NLRB Imposes New Limits on Confidentiality, Non-Disparagement Provisions in Severance Agreements: What Employers Need to Know
On February 21, 2023, the National Labor Relations Board (NLRB, or the Board) issued a sweeping ruling with profound implications for employers. In the McLaren Macomb case, the Board overruled several of its own Trump-era decisions that held that employers may include broad confidentiality and non-disparagement provisions in their severance agreements.
Providence, R.I. (March 8, 2023) - On February 21, 2023, the National Labor Relations Board (NLRB, or the Board) issued a sweeping ruling with profound implications for employers. In the McLaren Macomb case, the Board overruled several of its own Trump-era decisions that held that employers may include broad confidentiality and non-disparagement provisions in their severance agreements. Many employers are now questioning the validity of their existing severance agreements with former employees and re-evaluating their severance agreement templates.
What follows is a brief summary of the new rule of law that the NLRB announced in McLaren Macomb as well as key takeaways for employers in light of the Board’s decision.
Employees Not Covered by the Decision
At the outset, it is worthwhile to note that the McLaren Macomb decision does not affect all severance agreements. It only applies to severance agreements offered to employees covered by Section 7 of the National Labor Relations Act (NLRA).
Section 7 guarantees employees the right to self-organize; 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. Managers and most supervisors are not covered by Section 7. As such, severance agreements with such employees are not covered by the new rule of law announced in McLaren Macomb.
However, a word of caution: the determination of whether an individual is truly a “manager” or “supervisor” exempt from the benefits and protections of Section 7 is not always straightforward. Employers cannot rely solely on an employee’s job title when deciding whether to include broad confidentiality and non-disparagement language in a severance. To be exempt from Section 7, the employee must have the ability to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees; the responsibility to direct other employees; the ability to adjust employee grievances; or the ability to effectively recommend that such actions be taken.
The Board’s Decision
Under several Trump-era precedents, employers enjoyed considerable discretion when crafting their severance agreements. If they wanted to maintain confidentiality regarding the terms of an employee’s separation or the negotiations leading up to the employee’s severance, they could do so. If they wanted to impose broad restrictions on an employee’s ability to speak negatively about their former employer, they could do so. The only real limitation imposed by these precedents was that employers could not impose broadly-worded confidentiality and non-disparagement language on employees engaging in activities protected under Section 7 (e.g., during the pendency of a union organizing campaign).
Under the new rule announced in McLaren Macomb, such severance agreement provisions are now considered unlawful because they tend to have a chilling effect on the ability of employees to engage in protected activity under Section 7.
Previously, it was a defense to an unfair labor practice charge for an employer to take the position that it never sought to enforce the offending confidentiality or non-disparagement provision in question. Not so anymore. In McLaren Macomb, the Board held that merely offering a severance agreement to an employee that contains these provisions is enough to constitute an unfair labor practice under the NLRA. In reaching this conclusion, the Board found that conditioning an employee’s receipt of valuable severance benefits on their acceptance of unlawful severance provisions is, in and of itself, an unfair labor practice.
Effect on Existing Severance Agreements
The Board’s decision did not address one of the most pressing questions raised by employers: will the decision be applied retroactively to invalidate existing severance agreements? In some cases, courts have given retroactive effect to new NLRB rules. In other cases, courts have refused to apply new rules retroactively due to the significant departure that they represent from the prior precedents upon which employers relied.
At this time, it is unclear whether the McLaren Macomb rule will be applied retroactively. However, it may be a defense to an unfair labor practice charge for an employer to assert that their severance agreement was drafted at a time when NLRB precedent allowed for broadly-worded confidentiality and non-disparagement language to be used.
Potential Drafting Considerations
While not addressed explicitly in its decision, the Board hinted that a broadly-worded disclaimer may be used in conjunction with confidentiality and non-disparagement provisions to avoid potential violations of the NLRA. To pass muster, such a disclaimer would need to affirmatively state that, notwithstanding the employee’s confidentiality and/or non-disparagement obligations to their former employer, they are still permitted to participate in Section 7 activity; file unfair labor practice charges with the NLRB; assist others to engage in Section 7 activity and file unfair labor practice charges; and participate in the Board’s investigative processes.
In describing the fatal flaws with the non-disparagement language before it, the Board also hinted at other potential workarounds for its ruling. The Board found that the non-disparagement provision was unlawful because it was not limited to matters arising out of the employee’s past employment, was unlimited in temporal scope, and failed to define “disparagement.” It is possible that a narrowly tailored non-disparagement provision that addresses these defects may withstand NLRB scrutiny.
Finally, while many severance agreements already contain severability provisions, those that do not should be revised to include such language. If the NLRB or a court subsequently finds that the confidentiality or non-disparagement language in a severance agreement is unenforceable under McLaren Macomb, only the offending language will be stricken. The remainder of the severance agreement – specifically including the release of claims – will remain binding and enforceable against the employee.
Lewis Brisbois’ Labor & Employment attorneys will continue to monitor the potential impacts of the McLaren Macomb decision, including whether the NLRB’s General Counsel releases an advisory memo outlining severance agreement provisions that would pass muster. If you have questions regarding the decision and potential impacts on existing severance agreements or need assistance revising your severance agreement template, please contact the author of this alert. Visit our Labor & Employment Practice page for additional alerts in this area.
Gregory Tumolo, Partner