Strictly Confidential? Labor Board Flip-Flops Again on Severance Agreement Confidentiality and Non-Disparagement Terms

On February 21, 2023, the National Labor Relations Board (the “Board”) held that an employer violates Section 8(a)(1) of the National Labor Relations Act (the “Act”) when it offers employees severance agreements with certain post-severance restrictions — including confidentiality and non-disparagement provisions — that interfere with the exercise of their Section 7 rights under the Act (the “Decision”). This Decision, McLaren Macomb (Case 07-CA-263041), overrules Trump-era Board precedent and returns to the more employee-friendly Board rulings under President Obama’s administration. The Decision has immediate implications for employers — even for non-unionized workforces. 

Section 7 of the Act guarantees non-supervisory employees¹ “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.” In the severance agreements at issue in McLaren Macomb, the Board found that broad confidentiality and non-disparagement provisions infringed on employees’ right to engage in concerted activities in violation of Section 7 of the Act.

In overruling the Trump-era decisions (which had allowed fairly expansive confidentiality and non-disparagement provisions to stand where circumstances warranted), the Board stated that the decisions were “flawed in multiple respects,” and returned to prior precedent, which, in its essence, did not require the presence of other unlawful employer conduct to find that certain broad confidentiality language and non-disparagement provisions were unlawful. Rather, “the legality of a severance agreement provision [is] an entirely independent issue. What mattered was whether the agreement, on its face, restricted the exercise of statutory [Section 7] rights.” 

The employer in McLaren Macomb permanently furloughed 11 of its unionized workers. As part of that reduction-in-force, the employer offered severance agreements to the employees which contained broad non-disparagement and confidentiality provisions. Importantly, the employer did not bargain with the union over the furlough, nor did they provide an opportunity to bargain over the severance agreements themselves. Instead, the employer bypassed the union altogether when communicating the furlough and offering the severance agreement to the 11 union employees.

The Board specifically found the confidentiality and non-disparagement requirements in the severance agreements were unlawful because they had a reasonable tendency to interfere with, restrain, or coerce employees in exercising their Section 7 rights. The Board stated that, “public statements by employees about the workplace are central to the exercise of employee rights under the Act.” As a result, the non-disparagement and confidentiality sections of the severance agreement had a “chilling effect” on employees’ exercise of their Section 7 rights, because employees could interpret the terms as prohibiting discussion about their workplace experience(s) with other current employees, the union, or the Board.

The Board further found that an employer violates the Act merely by giving an agreement to an employee that contains such overbroad provisions in the first place, and found it irrelevant whether the employee executed the agreement. Finally, the Board extended this holding to former employees, as Section 7 allows them to discuss such issues as terms and conditions of employment, irrespective of employment status. 

It is unclear from the decision as to whether it will be applied retroactively to prior-existing agreements and is also unclear whether the Act’s six-month statute of limitations would limit liability, as the restraints from non-disparagement and confidentiality provisions would be ongoing (at least for as long as the agreement would otherwise provide). 

Among other remedies, the Board in McLaren Macomb ordered:

• Reinstatement and back pay;
• Payment of taxes associated with back pay; and
• Prohibition on use of similarly broad confidentiality/non-disparagement provisions in a severance agreement.

Obviously, this Decision has far reaching impact on all employers (not just those with union-represented employees) and their use of severance agreements with employees. However, the impact of this Decision is limited to non-supervisory employees who have the right to organize under Section 7 of the Act. As such, employers can continue to use more robust confidentiality and non-disparagement provisions in severance agreements with their supervisory/management employees. 

In a post-McLaren Macomb world, employers offering severance agreements to non-supervisory employees should consider a few key practical considerations:

• Consider more narrow non-disparagement and confidentiality requirements. The Board noted throughout the Decision that a narrowly-tailored provision may withstand scrutiny. Therefore, the Decision is not an outright ban on non-disparagement/confidentiality provisions.
• Consider whether a non-disparagement provision is really worth the rub for lower-level, non-supervisory employees, as the interplay between the confidentiality and the non-disparagement provision appears to be of particular concern to the Board — it is not necessarily a confidentiality provision on its own that is unlawful, but that a strict confidentiality provision prohibits an employee from disclosing the overly broad non-disparagement provision, which may have a tendency to infringe on Section 7 rights.
• Consider adding a limitation to the scope of the non-disparagement and confidentiality provisions to ensure that employees retain their Section 7 rights/ability to communicate with unions and the Board. For example, consider a detailed “disclaimer” in association with these provisions that notes the employee’s Section 7 rights remain intact.
• Consider temporal limits on the non-disparagement provision.

Finally, employers should reconsider the use of “forms” in offering severance and should consult with their employment attorney at Foley & Lardner LLP for assistance. At a minimum, a review of a present “form” severance agreement is critical to ensure that employers are not simply “giving” away severance in return for unenforceable provisions.