On February 21, 2023, the National Labor Relations Board (“NLRB”) issued a decision that may significantly alter the use of confidentiality and non-disparagement provisions in severance agreements. The decision – McLaren Macomb, 372 NLRB No. 58 (2023) – reverses the standing precedent surrounding severance agreements and calls into question some well-worn clauses favored by employers that enter into such agreements with exiting employees.
In McLaren, the NLRB examined whether an employer’s offering of severance agreements to several of its employees who had been permanently furloughed as a result of the COVID-19 pandemic infringed upon those employees’ rights under Section 7 of the National Labor Relations Act (“NLRA”), itself a violation of Section 8(a)(1) of the same.
Section 7 of the NLRA guarantees employees “the right to self-organization, 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,” as well as the right “to refrain from any or all such activities.” Section 8(a)(1) makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the NLRA.
Generally, confidentiality and non-disparagement provisions prohibit employees from disclosing the terms of their severance agreements to third parties and from making statements that could disparage or harm the image of the employer. The severance agreements in McLaren contained terms familiar to many employers and specifically provided:
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.
In analyzing the language of these provisions under the NLRA, and relying on certain prior precedent, the NLRB held that “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, and that employers’ proffer of such agreements to employees is unlawful.”
While the NLRB’s ruling this week could be appealed, the ruling is effective immediately. Employers should consider the McLaren decision when drafting and negotiating severance and other employment agreements.
If you have any questions regarding this article, or how to determine if your severance agreement is legally compliant, please contact the Underberg & Kessler attorney who regularly handles your legal matters or Ryan T. Biesenbach, the author of this article, here, or at (585) 258-2865.
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