In a significant reversal of its Trump-era precedent, the National Labor Relations Board (“NLRB” or the “Board”) ruled on February 21, 2023, in McLaren Macomb that employers may not offer employees severance agreements that contain typical confidentiality or non-disparagement provisions or that require employees to broadly waive their rights under the National Labor Relations Act (“NLRA” or the “Act”). The ruling may require many employers to adjust their severance agreement documents and practices.

Background

In McLaren Macomb, during the midst of the COVID-19 pandemic, a Michigan hospital permanently furloughed and terminated eleven employees who were represented by a union. The hospital offered the employees severance pay contingent upon them signing agreements that included non-disparagement and confidentiality provisions. Specifically, the severance agreements prohibited the employees from making statements that could disparage or harm the hospital’s image and further prohibited the employees from disclosing the terms of the agreement. If an employee breached the agreement, the agreement provided for substantial monetary and injunctive penalties.

Decision

The Board found that the mere act of offering employees severance agreements containing broad confidentiality and non-disparagement provisions, as well as potentially other provisions that ask for broad waivers of NLRA rights, violated the employees’ rights under the Act, irrespective of the circumstances under which the agreements were offered. The Board reasoned that simply offering employees a severance agreement requiring them to broadly forfeit their rights under the Act to, among other things, discuss improving terms and conditions of employment with other employees and the media, is unlawful because the employer’s offer itself is an attempt to deter employees from exercising their statutory rights to engage in protected concerted activity and because employees may feel coerced to give up their rights to obtain the monetary benefits provided for in the severance agreement. The NLRB also referenced other agreements that contained provisions that have been deemed unlawful, such as agreements that restrict employees from filing unfair labor practice charges with the Board, assisting other employees in doing so, or assisting the Board’s investigative process.

The Board explained that only if the severance agreement is narrowly tailored will it survive Board scrutiny. Turning to the non-disparagement and confidentiality provisions, the Board found that neither was narrowly tailored. For instance, the non-disparagement provision did not define “disparagement” in a way that cabined the term “to its well-established NLRA definition” of “disloyal, reckless, or maliciously untrue.” Instead, the provision encompassed employee conduct regarding any labor issue, dispute, or term and condition of employment of the hospital, and it applied expansively to statements not only toward the hospital itself but also to “its parents and affiliated entities and their officers, directors, employees, agents and representatives.” Likewise, the provision had no temporal limitation but applied “[a]t all times hereafter.”

Regarding the confidentiality provision, the Board opined that the provision broadly prohibited the employees from disclosing the terms of the agreement to any third person, which the Board noted would prevent the employees from disclosing even the existence of an unlawful provision contained in the agreement or from discussing the terms of the severance agreement with the employees’ former coworkers (i.e., current employees of the employer offering the agreement) who could find themselves in a similar situation. Therefore, the confidentiality provision had an impermissible chilling tendency on the employees’ rights and was unlawful under the Act.  (In trying to provide an example of what could be considered narrowly tailored, the Board described prior NLRB decisions approving severance agreements where the releases waived only the signing employee’s right to pursue specific employment claims or only related to claims arising as of the date of the agreement.)

Takeaways

The Board’s ruling in McLaren Macomb results in several key takeaways for employers:

1. Employers should re-examine their model severance agreements and any outstanding severance offers with labor counsel to determine how best to navigate the Board’s decision.
2. Importantly, the decision does not impact severance agreements with employees not covered by the Act, including managers and supervisors, as defined under the NLRA. Employers should be mindful that it may need to take different approaches with different categories of employees.
3. The ruling is part of a greater Board trend extending pro-employee protections.  For instance, in December 2022, the Board issued a series of decisions overturning Trump-era precedent. Based on this and the Board’s most recent decisions, there is more likely to come.
4. To that end, employers should consider reviewing confidentiality and non-disparagement provisions in employee handbooks and policies to determine whether those may be considered too broad given the Board’s forecast in this case.
5. Additionally, employers should know that there are an increasing number of state laws that also impact the extent to which employers can require confidentiality and non-disparagement provisions and the language they may use to do so. Employers should carefully consider state law when making any revisions to their existing forms and policies.