NLRB Finds that Confidentiality and Non-Disparagement Clauses in Severance Agreements May Violate Employees’ Rights

On February 21, 2023, the National Labor Relations Board (the Board) issued a decision that reversed the precedent established during the Trump administration and held that severance agreements that include non-disparagement or confidentiality provisions that interfere with the exercise of the employee’s right to discuss the terms and conditions of employment with coworkers are unlawful. Furthermore, the Board held that the mere proffer of such an agreement — even if the employee does not accept it — is unlawful.

The case, McLaren Macomb and Local 40 OPEIU involved a Michigan hospital’s decision to permanently furlough 11 employees as a result of the COVID-19 pandemic. The hospital offered to pay the employees severance benefits if they signed an agreement that released the hospital from any employment claims and included confidentiality and non-disparagement clauses. The confidentiality provision prohibited the employees from disclosing the terms of the severance agreement to anyone other than their spouses, for legal or tax advice, or if compelled to do so by a court or administrative agency. The non-disparagement provision prohibited the employees from making disparaging statements about the hospital to its employees or the public.

The Board found that these provisions unlawfully restrained employees in the exercise of their rights under Section 7 of the National Labor Relations Act to engage in concerted activities for mutual aid and protection. The Board noted that discussing the terms and conditions of employment with one’s coworkers (or former coworkers) “lies at the heart of” activity protected by Section 7. It found that the confidentiality provision of the severance agreements could coerce the former employees into not filing an unfair labor practice charge or assisting a Board investigation of the employer. The provision also impaired the former employee’s ability to discuss the terms of the agreement with current employees who may be deciding whether to accept a similar agreement. The Board found the non-disparagement agreement was so broadly worded that it prevented the former employees from discussing any labor issues or their terms and conditions of employment, which would have a “clear chilling tendency on the exercise of Section 7 rights.” The Board found that because any proffered severance agreement that conditions receipt of severance benefits on surrendering Section 7 rights was inherently coercive, the mere proffer of an agreement containing similar provisions is unlawful.

The Board’s decision will affect virtually all severance agreements employers may offer. It is important to remember that because Section 7 of the National Labor Relations Act guarantees “employees” — not just union members — the right to engage in concerted activities for mutual aid or protection, it applies even to employees who are not in a union. If you are contemplating offering severance agreements to employees, you should have your legal counsel review the agreement before offering it so that you can ensure it complies with the Board’s new direction in McLaren Macomb.

For assistance or questions about this alert, please contact the authors or any member of the Steptoe & Johnson Labor & Employment Team.