On Feb. 21, 2023, the National Labor Relations Board (NLRB) held that an employer violated the National Labor Relations Act (NLRA) when it offered laid-off employees severance agreements that prohibited them from making disparaging statements about the employer or disclosing the terms of their severance agreements. McLaren Macomb, 372 NLRB No. 58 (2023). This decision will have broad implications for employers who regularly offer severance agreements to departing employees.

Section 7 Rights

Under Section 7 of the NLRA, employees have the right to form, join, or assist a labor union; to bargain collectively through representatives of their choosing; and to engage in concerted activities for the purpose of collective bargaining or mutual aid or protection. Section 7 of the NLRA applies to both unionized and non-union employees. Section 8(a)(1) of the NLRA makes it an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.

New Standard for Evaluating Severance Agreements

In 2020, the Trump-era NLRB released two decisions which permitted the use of confidentiality and non-disparagement provisions in a severance agreement as long as the agreement was not offered under circumstances that “would tend to infringe on the separating employees’ exercise of their own Section 7 rights or those of coworkers.” Baylor University Medical Center, 369 NLRB No. 43 (2020); IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020).

The NLRB’s decision in McLaren reversed Baylor and IGT and held that a severance agreement violates the NLRA if “its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.” Notably, the Board held that merely offering an agreement containing unlawful provisions is an unfair labor practice.

Non-Disparagement and Confidentiality Provisions

The non-disparagement provision at issue in McLaren stated: “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.”

The NLRB found this provision unlawful because it prohibits a departing employee from making any statement that could harm the image of the employer, including a statement that the employer had violated employees’ rights under the NLRA. The board further reasoned that the non-disparagement provision could “chill” employees from participating in a NLRB investigation or from raising complaints about the employer to their former co-workers, a labor union, the NLRB, other government agencies, or the media.

The confidentiality provision included in the McLaren agreements stated: “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 purpose of obtaining legal counsel or tax advice, unless legally compelled to do so by a court or administrative agency of competent jurisdiction.”

The NLRB held that the confidentiality provision violated employees’ Section 7 rights because it prohibited employees from discussing the terms of the severance agreement with union representatives, former co-workers who may receive similar agreements, or even future co-workers. The NLRB also found that the agreement had an impermissible chilling effect on Section 7 rights because it would prohibit the employee from disclosing the existence of an unlawful provision in the agreement to any third party, including the NLRB.

Finally, while the NLRB’s decision leaves some leeway for a severance agreement that includes a “narrowly tailored” forfeiture of Section 7 rights, the McLaren decision does not provide any guidance on how to craft an agreement that meets this standard.

Next Steps for Employers

Confidentiality and non-disparagement provisions are commonly included in severance agreements. Employers should work with counsel to review and update their severance agreements to make sure that they comply with the new decision.