The National Labor Relations Board Cracks Down on Confidentiality and Non-Disparagement Language in Severance Agreements

March 1, 2023 | By Ivo J. Becica, Thomas T. Hearn

Last week, the National Labor Relations Board (NLRB) issued a Decision and Order that fundamentally alters the legality of nondisparagement and confidentiality clauses in employee severance agreements. While the NLRB presented the decision (McLaren v. Macomb and OPEIU, AFL-CIO) as a return to a century of well-established Board precedent, it is a significant development that may require employers to change the way they draft and present severance agreements to separating employees.

Section 7 of the National Labor Relations Act (NLRA) prohibits employers from, among other things, interfering with the rights of employees to discuss terms and conditions of employment with coworkers and/or participate in Board proceedings and investigations. Prior to 2020, the NLRB examined the plain language of nondisparagement and confidentiality provisions in severance agreements to determine whether the provisions “chilled” Section 7 rights. In two 2020 decisions (Baylor and IGT) the Board added two additional conditions for invalidating a severance agreement on Section 7 grounds: (1) a contemporaneous violation of the Act (such as an unlawful termination accompanying the severance agreement) and (2) anti-union animus by the employer. In McLaren, the Board removed these two additional conditions and placed further restraints on the validity of severance agreements.

Section 7 of the National Labor Relations Act (NLRA) prohibits employers from, among other things, interfering with the rights of employees to discuss terms and conditions of employment with coworkers and/or participate in Board proceedings and investigations.

McLaren involves a hospital in Mt. Clemens, Michigan that temporarily furloughed eleven union-represented employees at the outset of the COVID-19 pandemic. By June 2020, the hospital permanently furloughed these employees and presented them with severance agreements containing the following language:

“6. 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 [a] 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.”

“7. 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.”

Notably, the agreements did not include any disclaimer provisions stating that, notwithstanding the confidentiality and non-disclosure provisions in Paragraphs 6 and 7, employees are free to participate in NLRB proceedings or engage in discussions about the terms and conditions of their employment as protected under the NLRA.

After an Administrative Law Judge applied Baylor and IGT to uphold the above language, the  Board agreed to address its legality, ultimately overruling Baylor and IGT and finding the agreements unlawful. In a three-to-one decision, the Board ruled that the provisions above, on their face, would prevent employees from publicly criticizing the terms and conditions of their employment, from alerting the Board to unlawful provisions in the agreement, and from assisting fellow employees with Board investigations. The decision is effective immediately.

In light of this decision, employers should examine the nondisparagement and confidentiality clauses in their severance agreements to ensure the language does not restrict, or coerce an employee from exercising their Section 7 rights, including the right to participate in Board proceedings (including investigations or hearings) and the right to discuss the terms and conditions of their employment with coworkers or former coworkers. Furthermore, McLaren restricts provisions that limit employees from making statements to third parties, or the public (including social media) “where the communication is related to an ongoing labor dispute and when the communication is not so disloyal, reckless, or maliciously untrue to lose the [NLRA]’s protection.”  While the decision does not specifically address narrower confidentiality provisions that only protect the disclosure of certain information (such as the amount of a severance or settlement payment), these provisions may be more likely to withstand the Board’s enhanced scrutiny.  The Board may have ruled differently had the agreement in McLaren been narrowed in this manner, or included express language permitting employees to bring issues to the attention of the Board or engage in discussions that are protected under Section 7.

In light of this decision, employers should examine the nondisparagement and confidentiality clauses in their severance agreements to ensure the language does not restrict, or coerce an employee from exercising their Section 7 rights.

In addition, the Board’s rationale in McLaren also applies to all settlement agreements with employees, including settlements of labor and employment disputes. Since the NLRA does not apply to supervisors, agreements with supervisors can in some cases be drafted more broadly, but should typically still allow participation in Board proceedings and investigations.

Given the bold proclamations of the Board in McLaren, this decision will likely be addressed by federal and state courts in future litigation. While the courts may narrow or better define McLaren in the coming months, the decision serves as a reminder that the Board has renewed its focus on Section 7—which applies in both union and non-union shops.

HR Legalist will continue to monitor this development and any future challenges to this ruling.  As always, please feel free to contact Obermayer’s Labor and Employment department with any questions you might have about the impact of this decision.


The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

About the Authors

Ivo Becica

Ivo J. Becica

Partner

Ivo is a partner in Obermayer’s Labor Relations & Employment Law Department. He focuses his practice on representing employers, including advising companies on how to handle employee issues, and defending employee claims...

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Thomas Hearn

Thomas T. Hearn

Partner

Thomas concentrates his practice in labor and management relations, employment discrimination and employee contracts.

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