New NLRB restrictions on confidentiality and non-disparagement provisions in severance agreements

Update

On March 22, 2023, NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 23-05 providing guidance on the Board’s recent decision in McLaren Macomb restricting the use of broad confidentiality and non-disparagement provisions in severance agreements for employees covered by the National Labor Relations Act. Importantly, while the memo provides insights into potential enforcement efforts, it is not binding and does not represent the views of the Board or federal appellate courts.

The memo clarifies the GC’s position on a number of issues, including:

• Whether a severance agreement is facially unlawful does not turn on the surrounding circumstances or whether the employee actually signed the agreement.
  
  
• A supervisor is protected from retaliation for refusing to proffer an overbroad severance agreement or otherwise commit an unfair labor practice on the employer’s behalf.  Additionally, the GC opines that a severance agreement offered to a supervisor that would restrict the supervisor from participating in a Board proceeding may also be unlawful.  
  
  
• The McLaren decision has retroactive application, and maintaining a severance agreement with unlawful provision continues to be a violation such that a charge would not be time-barred.
  
  
• Confidentiality clauses may be lawful if they are narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications. However, confidentiality clauses that have a chilling effect that precludes employees from assisting others about workplace issues and/or from communicating with the NLRB, a union, legal forums, the media, or other third parties are unlawful.
  
  
• A narrowly tailored, justified, non-disparagement provision that is limited to employee statements about the employer that are “maliciously untrue” may be lawful.
  
  
• A savings clause or disclaimer language will not necessarily cure overly broad provisions.  However, a savings clause may be useful to make clear that otherwise ambiguous or vague terms will not be interpreted in a manner violative of employee Section 7 rights.
  
  
• Other provisions commonly included in severance agreements might be deemed unlawful, including non-competes, non-solicitation clauses, no poaching provisions, broad liability releases and covenants not to sue that go beyond the employer and/or that cover employment law claims arising after the effective date of the agreement, and cooperation requirements.

On February 21, 2023, the National Labor Relations Board (NLRB) issued a decision restricting the use of broad confidentiality and non-disparagement provisions in severance agreements.  The Board’s decision in McLaren Macomb[1] overrules pro-employer rulings issued by the Trump-era Board in Baylor University Medical Center[2] and IGT d/b/a International Game Technology.[3]

As we discuss below, employers are encouraged to reassess their severance agreements and consider narrowing or eliminating overly broad provisions to comply with the Board’s new ruling.

The Board’s decision

In McLaren Macomb, a unionized hospital laid off a portion of its staff during the COVID-19 pandemic.  The employer proffered affected employees severance agreements containing broad confidentiality and non-disparagement provisions.  In challenging the legality of these provisions, the NLRB’s General Counsel argued that the provisions were unlawful because they could be construed to restrict employees from engaging in protected activity, such as discussing the agreements with other employees or a union, filing an unfair labor practice with the Board or voluntarily assisting in a Board investigation.

The Board, reversing the administrative law judge, agreed and found that the confidentiality and non-disparagement provisions in the severance agreements violated the National Labor Relations Act (the Act).  In doing so, the Board overruled the analytical approach used in Baylor and IGT, which focused on the circumstances under which a severance agreement with confidentiality and non-disparagement provisions was offered to employees.  In stark contrast, the Board will now ignore such circumstances and will find that the agreement is unlawful – even absent any other indicia of coercion – if the terms could be construed to interfere with or restrain employees in the exercise of their Section 7 rights.

Applying those principles to the provisions at issue in the case, the Board found that the non-disparagement provision “on its face” interferes with employees’ Section 7 rights by prohibiting employees from making public statements about their former workplace.  In a glimmer of hope for employers, however, the Board noted that the non-disparagement provision was not limited to statements that are “so disloyal, reckless, or maliciously untrue as to lose the Act’s protection,” implying that such provisions may pass muster even under the Board’s new analysis.  Similarly, the Board noted that the provision at issue applied to future conduct, including future cooperation with the Board.

While the Board did not go so far as to hold that provisions incorporating these limitations would be lawful, its approach may provide some guidance to employers on how to tailor non-disparagement provisions under the Board’s new approach.

The Board likewise held that the confidentiality provision was unlawful.  It reasoned that, by restricting the employee from disclosing the terms of the agreement to any third party (subject to narrow exceptions for the employee’s spouse, for obtaining legal or tax advice, or if compelled to do so by a court or administrative agency), the confidentiality provision would restrict the employee from voluntarily filing an unfair labor practice challenging the agreement, disclosing or discussing the terms of the agreement with the employee’s union, or discussing the agreement with coworkers.

The Board concluded that conditioning the receipt of the severance benefits on the forfeiture of these statutory rights is unlawful because such approach interferes with and restrains employees from exercising their statutory rights.

Where do employers go from here?

While the Board’s decision has far-reaching implications, employers are not without options.  At the outset, it is important to note that some employees, such as managers and supervisors, are excluded from coverage under the National Labor Relations Act (NLRA).  As such, the breadth of non-disparagement or confidentiality provisions in separation agreements with such employees should not be subject to this holding.

Moreover, the Board’s decision remains subject to federal appellate review, whether in this case or another raising the same issues.  Some employers may choose to adopt a business-as-usual approach pending appellate review, although an employer banking on an appellate reversal does so at its peril (particularly given the deference ordinarily granted to the Board).

Alternatively, employers may consider more narrowly tailoring their existing non-disparagement and confidentiality provisions.  While the Board provided no definitive guidance on provisions that would be lawful, employers may consider addressing the Board’s objections to the agreements in McLaren Macomb by more narrowly defining the conduct that would breach a non-disparagement provision (such as limiting it to statements that are reckless or maliciously untrue).

Similarly, because neither of the provisions in McLaren Macomb included any carveouts or disclaimers, employers may consider adding carveouts and/or disclaimers which make clear that the confidentiality and non-disparagement provisions do not restrict employees from engaging in any activities protected by the NLRA, such as filing or participating in the investigation of an unfair labor practice charge.  Such an approach would be similar to exclusions of complaints of sexual discrimination or harassment from non-disparagement provisions often incorporated into severance agreements in the wake of the “Me Too” movement.

Additionally, we anticipate that future Board cases and/or General Counsel memoranda will provide additional color on agreements that pass muster under the Board’s newly articulated standard.

Our team of dedicated labor and employment professionals has extensive experience weighing the business, legal and practical implications associated with these issues and assisting clients to choose the approach that is best for their particular business.  If you have any questions about the effect of this decision on your current practices, please contact any of the authors or your DLA Piper relationship partner.