NLRB Rules Confidentiality and Nondisparagement Provisions in Severance Agreements May Violate the NLRA

March 14, 2023

By: Stephen B. Stern

     In McLaren Macomb, 372 NLRB No. 58 (2023), the National Labor Relations Board (“NLRB” or “Board”) found that the confidentiality and nondisparagement provisions of severance agreements that were offered to eleven employees violated Section 8(a)(1) of the National Labor Relations Act (“NLRA” or the “Act”) because those provisions unlawfully prohibited the former employees from exercising their Section 7 rights under the NLRA.

     In McLaren Macomb, the respondent employer operates a hospital with approximately 2,300 employees.  Due to changed business circumstances, the hospital permanently furloughed eleven employees and offered each of them a severance agreement with varying amounts of monetary payments, but all with the same confidentiality and nondisparagement provisions.  The confidentiality provision stated in relevant part that the employee shall “not disclose [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 by a court or administrative agency of competent jurisdiction.”  The nondisparagement provision (which was included in a section titled “Non-Disclosure”) provided in relevant part that “[a]t 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.”

     The Administrative Law Judge (“ALJ”) found the provisions were lawful under recent precedent established in Baylor Univ. Med. Ctr., 369 NLRB No. 43 (2020), and IGT d/b/a Int’l Game Tech., 370 NLRB No. 50 (2020).  Under the Baylor Univ. and IGT decisions, when evaluating confidentiality and nondisparagement clauses, the focus was on the circumstances under which the agreement was presented to employees and, as such, the “mere proffer” of a severance agreement that required an employee not to pursue or participate in claims against an employer did not violate Section 8(a)(1) of the NLRA.  Prior to the decisions in Baylor Univ. and IGT, however, when evaluating confidentiality and nondisparagement clauses, the NLRB applied a test that examined the actual language of the agreement to determine whether it had a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.

     In McLaren Macomb, the NLRB “overrule[d] both [Baylor Univ. and IGT] and return[ed] to the prior, well-established principle that a severance agreement is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights, and that employers’ proffer of such agreements to employees is unlawful.”  In making this decision, the NLRB reverted back to the pre-Baylor Univ. test that examined the language of severance agreements to determine whether “any relinquishment of Section 7 rights is narrowly tailored.”

     The NLRB did not approve of the Baylor Univ. and IGT decisions in part because they in essence permitted an employer to proffer an overbroad severance agreement that could have a chilling effect on employees’ Section 7 rights.  In this regard, the Baylor Univ. and IGT test considered an employer’s animus toward Section 7 rights, but, according to the NLRB, “whether an employer harbors animus against Section 7 activity is irrelevant to the long-established objective test for determining whether Section 8(a)(1) of the Act is violated.”  As the NLRB explained, finding whether a violation occurred does not turn on finding whether the employer exhibited animus, but “whether the employer engaged in conduct which, it may reasonably be said, tends to interfere with the free exercise of employee rights under the Act.”

     The NLRB further explained the rationale for its decision, stating that agreements that “restrict employees from engaging in activity protected by the [NLRA], or from filing unfair labor practice charges . . ., assisting other employees in doing so, or assisting the Board’s investigative process have been consistently deemed unlawful.”  The NLRB then noted the essence of Section 7 rights, which is “discussing terms and conditions of employment with coworkers lies at the heart of protected Section 7 activity.”  The Board further noted that these protections apply not only to current employees but former employees as well and that it is “long-established that Section 7 protections extend to employee efforts to improve terms and conditions of employment or otherwise improve their lots as employees through channels outside the immediate employee-employer relationship[,]” including “administrative, judicial, legislative, and political forums, newspapers, the media, social media, and communications to the public that are part of and related to an ongoing labor dispute.”  

     Because the Board relies substantially on voluntary assistance from individuals to enforce and protect Section 7 rights, broad prescriptive language in a separation agreement that precludes the reporting of alleged violations or cooperation with an investigation of alleged violations has “coercive potential.”  As a result, such language is unlawfully overbroad because “[s]uch an agreement has a reasonable tendency to restrain, coerce, or interfere with the exercise of Section 7 rights by employees, regardless of the surrounding circumstances.”  Thus, “[w]here an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed.” (emphasis added).  If the rule were any different, according to the Board, it would create an incentive for employers to offer employees unlawful severance agreements and then “[o]nly if the employee signed the agreement, subjected herself to its unlawful requirements, and then came to the Board would the Board be able to address the situation, belatedly.”

     When examining the agreements at issue, the Board found the nondisparagement provision “substantially interfere[d]” with employees’ Section 7 rights in part because public statements by employees about the workplace are central to the exercise of Section 7 rights and, in this instance, any statement that the employer violated the Act, for example, was precluded.  Moreover, the prohibition in the agreements was so broad that it had no temporal limitation and it applied to the employer’s parents and affiliated entities as well as their officers, directors, employees, agents, and representatives.

     The Board found similar problems with the confidentiality provision in the agreements.  The Board found that the prohibition against disclosing the terms of the agreement to any third person was problematic because such a restriction would reasonably tend to coerce an employee from filing an unfair labor practice charge or assisting with a Board investigation.  The Board also took issue with the confidentiality provision’s prohibition on discussing the terms of the severance agreement with former coworkers and the union, which could limit their ability to offer assistance to employees in a similar situation in the future when trying to decide whether to accept the severance agreement.

     The Board’s decision in McLaren Macomb is significant because it potentially limits an employer’s ability to include certain protections in a severance agreement (i.e., nondisparagement and confidentiality) without running the risk of being charged with an unfair labor practice charge.  The Board’s decision in McLaren Macomb also potentially portends more back and forth on the issue concerning nondisparagement and confidentiality provisions in severance agreements, as the law on this issue has now changed multiple times in the last few years.  In light of the potential limitations and uncertainty posed by the Board’s decision in McLaren Macomb, employers should consult with their employment counsel about how to handle severance agreements going forward.