NLRB Rules that Severance Agreements which Include Broad Non-Disparagement and Confidentiality Provisions are Unlawful

On February 21, 2023, the National Labor Relations Board (NLRB) issued a decision that held employers may not offer severance agreements that require employees or former employees to broadly waive their rights under the National Labor Relations Act (“Act”).

In the decision, McLaren Macomb, COVID-19 restrictions caused the employer to permanently furlough 11 employees because they were deemed nonessential. The company presented each employee with a “Severance Agreement, Waiver and Release” that offered to pay differing severance amounts to each furloughed employee if they signed the agreement. The agreements, which were signed by all the employees, included language prohibiting disparagement of the employer and requiring confidentiality about the terms of the agreement. The exacting wording of the provisions are 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, 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.

Here, the NLRB found that the employer violated the Act by offering severance agreements that contained these provisions.

The NLRB ruled that the confidentiality provision was unlawful because it broadly prohibited employees from disclosing the terms of the agreement to “any third person,” which could coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the use of the severance agreement. The NLRB argued that such a broad surrender of the Act’s rights contravened established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the NLRB.

Furthermore, the confidentiality provision was found to also prohibit an employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement. In this respect, the NLRB believed that the confidentiality provision impaired the rights of the employee’s former coworkers to call upon him for support in comparable circumstances. Thus, the NLRB concluded that “a severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”

Note that the NLRB did not discuss whether other confidentiality provisions, such as a prohibition on disclosing trade or company secrets, would be outlawed. As such, those provisions are still likely lawful.

Furthermore, the NLRB found that the non-disclosure/non-disparagement provision of the severance agreement was unlawful because, “on its face,” it interfered with an employee’s rights under the Act to make public statements about any labor issues, disputes, or other terms of the company that may help improve the conditions of employment. The NLRB stressed that although an employee may not make a statement that is “disloyal, reckless or maliciously untrue as to lose the Act's protection,” that is not what was at issue in these severance agreements.

There was no mention on whether this ruling would have a retroactive impact on all severance agreements entered into prior to February 21, 2023. And while employers certainly must be careful in crafting severance agreements moving forward, they should also prepare for possible pushback from already-existing severance agreements.

The announcement from the NLRB can be found here. Note that the decision applies to all private businesses covered under the Act, including both non-union and union workplaces. Furthermore, while the decision seems to have a significant impact on severance agreements, it is anticipated that the decision will be appealed and further reevaluated by the courts.

The Labor & Employment Group at Knox Law can help with this and any other questions you may have regarding the NLRB’s recent decision.

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For more information, please contact Sarah Holland.