On February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) held in McLaren Macomb, 372 NLRB No. 58 (2023), that an employer’s mere proffer of a severance agreement containing broad confidentiality and non-disparagement provisions was unlawful.
Under the current Board’s view, severance agreements are unlawful if they contain terms with a “reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights” under the National Labor Relations Act (“NLRA” or the “Act”). As such, the NLRB examines severance agreements for language it deems too broad, coercive, or tending to chill the exercise of employees’ rights to band together and communicate to improve the workplace collectively. Thus, any employer (union and nonunion) considering presenting severance agreements to employees should now take appropriate action to ensure they comply with McLaren Macomb.
In McLaren Macomb, a Michigan hospital laid off 11 bargaining unit members during the COVID-19 pandemic and offered them severance pay in exchange for signing written severance agreements. The severance agreements contained non-disparagement and confidentiality provisions, which read as follows:
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, because 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.
Following its review, the NLRB declared those provisions unlawful because they have a reasonable tendency to interfere with, restrain, or coerce employees in exercising their Section 7 rights. According to the Board, “public statements by employees about the workplace are central to exercising employee rights under the Act.” Moreover, the Board determined that a provision prohibiting disclosure of the agreement’s terms has a “chilling effect” on employees’ exercising their Section 7 rights.
In doing so, the Board held a “severance agreement is unlawful if it precludes an employee from assisting co-workers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”
Examining severance agreement terms on their own and not surrounding circumstances expressly overrules prior Board decisions where the Board did not look directly at the agreements to analyze whether the inclusion of such provisions violated the Act. Instead, the Board examined the circumstances under which severance agreements were presented to employees. As a result, the Board previously required an additional showing of separate, unlawful conduct on the employer’s part before the Board would declare the agreement unlawful.
However, in McLaren Macomb, the Board ruled that the non-disparagement provision substantially interfered with employee rights under Section 7 to communicate about labor issues, disputes, or terms and conditions of employment. According to the Board, the language also impermissibly tended to chill the exercise of Section 7 rights because it:
- Broadly applied to the employer’s parents, affiliates and their officers, directors, employees, agents and representatives.
- Was not limited in temporal duration.
- Extended to future cooperation with Board and other government investigations.
As for the agreement’s confidentiality language, the Board found its broad prohibition against disclosing the terms of the agreement “to any third person”, unlawful. The Board also found this provision illegal as it:
- Tended to deter employees from filing unfair labor practice charges or assisting a Board investigation.
- Prohibited the subject employee from discussing the terms of the severance agreement with former co-workers who could find themselves presented with a similar agreement.
- Prohibited discussion with the employees’ union or future co-workers concerning the terms of the agreement.
What This Means for Employers
Notably, this decision only applies to employees covered by the Act, meaning employers can continue using non-disparagement and confidentiality provisions for non-NLRA-covered employees, such as supervisors, managers, executives, a nd exempt administrative personnel.
However, based on McLaren Macomb, it creates a considerable risk if an employer offers covered employees a severance agreement with broad confidentiality and non-disparagement language. Accordingly, cautious employers should consider taking the following steps:
- Review all template severance/separation and settlement agreements provided to employees for compliance with the Board’s rationale and holding.
- Determine whether to include provisions prohibiting disparagement and disclosure of agreement terms and if included, narrow them to reduce the risk of the NLRB or a tribunal finding the agreement to be unlawful.
- Ensure a strong “severability” clause in all template agreements, whereby any language found invalid, unlawful, or unenforceable may be construed narrowly or severed, and, ideally, the remainder of the language in the impacted provisions and the rest of the agreement would continue in full force and effect.
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About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://