The National Labor Relations Board (NLRB) has joined a growing pro-worker chorus taking aim at confidentiality (of the severance paid) and non-disparagement provisions in severance agreements, ruling that simply proposing such provisions violates federal labor law. Employers should reconsider whether to include—and how to construct—such provisions in their future severance agreements. Moreover, employers should keep this ruling in mind when considering whether to enforce such agreements in the future.
And we mean all employers, not just those who are parties to union agreements: this ruling also applies to non-unionized employees.
In McLaren Macomb v. Local 40 RN Staff Council (372 NLRB No. 58 (February 21, 2023)), the NLRB—now controlled by a Biden-appointed Democratic majority—overturned two decisions issued by the Trump-era Board. In McLaren Macomb, the employer bypassed the union and negotiated severance agreements directly with the laid-off hospital staff. The severance agreements contained broad clauses prohibiting employees from disclosing the amount of severance they were offered (confidentiality) and from making negative comments about the employer (non-disparagement).
The NLRB ruled that both the confidentiality and non-disparagement provisions were unlawful, violating the fundamental rights of employees to act in concert and to seek help from their union: “It is axiomatic that discussing terms and conditions of employment with coworkers lies at the heart of protected Section 7 activity” (Order, at 6).
The NLRB clearly intends for the scope of its ruling to be far-reaching, making the inclusion of such terms in proffered agreements unlawful:
- even where there were no other violations of labor law;
- whether a union represented the employees, or the employees were non-union; and
- even if the employer never tried to enforce such unlawful terms.
The NLRB also is applying this new rule to attempts to enforce existing agreements, rendering any already signed confidentiality and non-disparagement provisions unenforceable.
The decision expressly overturns the Trump-era rulings in Baylor University Medical Center (369 NLRB No. 43 (2020)) and IGT d/b/a International Game Technology (370 NLRB No. 50 (2020)). The NLRB intends to return controlling case law to what existed before the 2020 orders.
It is not clear whether more narrowly-tailored confidentiality and non-disparagement clauses could survive the NLRB’s analysis. Note, the NLRB did not find fault with the aspect of confidentiality clauses that sought to protect trade secrets or confidential business information. On the other hand, the NLRB emphasized the “far-reaching proscription” in the non-disparagement provision and that it “provides no definition of disparagement that cabins that term to its well-established NLRA” standards of unprotected speech (Order, at 8).
In the other key ruling in this case, the NLRB upheld the administrative law judge’s decision that the employer had acted unlawfully when bypassing the union and “directly dealing” with the laid-off employees over the severance agreements. Employers seeking to offer severance agreements to employees with union representation need to work with that union representation to ensure enforceable severance agreements.
