The National Labor Relations Board Returns to pre-2020 Precedent Governing the Legality of Severance Agreement Language

Ashley Graves, Law Clerk

            On February 21, 2023, the National Labor Relations Board (“NLRB” or the “Board”), via its decision in McLaren Macomb, reversed recent precedent governing the validity of confidentiality and non-disparagement clauses in severance agreements, and returned to its prior precedent that severance agreement terms that have a reasonable tendency to interfere with, retrain, or coerce employees in the exercise of their rights under Section 7 of the National Labor Relations Act (the “Act”),[1] including discussing the terms and conditions of employment with others, are facially invalid, regardless of the circumstances in which they are presented to employees. 

McLaren Macomb - Factual Background

            In McLaren Macomb, a Michigan hospital permanently furloughed eleven employees during the COVID-19 pandemic and offered each employee a severance agreement.[2]  The severance agreements contained a confidentiality provision that prohibited the employees from disclosing the terms of the agreement to any other party except spouses, or as necessary for legal or tax advice, or if legally compelled to do so.  The agreements also contained a provision prohibiting the employees from making “statements to the Employer’s employees or to the general public which could disparage or harm the image of [the] Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.”  The agreements also provided for strict injunctive and monetary sanctions against employees for violating the confidentiality and non-disparagement provisions.

The Board’s Decision, and Reversal of Baylor and IGT

            In evaluating the propriety of the confidentiality and non-disparagement provisions in the severance agreements at issue, the Board expressly overruled its prior decisions issued in 2020 in Baylor University Medical Center[3] and IGT d/b/a International Game Technology.[4]  Under those decisions, the Board previously focused on the circumstances behind an employer’s presentation of a severance agreement with broad confidentiality and/or non-disparagement provisions, finding that as long as the agreements were not presented under coercive circumstances or in conjunction with an unlawful discharge, then the provisions were permissible because severance agreements are voluntary and confidentiality/non-disparagement provisions only focus on post-employment conduct outside of the ambit of Section 7.

            With McLaren Macomb, the Board returned to its precedent predating the Baylor and IGT decisions, and focused on whether the severance agreement terms as written potentially infringe on the exercise of Section 7 rights.  Regarding the agreements at issue, the Board ruled that both the confidentiality and non-disparagement provisions were unlawful because they were overbroad and had a chilling effect on the exercise of Section 7 rights.  In particular, the provisions unduly infringed on the employees’ right to disclose employer violations of the Act, to file charges or assist with NLRB investigations, and to discuss the terms of the severance agreement or conditions of their prior employment with former coworkers.  

The NLRB clarified 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,” no matter the circumstances. This means that it is irrelevant whether the employee was terminated for lawful reasons, if the employee did not sign the agreement, or if the employer does not even seek to enforce the agreement.  In other words,  under McLaren Macomb, the mere presentation of overbroad or coercive severance terms may chill the exercise of Section 7 rights, both before and after employment ends.

The Board noted that confidentiality or non-disparagement provisions could nonetheless be included in severance agreements if they were sufficiently narrowly tailored, but it declined to define the parameters of what language is narrowly tailored and what language remains overbroad.  Nonetheless, the Board implied that non-disparagement language is permissible if it is limited to clearly disloyal, reckless, or maliciously untrue statements that have no protection under the Act.  Similarly, the Board implied that confidentiality provisions could potentially be included, so long as they did not interfere with the right to discuss potentially unfair labor practices with the Board, a union, former coworkers, or other third parties.  

Important Considerations for Employers     

            Employers should be cognizant of the McLaren Macomb decision and the NLRB’s focus on whether agreement language could reasonably be viewed as interfering with Section 7 rights when drafting severance agreements.  Importantly, the NLRA does not apply to management, so the NLRB’s ruling will not prohibit these types of provisions in severance agreements with managers, executives, and other senior personnel.[5]  This ruling also does not apply to independent contractors.  

In addition, employers should read McLaren Macomb in conjunction with the Speak Out Act, which also prohibits the judicial enforcement of pre-dispute non-disclosure and non-disparagement clauses relating to sexual assault and sexual harassment claims, and which applies to all employees.[6]

[1] 29 U.S.C. § 157.

[2] McLaren Macomb, Case 07-CA-263041, --- NLRB ---- (Feb. 21, 2023), available at https://apps.nlrb.gov/link/document.aspx/09031d45839af64d.

[3] 369 NLRB No. 43 (2020).

[4] 370 NLRB No. 50 (2020).

[5] 29 U.S.C. § 152(11).

[6] See https://www.rockymountainemployersblog.com/blog/2022/12/15/president-biden-signs-the-speak-out-act-which-impacts-non-disclosure-and-non-disparagement-clauses-in-sexual-assault-and-harassment-claims.