NLRB Limits Viability of Non-Disparagement and Confidentiality Clauses in Employee Severance Agreements

Last week, the National Labor Relations Board (“Board”) issued a decision – McLaren Macomb, 372 NLRB No. 58 (2023) – that imposes new restrictions on the use of standard confidentiality and non-disparagement provisions in severance agreements. The Board held that employers covered by the National Labor Relations Act (the “Act”) may violate Section 8(a)(1) of the Act by offering severance agreements that could be construed to broadly restrict employee rights under the Act. Those rights include, without limitation:

• The right to disclose the existence of an unlawful provision in a severance agreement by filing an unfair labor practice charge or assisting an NLRB investigation into the employer’s use of the severance agreement;
• The right to discuss terms in the severance agreement with former coworkers or with a labor union; and
• The right to assert that an employer violated the Act, including by offering a severance agreement with unlawful terms.

In McLaren Macomb, the Board examined the following two provisions in the employer’s severance agreement:

Confidentiality Agreement. 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 purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. 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.

The Board found that these terms unlawfully restrained and coerced the affected employees in exercising their rights under the Act.

According to the Board, the above non-disclosure provision interferes with Section 7 rights because it prohibits an employee from making any statements to other employees or to the general public which could disparage or harm the image of the employer (including any statement that the employer violated the Act). The NLRB also took issue with the fact that the non-disclosure provision (1) expansively applied to statements not just toward the employer, but also its parents, affiliates, officers, directors, employees, agents, and representatives; (2) contained no temporal limitation; (3) was not limited to matters regarding past employment with the employer; and (4) provided no definition of disparagement. The end result, in the Board’s opinion, was a “sweepingly broad bar that has a clear chilling tendency on the exercise of Section 7 rights by the subject employer.”

The Board reached a similar conclusion regarding the confidentiality provision, finding that it infringed on an employee’s right to discuss the terms and conditions of employment by broadly prohibiting employees from disclosing the terms of the severance agreement to any third person (with a few noted exceptions), including the NLRB. The Board held that the confidentiality provision had an impermissible chilling effect on Section 7 rights given that, in practice, it would prevent employees from discussing the terms of severance agreements with others, including employees who may have received similar agreements, and would otherwise deter employees from assisting the NLRB in investigations.

Although the Board’s discussion in McLaren Macomb specifically dealt with employee severance agreements, its reasoning could easily be extended by the NLRB to other types of agreements, including settlement agreements, employment agreements, and restrictive covenant agreements used in the employment setting.

In the wake of the Board’s decision (and in light of other recent developments such as the enactment of the Speak Out Act), employers should undertake a thorough review of their employment-related agreements and consult with counsel to determine the most effective approach for their businesses.

Buchanan’s attorneys will continue to monitor developments impacting employment-related agreements. If you have questions regarding compliance with the McLaren Macomb decision or your employment-related agreements, please contact a member of our labor and employment team.