NLRB Reverses Precedential Ruling on Severance Agreement Non-Disparagement and Confidentiality Provisions

February 27, 2023 Advisory

In a significant decision issued on Feb. 21, 2023, the National Labor Relations Board (NLRB) reversed a three-year-old precedent by ruling that merely “proffering” a severance agreement restricting a non-supervisory employee’s right to speak about the terms of the agreement or disparage their former employer unlawfully “chills” the employees’ protected rights under Section 7 of the National Labor Relations Act (NLRA). Section 7 protections apply to almost all workers regardless of whether a union exists (the law does not cover independent contractors, government employees, agricultural workers and supervisors).

In McLaren v. Macomb, the NLRB decided that the context in which the severance agreement was proffered is no longer relevant to its inquiry – the focus is now on the actual language included in the contract. The NLRB found that where severance is conditioned upon broad non-disparagement and confidentiality provisions containing a release of claims on a take-it-or-leave-it basis, the potential for coercion is heightened at a time when employees are facing job loss and particularly vulnerable; thus, such agreements violate Section 7 regardless of whether employers later seek to enforce them. The McLaren decision also mentioned that Section 7 rights extend to former employees, meaning that post-termination settlement agreements containing overly broad confidentiality and/or non-disparagement provisions are also likely to be deemed unlawful.

The severance agreements at issue in McLaren contained two significant—and common—clauses that the NLRB deemed unlawful: (1) a confidentiality provision that prohibited an employee from disclosing the terms of the agreement “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 …”; and (2) a non-disclosure provision in which the employee agreed “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.” The NLRB found both of these “interfere with, restrain, or coerce employees’ exercise of Section 7 rights.” As to the confidentiality restriction, the Board found the restriction on disclosure “to any third person” overbroad and thus coercive and tending to chill the exercise of Section 7 rights. As to the non-disparagement provision, the Board similarly found that this was an impermissible “comprehensive ban” in that it protected not just the employer, but also affiliated entities and people, and “would encompass employee conduct regarding any labor issue, dispute or term and condition of employment.” As such, the Board found it impermissibly prohibited employer critique and again created a chilling effect on the exercise of Section 7 rights.

The McLaren decision does not outlaw all non-disparagement or confidentiality provisions; the NLRB suggested that “narrowly tailored” provisions may still be lawful. The NLRB decision did not define what might be considered “narrowly tailored,” though with respect to the non-disparagement clause it dropped a hint by noting that the agreement did not “cabin” the term “disparagement” “to its well-established NLRA definition under” a 1953 U.S. Supreme Court case. What is clear is that restrictions prohibiting employees from speaking with other employees, broadly “disparaging” a former employer, cooperating or filing a complaint with the NLRB, or provisions with an indefinite duration are off-limits.

Perhaps the biggest question remaining is what effect this ruling has on agreements that were executed prior to the McLaren decision. The NLRA contains a six-month statute of limitations, which means that an employer generally cannot be held liable for conduct that occurred more than 180 days before the filing of a charge. Remedies for unfair labor practices may include severing the offending provision (if the agreement contains a severability clause), rendering the contract voidable, payment of the offered severance amount to an employee who refused to sign the agreement, cease and desist orders and notice posting at the workplace.

The NLRB decision is consistent with the ongoing trend in labor and employment to regulate or restrict the terms of post-employment obligations in severance, noncompetition and nondisclosure agreements. It is expected that in the coming months, more concrete examples of lawful severance covenants will be released. Given this new ruling, now is a good time for employers to revisit their standard severance agreements and seek guidance from legal counsel. 

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