Severance agreements routinely include terms that: (1) require the signing employee to keep the terms and conditions of the agreement confidential, except for his/her attorney, financial advisor, and spouse; and (2) prohibit the employee from disparaging the employer and named stakeholders. These are commonly referred to as confidentiality and nondisparagement provisions.
Earlier this week, the National Labor Relations Board (“NLRB” or “Board”) reversed a Trump-era standard that permitted confidentiality and nondisparagement provisions in severance agreements. In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB examined whether the employer violated the National Labor Relations Act (“NLRA” or “Act”) by offering severance agreements to employees with broadly worded confidentiality and nondisparagement clauses. As presented to the employees, the severance agreements would have prohibited the employees from making statements that could “disparage or harm the image” of the employer and from disclosing the terms of the severance agreement. The Board held these provisions interfered with, restrained, and coerced employees in the exercise of their Section 7 rights under the NLRA. Moreover, the Board found that the employer violated the Act by simply offering severance agreements to the employees that contained such nondisparagement and confidentiality provisions.
Importantly, Section 7 of the Act provides broad rights for most employees—both union and nonunion—to engage in “protected concerted activity,” including discussing terms and conditions of employment and workplace issues with coworkers, a union, and the Board. However, the Board’s decision will not apply to severance agreements presented to those that are not covered by Section 7 of the Act, such as independent contractors, managerial employees (i.e., eligible supervisors), public sector employees, and some agricultural workers.
Fortunately, the Board’s decision did not take issue with all confidentiality requirements and nondisparagement provisions within severance agreements. That is, the NLRB only addressed confidentiality restrictions regarding the terms of the severance agreement. It did not hold that confidentiality provisions involving trade secrets or proprietary business information were unlawful. Likewise, the Board’s decision does not protect an employee’s communication when it is “so disloyal, reckless, or maliciously untrue to lose the Act’s protection.”
Finally, the Board chose not to address the meaning of “narrowly tailored” forfeiture of Section 7 rights and whether an appropriately worded disclaimer would have been sufficient to avoid a violation of the Act.
Unfortunately, at this time, the Board’s decision has left employers with more questions than answers. We encourage all our clients to contact our Labor & Employment Law Practice Group to discuss the potential implications of the Board’s decision and to subscribe to our Labor & Employment E-Briefs to keep up with the latest HR news, tips, and updates.