On February 21, 2023, the National Labor Relations Board (the Board) issued a decision that could have a significant impact on the use of confidentiality and non-disparagement provisions in severance agreements. In McLaren Macomb, 372 NLRB No. 58 (February 21, 2023), the Board held that an employer violates the National Labor Relations Act when it presents departing employees with a severance agreement containing provisions that would restrict employees’ exercise of their rights protected by Section 7 of the Act, overturning prior precedent established by the Board under the Trump Administration (“Policy Oscillation in Full Swing at the National Labor Relations Board,” March 23, 2022). Of particular significance, the Board held that merely “proffering” a severance agreement that contains provisions that could chill employees’ Section 7 rights is a violation of the Act—even if the employer never seeks to enforce those provisions. Below is a summary of the decision and key takeaways. 

Summary of Decision

For operational and financial reasons, the employer in this case decided to furlough 11 employees indefinitely. The employer offered each of the employees a severance agreement providing that, in exchange for severance payments, the employees would provide a release of all claims as well as agreements not to disparage the employer and to also keep the terms of the severance agreement confidential. The Board focused its opinion on the confidentiality and non-disparagement provisions in the severance agreement. The Board found that these provisions interfered with employees’ rights under Section 7 of the Act, applying the following reasoning:

• With respect to the confidentiality provision, the Board focused on the fact that the language would prohibit disclosing the terms of the agreement to any third party and that this proscription would reasonably tend to prevent the employee from filing an unfair labor practice charge or assisting a Board investigation into rights protected by Section 7. The confidentiality provision also could be read as prohibiting employees (which includes former employees) from discussing their terms and conditions of employment, a right protected by Section 7.
• The non-disparagement provision faced similar scrutiny. With respect to that provision, the Board reasoned employees have the right under Section 7 to make comments about the employer—even negative comments. The Board reasoned that the non-disparagement provision had a chilling effect on the exercise of this Section 7 right.

Applying this reasoning, the Board found that an employer violates the Act by including in a severance agreement provisions, such as the confidentiality and non-disparagement provisions, that have a reasonable tendency to restrain, coerce, or interfere with the employees’ exercise of Section 7 rights. The Board further found that, “where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act.”

The reasoning behind the Board’s decision is based on the Board’s current interpretation of the scope of protections afforded to employees under Section 7 of the National Labor Relations Act. Section 7 provides employees—union and non-union—with the right to engage in concerted activity for their mutual aid or protection. The broad scope of protections afforded by Section 7 provides employees with the right to discuss terms and conditions of employment with coworkers and extends to employee efforts to improve terms and conditions of employment through channels outside the immediate employee-employer relationship, and what falls within or outside of those protections has historically been up to the interpretation of the Board. 

5 Key Takeaways for Employers

1. Broad Scope of Decision. Under this decision, an employer violates the Act simply by offering a severance agreement that contains the offending provisions and it applies to both union and non-union employers.
2. Importance of Narrowly Written Provisions. The Board was critical of the confidentiality and non-disparagement provisions in this case because they were written so broadly as to arguably restrict employees’ Section 7 rights. The Board hinted in a footnote to its decision that the outcome may have been different if the provisions had been more narrowly tailored. In that footnote, the Board stated, “we are not called on in this case to define today the meaning of a “narrowly tailored” forfeiture of Section 7 rights in a severance agreement, but we note that prior decisions have approved severance agreements where the release has waived only the signing employee’s right to pursue employment claims and only as to claims arising as of the date of the agreement.” Employers can expect that the Board will issue guidance in the near future regarding what it deems to be acceptable, “narrowly tailored” confidentiality and non-disparagement provisions.
3. No Definitive Guidance on Savings Clause. The decision also leaves open the issue of whether a disclaimer or “savings clause” could have saved the provisions at issue. Such disclaimers typically use words to the effect that, “nothing in this agreement is intended to prevent you from enforcing your rights under Section 7 of the National Labor Relations Act or to otherwise engage or participate in any NLRB proceeding.” Again, employers can expect future guidance from the Board regarding whether such disclaimers would render otherwise objectionable provisions enforceable.
4. Retractive Application Unknown. It also is unknown at this time whether this decision would apply to severance agreements that already have been entered into by the parties. This is another issue on which the Board will need to offer further clarification.
5. What To Do in the Meantime. While we await further guidance from the Board, employers should review the use of severance or separation agreements and identify the non-disparagement and confidentiality provisions for further discussion. If those provisions are on their face very broadly written, seek legal counsel to assist in the review and potential modifications now as a conservative step.

For more information on this topic, or to learn how Godfrey & Kahn can help, contact a member of our Labor, Employment & Immigration Law Practice Group.