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The NLRB Limits the Reach of Confidentiality and Non-Disparagement Provisions in Severance Agreements Overruling Trump-Era Policies

Client Alert
March 14, 2023

 

California Severance Agreement Requirements | Minnis & Smallets LLP | Employment Law Attorney San Francisco

Employers should exercise caution and closely examine the content of severance agreements to ensure compliance with a recent National Labor Relations Board (“NLRB”) decision.  On February 21, 2023, the NLRB restricted the breadth of permissible language of confidentiality and non-disparagement clauses when it issued its decision in McLaren Macomb and overruled its Trump-era decisions in Baylor University Medical Center and IGT d/b/a International Game Technology.

 

Which employers are covered by the National Labor Relations Act (“NLRA”)?

 

The NLRA covers most private sector employees, including manufacturers, retailers, private universities, and healthcare facilities.  It does not apply to federal, state, or local governments; employers in the agricultural sector; and employers involved in interstate railroads and airlines.  29 U.S.C. §152(2). 

 

Who is an employee?

 

An employee is a person without supervisory responsibilities and powers.  A supervisor is defined by the NLRA to be “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them…”  29 U.S.C. §152(11).

 

The McLaren Macomb Decision

 

This case arose from a confidentiality and a non-disparagement provision present in a severance agreement that was presented to eleven employees that were permanently furloughed at the onset of the COVID-19 Pandemic.  The furlough occurred as a result of the federal government’s regulations prohibiting elective and outpatient procedures.  Also, “nonessential employees” were prohibited from working inside the hospital, necessitating a furlough, which was a common experience in the healthcare industry at that time.  The clauses at issue state,

 

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.    

 

McLaren Macomb, 372 NLRB No. 58, 2 (2023).  The Board held that “Examining the language of the severance agreement here, we conclude that the nondisparagement and confidentiality provisions interfere with, restrain, or coerce employees’ exercise of Section 7 rights.”  Moreover, even “proffering” or presenting an employee with a severance agreement with such language constituted a violation of Section 8(a)(1) of the NLRA.  Id.

 

Regarding the non-disparagement provision, the Board reasoned that the provision was overly broad because it was not limited to just the Respondent-employer, but included “its parents and affiliated entities and their officers, directors, employees, agents and representatives” and also included no temporal limitation. 

 

As to the confidentiality provision, the Board was also concerned about the chilling effect on Section 7 rights of employees because it would prohibit the employee from providing information to the Board concerning the employee’s rights under the NLRA or cooperating with a Board investigation.  The Board affirmed, “established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the Board.” 

 

What is appropriate?

 

This decision creates cause for caution for covered employers.  Before a severance agreement is offered to an employee, employers should consult with legal counsel familiar with employment law issues to ensure that the agreement is compliant with McLaren Macomb. Careful revision of any potential severance agreements, especially confidentiality and non-disparagement provisions, should occur before offering a severance agreement to an employee as the NLRB has clearly returned to more restrictive standards.     

BMD’s Labor and Employment team is here to answer any questions employers may have about compliance with the NLRB's decision and other state and federal laws regarding employment. If you have any questions about this topic or wish to discuss, please contact Bryan Meek at bmeek@bmdllc.com or Angelina Gingo at acgingo@bmdllc.com.

NLRBNational Labor Relations BoardSeverance
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