In a decision sure to drastically impact the labor and employment landscape, on February 21, 2023, the National Labor Relations Board (NLRB) held in McLaren Macomb, 372 NLRB No. 58 (2023), that an employer's mere proffer of a severance agreement containing broad confidentiality and nondisparagement provisions is unlawful.

Under the current Board's view, severance agreements are unlawful on their face if they contain terms with a "reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights" under the National Labor Relations Act (NLRA). As such, the NLRB will now examine severance agreements for language it deems to be too broad, coercive or tending to chill the exercise of employees' rights to collectively band together and communicate to try to improve the workplace. All employers (both union and nonunion) considering even presenting severance agreements to employees should now take appropriate action to assess compliance in light of McLaren Macomb. Importantly, however, the Board's ruling in McLaren Macomb only applies to nonmanagerial, nonsupervisory employees with Section 7 rights under the Act.

The underlying facts of McLaren Macomb concerned severance agreements offered to and accepted by 11 permanently furloughed, unionized service employees at a hospital in Michigan in June 2020. In exchange for severance benefits, the agreements contained the following clauses, which the Board ultimately deemed unlawful by their mere inclusion:

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.

Shifting away from Trump-era precedent, the Board held a "severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment." The approach of examining severance agreement terms alone and not surrounding circumstances expressly overrules two Trump-era Board decisions: Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020). In evaluating confidentiality and nondisparagement clauses, the Trump Board in Baylor and IGT did not look directly at the agreements to analyze whether the mere presence of such provisions violated the Act, but instead examined the circumstances under which severance agreements were presented to employees. The Trump Board decisions required an additional showing of separate, unlawful conduct on the part of the employer before the Board would declare the agreement unlawful.

In McLaren Macomb, the Board ruled that the nondisparagement provision substantially interfered with employee rights under Section 7 to communicate about labor issues, disputes, or terms and conditions of employment. According to the Board, the language also impermissibly tended to chill the exercise of Section 7 rights because it (i) broadly applied to the employer's parents, affiliates and their officers, directors, employees, agents and representatives; (ii) was not limited in temporal duration; and (iii) extended to future cooperation with Board and other government investigations.

As for the agreement's confidentiality language, the Board found unlawful its broad prohibition against disclosing the terms of the agreement "to any third person." The Board also found this provision unlawful as it (i) tended to deter employees from filing unfair labor practice charges or assisting a Board investigation; (ii) prohibited the subject employee from discussing the terms of the severance agreement with former co-workers who could find themselves presented with a similar agreement; and (iii) prohibited discussion with the employees' union or future co-workers concerning the terms of the agreement.

The Board also held that offering the agreement to the former employees violated the NLRA, regardless of whether the employees entered in to the agreement. The Board found Section 7 rights extend beyond current employees and apply to former employees as well as channels outside the immediate employee-employer relationship (such as judicial forums and social media). While not expressly referenced in the decision, it is likely the Board's restrictions will apply equally to settlement agreements.

What This Means for Employers

Based on McLaren Macomb, an employer's act of offering nonmanagerial workers a severance agreement containing broad confidentiality and nondisparagement language now at best poses a substantial risk. Prudent employers should consider reducing such risk as follows:

  • Review all template severance/separation and settlement agreements provided to employees for compliance with the Board's rationale and holding.
  • Determine whether to include provisions prohibiting disparagement and disclosure of agreement terms, and if included, narrow them to reduce risk of the NLRB or a tribunal finding the agreement to be unlawful.
  • If such provisions are included, also include carefully worded carveout language informing workers that such provisions do not prevent them from engaging in protected acts under Section 7 of the Act. Note, however, any such carveout would need to be extremely broad and allow employees still to participate in Section 7 activity, file unfair labor practice charges, cooperate and participate in Board investigations and assist other workers in enforcing their Section 7 rights.
  • Ensure a strong "severability" clause in all template agreements, whereby any language found to be invalid, unlawful or unenforceable shall be construed narrowly or severed, and the remainder of the language in the impacted provisions and the rest of the agreement shall continue in full force and effect.
  • Consider using representations and nonadmissions clauses as a way to reduce the sting of restrictions on confidentiality of sensitive or disputed issues.

We will continue to monitor and provide updates regarding further developments (including any NLRB general counsel advisory memos) concerning requirements for lawful severance confidentiality and nondisparagement clauses, as well as any future changes to the Board's standards on the same.

For More Information

If you have any questions about thisAlert, please contact Eve I. Klein, Jonathan A. Segal, Jonathan D. Wetchler, James R. Redeker, Adam Keating, Gregory Slotnick, any of theattorneysin our Employment, Labor, Benefits and Immigration Practice Groupor the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.