United States: NLRB Holds Confidentiality, Nondisparagement Provisions Illegal In Severance Agreements Presented To Section 7 Employees

Employers routinely include terms in severance agreements: (1) requiring the fact and contents of the agreement, including the amount of severance, be kept confidential by the signing employee; and (2) prohibiting the signing employee from disparaging the employer, along with its officers, directors, employees, agents, and representatives. These commonly are referred to as confidentiality and nondisparagement provisions. Over the past several years, individual state laws and the federal Speak Out Act have restricted how and when employers are permitted to use confidentiality and nondisparagement provisions in employment agreements. On February 21, 2023, the National Labor Relations Board (NLRB) continued this trend by issuing an important decision that may fundamentally change how and when employers use confidentiality and nondisparagement provisions.

In McLaren Macomb, 372 NLRB No. 58 (2023), the Board examined whether the employer violated Section 8(a)(1) of the National Labor Relations Act (NLRA) by offering severance agreements to a group of permanently furloughed employees. The severance agreements contained terms prohibiting the exiting employees from making statements that could disparage or harm the image of the employer and further prohibiting them from disclosing the terms of their severance agreements. Unpersuaded by prior precedent permitting the use of such terms, the Board found the nondisparagement and confidentiality provisions unlawful because they interfered with, restrained, and coerced employees in the exercise of their Section 7 rights under the Act. Importantly, the Board found that by conditioning receipt of severance benefits on acceptance of the nondisparagement and confidentiality provisions, the employer violated Section 8(a)(1) of the Act by proffering the severance agreements in the first instance.

The severance agreements at issue contained the following provisions:

Confidentiality Agreemen. 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.

Historically, the Board evaluated confidentiality and nondisparagement clauses by "carefully scrutiniz[ing] the language" of the provisions to determine if they "broadly required" the employee to waive certain Section 7 rights. In the early 2000s, the Board determined that confidentiality and nondisparagement provisions are unlawful when they prohibit employees from cooperating with the Board in investigations and litigation of unfair labor practice charges. In 2020, the Board issued two decisions that overturned prior precedent and shifted the focus to the circumstances under which the employer presented the severance agreements to employees. In doing so, the 2020 decisions permitted the use of confidentiality and non-disparagement provisions in severance agreements, provided the circumstances surrounding the severance did not involve an employee discharged in violation of the Act or another unfair labor practice evidencing animus towards the exercise of Section 7 activity.

The Board in McLaren Macomb disagreed with the 2020 methodology and found it did not take the actual language of the severance agreement into account. Relying on its prior precedent, the Board determined "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."

In doing so, the Board found the nondisparagement provision at issue violated employees' Section 7 rights because "[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act." The Board further reasoned that the provision prohibited "any statement asserting that the [employer] had violated the Act," encompassed "employee conduct regarding any labor issue, dispute, or term and condition of employment," and chilled "efforts to assist fellow employees, which would include future cooperation with the Board's investigation."

Similarly, the Board found that the confidentiality provision at issue violated employees' Section 7 rights because it precluded employees from "disclosing even the existence of an unlawful provision contained in the agreement," thereby tending to coerce employees from filing unfair labor practice charges or assisting the NLRB in an investigation. The Board also determined the confidentiality provision to be unlawful because it prohibited employees from discussing the severance agreement with former coworkers who may receive similar agreements, as well as union representatives or other employees seeking to organize.

Importantly, the Board's decision in McLaren Macomb applies to only nondisparagement and confidentiality provisions presented to nonmanagerial employees with Section 7 rights under the Act. Section 2(11) of the NLRA defines who qualifies as a "supervisor" (i.e., a manager); that definition hinges on a number of factors, including, but not limited to, whether the employee has authority to hire, fire, discipline, or responsibly direct the work of other employees. Further, the Board acknowledges but does not clearly define how to "narrowly tailor" a forfeiture of Section 7 rights.

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