We have been getting questions from employers and employees alike regarding the February 21, 2023, decision from the National Labor Relations Board barring employers from excluding confidentiality and non-disparagement clauses in severance agreements with departing employees. The case, McLaren Macomb, 372 NLRB No. 58 (2023), involved the enforceability of confidentiality and non-disparagement restrictions in severance agreements offered to furloughed employees.
McLaren Macomb Case: Enforceability of Confidentiality and Non-Disparagement Restrictions in Severance Agreements
At issue in McLaren Macomb were these provisions used in the subject severance agreements:
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.
In a 3 to 1 decision, the NLRB held that these provisions illegally infringed on the employees’ rights to freely discuss working conditions as protected under Section 7 of the National Labor Relations Act (NLRA). In the past, the Board has found that any such rules contained in an employee handbook and applied to current employees would violate the NLRA.
Misconceptions and Clarifications of the NLRB’s Decision Regarding Confidentiality and Non-Disparagement Clauses
Many have misinterpreted this decision as imposing an across-the-board ban on any confidentiality or non-disparagement provision in a severance agreement. This is not correct.
First, although the decision applies to most employers nationwide, regardless of union or non-union status, it only applies to severance agreement with non-supervisory employees. Under the NLRA, a supervisory employee is an employee who has: (a) the authority to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees; or (b) the responsibility to direct them or to adjust their grievances, or effectively to recommend such action, provided that such authority or responsibility requires the use of independent judgment as opposed to involvement or a routine or clerical nature. Note that the term “supervisory employee“ is not synonymous with “exempt employee” to the Fair Labor Standards Act.
Second, the McLaren decision specifically provides, “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.” The Board further held that these confidentiality and non-disparagement provisions could chill employees’ participation in NLRB proceedings and investigations. If a confidentiality or non-disparagement provision in a severance agreement does not have the purpose or effect of chilling the employee’s Section 7 rights then, presumably, such provisions could withstand scrutiny. Indeed, the Board qualified its decision with the caveat that a more narrowly-tailored provision may withstand scrutiny.
Third, a closer reading of the McLaren decision shows that the Board’s primary concern with the confidentiality provision was the fact that it prohibited the employee from disclosing the fact that the employee was bound by this non-disparagement provision. It was really the non-disparagement provision that was the issue, not the confidentiality clause standing on its own.
Severance Agreements: When to Consider Confidentiality and Non-Disparagement Provisions
The takeaway from the McLaren decision is that employers should be careful when considering whether to include a non-disparagement provision in severance agreements with nonsupervisory employees. When they are included, non-disparagement provisions should be narrowly drawn and should be clear that nothing in the agreement is intended to or should be construed as limiting the employee’s right to engage in concerted activities for the purpose of the mutual aid and protection of company employees.
In the end, as with all severance agreements, confidentiality and non-disparagement provisions should not be default provisions in a severance agreements, but should only be used when the employer has a legitimate business reason to do so. For example, in a reduction in force affecting a number of people in the workforce, there will generally be little utility in including such provisions in the severance agreements. The same is true for a severance agreement that is issued as part of a formal Severance Pay Plan.
Additionally, individual circumstances may justify both a confidentiality and a non-disparagement provision such as where the severance agreement is the end result of resolution of a dispute between the employer and the employee.
