On February 21, 2023, the National Labor Relations Board (NLRB) held that including broad confidentiality and non-disparagement clauses in severance agreements violates the National Labor Relations Act (NLRA). In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB held that severance agreements containing such clauses were unlawful because they prohibited or discouraged former employees from exercising their rights under Section 7 of the NLRA, a federal law applicable to all employers that permits employees to collectively band together to improve working conditions, to freely discuss the terms and conditions of their employment with current and former employees, to assist other employees in filing charges with the NLRB, and to assist or cooperate with the NLRB’s investigations.
Prior to McLaren Macomb, the NLRB recognized in prior decisions that employers may include broad confidentiality and non-disparagement clauses if the severance agreement did not involve or relate to an employee being discharged in violation of the NLRA (or another unfair labor practice demonstrating hostility toward the exercise of Section 7 rights). In McLaren Macomb, the NLRB expressly overturned those prior decisions and held that a severance agreement containing broad confidentiality and non-disparagement clauses is unlawful on its face (regardless of the context in which the severance agreement is presented) because such provisions “interfere with, restrain or coerce” employees in the exercise of their Section 7 rights.
Problematic Agreement in McLaren Macomb
In McLaren Macomb, the NLRB explained that a severance agreement is “coercive” if it conditions severance payments on terms that potentially interfere with Section 7 rights, and it found the non-disparagement and confidentiality clauses in the employees’ severance agreements did just that.
The non-disparagement clause at issue prohibited former employees from making any statements to the company’s employees, or to the general public, which would disparage or harm the image of the company, its parents and affiliated entities, and their officers, directors, employees, agents and representatives. According to the NLRB, this clause violated employees’ Section 7 rights because it prohibited making such negative statements even if they were in furtherance of employees exercising their Section 7 rights or were made for the purpose of assisting current and former company employees in engaging in activity protected by the NLRA.
The confidentiality provision was similarly broad, prohibiting former employees from disclosing the terms of the severance agreement to any third person, other than a 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. The NLRB found this provision could “coerce” or “chill” former employees from exercising their Section 7 rights or cooperating with NLRB investigations into whether the severance agreement was compliant with applicable law.
Employer Takeaways & Implications
The NLRB’s decision is effective immediately. Going forward, employers should be aware of the following as it relates to including non-disparagement and confidentiality clauses in severance agreements:
Employers should consider this decision and its broad scope when drafting, offering and enforcing severance agreements. For additional information about the implications of the NLRB’s decision, please contact a Fenwick Employment Practices Group attorney.