United States: NLRB Decision Addresses Interaction Between Confidentiality And Nondisparagement Provisions In Severance Agreements And Section 7 Rights

• In McLaren Macomb, the NLRB overturned two decisions that had permitted employers to include confidentiality and nondisparagement provisions in severance agreements.
• "Mere proffer" of a severance agreement that conditions receipt of benefits on the "forfeiture of statutory rights" violates the NLRA.
• This Insight includes key takeaways from the Board's decision and answers to common employer questions.

During the past few years, employers have seen efforts to restrict the use of confidentiality and nondisparagement provisions in severance agreements at both the state and federal levels. The National Labor Relations Board (NLRB or Board) has now joined the party.

Two decisions issued by the Board under the prior administration-Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020)-broadly permitted employers to include confidentiality and nondisparagement provisions in severance agreements. Last week, the NLRB overturned those decisions in McLaren Macomb, 372 NLRB No. 58 (2023).

Under the Board's new rule, the "mere proffer" of a severance agreement that conditions receipt of benefits on the "forfeiture of statutory rights" (e.g., the acceptance of overbroad confidentiality and nondisparagement provisions) violates Section 8(a)(1) of the National Labor Relations Act (NLRA).

Prior Precedent

The Board's 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology held that an employer could lawfully include in a separation agreement confidentiality and nondisparagement clauses, and clauses prohibiting employees from participating in claims brought by any third party against the employer, in exchange for severance payments.

In Baylor, the Board moved away from examining the language of the severance agreement at issue and instead focused on the circumstances under which the agreement was presented to employees. In doing so, the Board held that Baylor did not violate the NLRA by the "mere proffer" of a severance agreement that required the signer to agree not to "pursue, assist, or participate in any [c]laim" against Baylor and to broadly maintain confidentiality surrounding the agreement. The Board reasoned that the agreement was not mandatory and did not affect terms and conditions of employment because it pertained exclusively to post-employment activities. Further, there was no allegation that anyone offered the agreement had been unlawfully discharged or that the agreement was offered under circumstances that would tend to infringe on Section 7 rights. Months later in IGT, the Board cited to Baylor in determining that a nondisparagement provision in a severance agreement was lawful where the agreement was "entirely voluntary, [did] not affect pay or benefits that were established as terms of employment, and [had] not been proffered coercively."

The McLaren Decision

In McLaren, a unionized teaching hospital in Michigan permanently furloughed 11 union employees, presenting each with a severance agreement and general release. The agreement included the following provisions:

Despite being relatively standard severance agreement terms under prior precedent, the Board found the confidentiality and nondisparagement provisions unlawful and ordered McLaren to "cease and desist" from presenting employees with a severance agreement including the highlighted provisions.

According to the Board, "a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights." Specifically, regarding the nondisparagement provision, the Board held that because "[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act," the nondisparagement provision violated employees' Section 7 rights. Further, the Board objected to how broad the Hospital's nondisparagement provision was, noting that it was "not even limited to matters regarding past employment with the [Hospital]," and would ultimately "encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Hospital." The Board also noted that the provision had no temporal limitation and applied not only to the Hospital, but also to its parents, affiliated entities and their officers, directors, employees, agents and representatives.

The Board likewise found the confidentiality provision overly broad because it prohibited employees from disclosing the terms of the agreement to "any third person." The Board determined that such a broad provision would prohibit employees from "disclosing even the existence of an unlawful provision contained in the agreement," which could deter employees from filing unfair labor practice charges or assisting the NLRB in an investigation. Additionally, the Board held that the confidentiality provision would, in practice, prohibit employees from discussing the existence or terms of the severance agreement with others, including union representatives or other employees who may have received similar agreements. It bears emphasis that neither the confidentiality clause nor the nondisparagement clause at issue in McLaren contained a disclaimer regarding preservation of an employee's rights under the NLRA, and thus the Board did not address the effect, if any, of such a disclaimer on the legality of the provisions.

The New Rule (For Now)

The Board majority held that merely "proffering" a severance agreement containing unlawful confidentiality and nondisparagement provisions violated the NLRA because conditioning the receipt of benefits on the "forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights." This likely means that it will not be a defense for employers that continue to enter into these agreements to argue that, despite inclusion of confidentiality and/or nondisparagement provisions, they have done nothing to enforce them. Under McLaren, offering the agreement with unlawful terms to an employee with Section 7 rights is enough to result in an unfair labor practice.

Key takeaways from McLaren and answers to common questions employers are asking are addressed in the following FAQs. Employers are encouraged to consult with labor counsel to determine what approach confidentiality, nondispargement, and other provisions in separation and settlement agreements best fits their organization post-McLaren.

The NLRB's McLaren Decision - Frequently Asked Questions

What was the main issue the Board addressed in McLaren?

Whether the employer violated Section 8(a)(1) of the NLRA when it offered a severance agreement to union employees it had permanently furloughed.

What new rule did the Board adopt?

The "mere proffer" of an agreement that "unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights" violates Section 8(a)(1).

What provisions did the Board find unlawful?

The nondisparagement and confidentiality provisions. Because the agreement conditioned receipt of severance benefits on acceptance of these provisions, the "mere proffer" of the agreement violated Section 8(a)(1).

Why did the Board find these provisions unlawful?

According to the Board, the provisions at issue had a "reasonable tendency" to "chill" former and current employees in the exercise of NLRA Section 7 rights such as the right to:

• Make "public statements" about their workplace, including negative ones.
• Assist coworkers or former coworkers with workplace issues.
• Cooperate in Board investigations and litigation.
• Discuss the terms of the agreement or other workplace matters with (or assist in complaints) by current or former coworkers, the union, the Board, any government agency, the media etc.
• Discuss the terms of the agreement with a union representing employees at another workplace the employee might work or participate in organizing.

What remedy did the Board order in McLaren?

The Board ordered its traditional remedies-i.e., that McLaren "cease and desist" from offering employees severance agreements that include the language the Board found unlawful and post a notice of employee rights for 60 consecutive days.

Will the Board order other remedies in future cases?

Count on it. The facts of any case will dictate the remedies the Board orders, which may include orders to: (1) rescind or revise provision(s) in agreements employees have signed; (2) cease any enforcement action(s) the employer has taken; and (3) notify affected employees (including former employees) of the same through a posting, mailing, reading, text, website post, or other electronic means normally used by the employer to communicate.

Will the Board award employees any damages?

In accordance with its recent decision in Thryv, Inc., 372 NLRB No. 22 (2022), the Board will order employers to pay for any "direct or foreseeable pecuniary harms" incurred by employees. For example, where an employer has filed a court or other action to enforce an unlawful agreement, the Board may order the employer to pay attorneys' fees and other fees or costs incurred by employee in defending the action.

Does the decision apply to agreements proffered or in place prior to February 21, 2023?

The Board did not address this issue head on. The six-month statute of limitations in Section 10(b) of the Act should preclude certain unfair labor practice charges related to agreements proffered or entered into outside that period. Timely charges over efforts to enforce those agreements are another story. Agreements that are pending execution by employees should be reviewed to determine if they should be rescinded, revised, and/or reissued.

What if the employee does not sign or the employer does not enforce an agreement with unlawful provisions?

Whether an employee accepts the agreement is "immaterial" according to the Board. Not taking enforcement action could prevent the issue from surfacing in a charge, but will not be a defense to an otherwise timely charge challenging the "mere proffer" or maintenance of an agreement.

Does the decision apply to agreements with executives, managers, supervisors, or independent contractors?

No. Board law makes clear these individuals are not "employees" within the meaning of Section 2(3) of the NLRA.

Does the decision apply to union and non-union employers?

Yes. The NLRA applies to all "employees" within the meaning of Section 2(3) of the Act. Any "employee," whether covered by a collective bargaining agreement or not, can file a charge with the NLRB asserting a violation of their Section 7 and other rights.

Are severance agreements for union employees a mandatory subject of bargaining?

Yes. With limited exceptions, an employer violates Section 8(a)(5) of the Act if it engages in direct dealing with union-represented employees over the terms of their separations, even if all terms of the agreement are lawful. McLaren was found to have independently violated Section 8(a)(5) by "communicating and directly dealing" with union workers over the terms of their separations "while entirely bypassing and excluding the union."

Is the decision limited to severance agreements?

No. While the case involved severance agreements, we expect this Board to extend its reach to separation, settlement, and other agreements alleged to include unlawful provisions.

Does the decision prohibit employers from including claims under the NLRA in their releases?

No. Properly drafted NLRA release language is still permitted.

Did the Board hold that all confidentiality and nondisparagement clauses violate the NLRA?

No. McLaren involved specific language the current Board majority deemed overbroad. The door remains open to the possibility of maintaining lawful confidentiality and nondisparagement provisions if they are carefully drafted and narrowly tailored to mitigate the concerns raised by the Board.

What type of nondisparagement provisions should pass muster?

This issue may be addressed in a future memorandum by the Board's general counsel, other pending cases, and/or by federal courts of appeal. The Board in McLaren at least implied that provisions narrowly defining "disparagement" to the type of statements the Supreme Court has found unprotected will not violate the Act. See e.g., NLRB v. Electrical Workers Local 1229 (Jefferson Standard), 346 U.S. 464, 477 (1953) ("sharp, public, disparaging attacks upon the quality of the company's product and its business policies, in a manner reasonably calculated to harm the company's reputation and reduce its income") and Linn v. United Plant Guard Workers of America, 383 U.S. 53, 60 (1966) (statements that are knowingly false or made with reckless disregard for the truth).

What type of confidentiality provisions should pass muster?

McLaren does not leave employers with a lot of room to prohibit employees from disclosing the nature and terms of severance and other agreements (even in settlements of disputed claims). Agreements with carefully drafted provisions prohibiting the disclosure of trade secrets, proprietary, and other confidential business information should be fine. And although the Board claimed not to be imposing a work-rules standard on severance agreements, employers should consider using nondisparagement and confidentiality policies approved in past Democrat-majority Board decisions as a template for crafting agreements going forward.

Did the Board leave any other breadcrumbs for employers to follow?

The Board's decision (at least implicitly) was critical of the fact the nondispargement provision was not limited in reach to statements about "past employment," applied to statements about McLaren's "parents and affiliated entities and their officers, directors, employees, agents and representatives," and had no "temporal limitation" (i.e., remained in effect "at all times hereafter").

What should an employer do with agreement provision(s) that might be interpreted as restricting rights employees have under the NLRA?

It depends on the employer's business objectives, culture, brand sensitivity, legal risk tolerance, etc. Options include: (1) leaving current language alone and defending a charge if they get one; (2) removing risky language; (3) tailoring the language to mirror provision(s) the Board and courts have found acceptable in other cases; and/or (4) including robust disclaimer provision(s) making clear the agreement does not and is not intended to prohibit employees from making statements or engaging in any other activities protected by the NLRA.

Is NLRA disclaimer language a silver bullet?

No, but it should be considered. Employers have long-included disclaimer language to carve out an employee's rights under the NLRA and make clear that such rights remain intact, while at the same time preserving other essential pieces of severance and other agreements. While these disclaimers are not foolproof, they are a widely used risk-mitigation practice.

The Board in McLaren did not address what effect, if any, the inclusion of disclaimer language might have on the legality of a confidentiality or nondisparagement clause, as the provisions at issue included no such disclaimer language. But the Board did telegraph certain expectations it may have-e.g., that disclaimer language be in close proximity to the provision(s) at issue and explain in detail employee rights under the NLRA (think an equivalent of a Notice of Rights posting).

Should employers consider including strong "severability" language in our agreements?

Yes. McLaren does not address whether unlawful provisions will render an agreement void or voidable. So a well drafted "severability" provision might help save the rest of an employer's agreement if other provisions are found to be unlawful or unenforceable.

Will McLaren be applied to employee handbooks and workplace policies?

McLaren did not overrule Boeing and LA Specialty but is a harbinger of what's to come in future cases challenging employee handbooks and other workplace policies-much closer scrutiny. The current Board majority signaled their intention to reverse Boeing and LA Specialty in the Notice and Invitation to File Briefs in Stericycle Inc., 371 NLRB No. 48 (2022).

What Now?

Employers should review any non-disparagement and confidentiality provisions they are proffering to employees or potential employees, regardless of the document in which the provisions are incorporated. This includes other agreements that may be incorporated by reference in severance agreements, such as proprietary information and invention agreements.

There is no one-size-fits-all approach that most employers will want to use. It might be possible to merely eliminate confidentiality and non-disparagement provisions and use a common form for all releases. Most employers still may need confidentiality in certain situations, however.

Furthermore, there may not be as much need for confidentiality and non-disparagement provisions in group termination releases, where the severance offer is under a standardized plan offered to potentially hundreds of employees in a reduction-in-force. Finally, employers with previously signed confidentiality agreements may not need another confidentiality provision in a release but may refer back to that agreement. Of course, some of those previously signed agreements may need revision as well.

We will closely follow and report on any federal court appeal of the McLaren decision. As the Board continues to upend settled law, courts will be asked to decide whether such decisions are entitled so-called "Chevron" deference, whether the Board is impermissibly engaged in rulemaking under the guise of interpretation, and whether its rulings should be applied retroactively.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.