By: Eileen R. Geller, Lilias Gordon, and Charles Meyer
Recently, the National Labor Relations Board (NLRB) dealt another blow to the rights of employers and employees to enter into severance agreements which prevent the parties from disparaging each other and from disclosing the confidential terms of those agreements. In McClaren Macomb, 372 NLRB No. 58 (2023), the Board invalidated certain severance agreements due to offending nondisparagement and confidentiality provisions that the Board believes would create a chilling effect on the exercise of rights protected by the National Labor Relations Act (NLRA). Given that the NLRA applies to employers whether or not their employees are unionized, the Board’s sweeping decision potentially impacts every employer in the country. Facing almost certain challenge in court, the first question is how long this mandate prohibiting nondisparagement and confidentiality provisions in severance agreements will survive and what employers must do now to comply.
The case involved a Michigan hospital that furloughed eleven employees due to the COVID-19 pandemic. The hospital used garden variety non-disparagement and confidentiality provisions in its severance agreements, which all eleven employees signed. Despite the employees’ voluntary agreement not to disparage the hospital or make public the terms of their agreements, the Board still determined that both provisions violated the NLRA.
The Board reasoned that the non-disparagement and confidentiality provisions may chill the exercise of rights under Section 7 of the NLRA. Specifically, the Board took issue with the “overly broad” language used. For example, the non-disparagement provision could be interpreted as preventing a former employee from (1) filing a charge under the NLRA; (2) making public statements about the workplace; (3) assisting current employees with NLRA-protected activity; or (4) assisting with an investigation. Similarly, the confidentiality agreement could be interpreted as barring an employee from reporting any provision in the agreement believed to be unlawful.
As a result, severance agreements going forward must be “narrowly tailored.” Unfortunately, the Board declined to advise employers on what this means. Instead, after striking down those basic provisions, the Board dropped a footnote “we are not called on in this case to define today the meaning of a ‘narrowly tailored’ forfeiture of Section 7 rights in a severance agreement.”
The Board’s decision leaves more than a few unanswered questions. First, the Board failed to clarify whether its new prohibition against confidentiality and non-disparagement clauses extends to other types of employment agreements, which may include proprietary information agreements, settlement agreements, or even employee handbooks. Based on the scope of the NLRA, settlement agreements will be a particularly thorny issue. While the NLRA can apply to former employees, its scope is limited to those whose employment ended due to a labor dispute and who have yet to find subsequent employment.
Second, in the context of severance agreements, can the Board’s concerns about allegedly overbroad nondisparagement and confidentiality provisions be cured? From the text of the opinion, the answer appears self evident. Employers should provide the necessary disclaimers assuring the employee that the nondisparagement does not prevent the employee from filing a charge under the NLRA; does not prohibit the employee from making public statements about the workplace, provided they are not defamatory or disparaging; does not prohibit the employee from assisting other employees with NLRA protected activities or from assisting with an investigation. Likewise, the Board’s articulated concern about the chilling effect of confidentiality provisions on reporting unlawful conduct could be cured with a similar carve out acknowledging that the agreement does not prohibit the employee from reporting any allegedly unlawful conduct.
A third, and equally practical question for employers facing this sweeping new rule is whether the decision will stand. Employers have been asking whether this decision will last. The Board has flip-flopped its opinion on this topic before. In 2020, the Trump-era Board decided Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020). Both decisions concluded employers could include standard confidentiality and non-disparagement provisions in separation agreements in exchange for severance payments. The Board describes this decision in McLaren Macomb as returning to longstanding precedent that employers may not offer employees severance agreements that require employees to broadly waive their rights under the NLRA. The Board’s rationale about returning to longstanding precedent may be more aspirational than precedential. While the right to engage in protected speech under Section 7 has long been recognized by the Board, the unfettered right to disparage, or worse, defame, enjoys no such precedential support. Nor should it. Facing the threat of extinguishing the ability to prevent future defamation or disparagement, employers may look to challenge it in court if the respondent does not appeal this decision to federal court first.
Finally, the law of unintended consequences may cause proponents of the Board’s decision to reconsider. If employers are unable to enter into non-disparagement and confidentiality provisions, many will elect to litigate instead of settling frivolous or non-meritorious claims. In many cases, the only incentive for most employers to settle employment claims is the prospect of preventing the employee from disparaging the company on his way out the door and for years to come. If that consideration is eliminated, more employers will opt to litigate.
In good news for employers, the new rule does not apply to supervisors, managers, or individuals who are not otherwise subject to the NLRA. However, employers can run afoul of this new rule by merely offering a severance agreement with a confidentiality or non-disparagement clause to a non-management employee, even if the employee ultimately doesn’t sign.
Because severance agreements must be narrowly tailored, there is no one-size-fits-all option for non-disparagement and confidentiality provisions. Contact O’Hagan Meyer for a review of your severance or settlement agreements going forward.