Employment Law Alert: NLRB Invalidates Standard Severance Agreement Non-disparagement & Confidentiality Clauses

On February 21, 2023, the National Labor Relations Board ruled in the McLaren Macomb case that an employer violated the National Labor Relations Act by offering employees a form of severance agreement that included standard non-disparagement and confidentiality clauses. We review this ruling below.

Non-Disparagement Clause

In McLaren, the severance agreement included the following standard form of non-disparagement clause:

"7. 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 departure from previously-controlling precedent, the NLRB held that the provision “on its face substantially interferes with employees’ Section 7 [of the National Labor Relations Act (“NLRA”) protected speech] rights. The NLRB reasoned that “[p]ublic statements by employees are central to the exercise of employee rights under the [NLRA].” Among other rights, Section 7 of the NLRA provides employees with “the right to self-organize, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 7 protects employee speech rights with respect to both unionized and non-unionized workplaces.

The NLRB criticized the non-disparagement clause for being so broad as to encompass communications regarding disputes and terms of conditions of employment, rather than being limited to extreme forms of communication that the NLRB has found to be outside the scope of Section 7 protection. It explained that “employee critique of employer policy pursuant to the clear right under the Act to publicize labor disputes is subject only to the requirement that the employees’ communications not be so ‘disloyal, reckless or maliciously untrue as to lose the Act’s protection.’”

Confidentiality Clause

The NLRB also found the following standard form of confidentiality clause in the severance agreement to be unlawful:

"6. 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."

The NLRB rationalized that the confidentiality clause violated Section 7 for reasons including that it would prohibit employees from disclosing to others unlawful provisions in the agreement (such as the non-disparagement clause), and that it would prohibit employees considering severance agreements from seeking support from former employees (in the form of discussing their comparative severance offers)

Supervisory Employees

Importantly, Section 7 of the NLRA does not apply to “supervisors.” The NLRA defines “supervisor” to mean "any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”  In light of this, as employers work with legal counsel to update their severance agreement forms, they may wish to consider having separate forms of severance agreements for supervisors and non-supervisors.

We note that the NLRA does prohibit discrimination or retaliation against supervisors for providing testimony adverse to an employer, or for refusing to commit an unfair labor practice. To the extent an employer elects to develop a special form of severance agreement (with a non-disparagement clause) for supervisors, it should consider adding a disclaimer that the clause does not apply to such activities.

Recommendations & Options for Employers

We recommend that employers consult promptly with their legal counsel to review and update their severance agreement forms as necessary in light of McLaren. Some main options for employers include:

• Removing entirely confidentiality and non-disparagement clauses from all severance agreement forms;
• Developing separate severance agreement forms for supervisors (retaining confidentiality and non-disparagement clauses, with appropriate disclaimers), and non-supervisors (without such clauses);
• Modifying either of the above approaches to retain (for non-supervisors, supervisors, or both) a narrowly drafted non-disparagement clause that applies to statements so disloyal, reckless or maliciously untrue as to lose the Act’s protection (with appropriate disclaimer language to clarify and confirm that the agreement is not intended to apply to legally protected statements). We note that this option presents some special degree of risk/uncertainty because the NLRB has not made clear how to lawfully phrase such a clause.

While employers should take prompt action in response to McLaren, we note that NLRB rulings on topics such as this often fluctuate with transitions between Democratic and Republican presidential administrations. So, employers should continue to monitor future developments, and not be surprised if this precedent changes again within the next several years.

Employers seeking further guidance may contact any of the firm’s attorneys.