers relating to the NLRB’s decision.  In the interim, employers should be cautious about the language that they use in all employment agreements relating to any area that could be viewed as limiting employees’ Section 7 Rights.

The attorneys in Kane Kessler’s Labor & Employment Practice Group are available to help companies address compliance issues and navigate these wage transparency requirements. If you have any questions, please contact Kane Kessler’s Labor & Employment Practice Group, Jeffrey G. Douglas at 212 519-5183, or jdouglas@kanekessler.com, Valerie K. Ferrier at 212 519-5107, vferrier@kanekessler.com, or John L. Reklaitis at 212-519-5178, jreklaitis@kanekessler.com.

This memo is provided for informational purposes only. It is not intended as legal advice and readers should consult counsel to discuss how these matters relate to their individual circumstances.