The National Labor Relations Board’s (the “Board”) decision in McLaren Macomb,[1] significantly changes what employers are allowed to include in a departing employees’ severance/separation agreements or packages. The Board’s ruling applies irrespective of whether the employee leaves voluntarily or is terminated, and, more importantly, the Board’s ruling is broad enough to apply to union and non-union employees.
Before McLaren Macomb, the Board previously determined and reiterated that employers could lawfully include confidentiality and nondisparagement provisions in severance agreements.[2] For example in Baylor University Medical Center, the Board did not focus its attention on the contract language contained in the agreement at issue like it did in McLaren Macomb. Instead, the Board previously focused its analysis on the circumstances under which the agreement was presented to employees. The Board concluded that a proffer of a severance agreement containing confidentiality, non-assistance and nondisparagement provisions would not interfere with rights guaranteed by the National Labor Relations Act of 1935[3] to the extent that signing the agreement is not mandatory, the restrictions applied to post-employment activities and the employee was lawfully separated from employment and otherwise did not allege an unfair labor practice.[4] The Board employed a similar approach in IGT d/b/a/ International Game Technology,[5] where it cited to Baylor, and determined that a nondisparagement provision in a severance agreement was lawful where the agreement was “entirely voluntary, [did] not affect pay or benefits that were established as terms of employment, and [had] not been proffered coercively.”[6]
The Board’s decision in McLaren Macomb, however, expressly overruled Baylor and IGT. In so doing, the Board clearly established its “return 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 the employer’s proffer of such agreements to employees is unlawful.” The Board’s decision is also significant because it signals an unwillingness to enforce or accept broad severance agreements, or key provisions thereof, that would otherwise bind employees under confidentiality and/or nondisparagement obligations.
In McLaren Macomb, a unionized teaching hospital in Michigan permanently furloughed 11 union employees. The hospital presented the 11 union employees with a severance agreement and general release that included commonly used confidentiality and nondisparagement provisions. The severance agreements offered to the union employees would have prohibited them, amongst other things, from making disparaging statements about their former employers and from talking about the terms of the settlements. On review, the Board examined the language of the severance agreement and held that the confidentiality and nondisparagement provisions contained in the agreements violated Section 8(a)(1) of the NLRA.
The “Non-Disclosure” provision provided that the employee “promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature” known to the employee due to employment. It also included nondisparagement terms requiring that 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 representative.”
The “Confidentiality” provision provided that the employee “acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person,” except to a spouse, or as necessary to legal or tax advisors or pursuant to a legal administrative order. The Board also determined that the agreement also provided the hospital with the right to pursue “substantial monetary and injunctive sanctions” should an employee violate the severance agreement.
The Board determined that the nondisparagement provision violated Section 8(a)(1) of the NLRA by violating employees’ Section 7 rights because “[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act[.]” The Board specifically took issue with how broad the nondisparagement provision was because it was “not even limited to matters regarding past employment with the [Hospital],” and would ultimately “encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Hospital.” Furthermore, the Board noted that the provision contained no temporal limitation and similarly applied to the hospital’s parents, affiliated entities and their officers, directors, employees, agents and representatives. In its holding, the Board stated that the nondisparagement clause acted as a “sweepingly broad bar that has a clear chilling tendency on the exercise of Section 7 rights by the subject employee.”
Like the nondisparagement provision, the Board found the confidentiality provision was overly broad because it prohibited employees from disclosing the terms of the agreement to “any third person.” The Board determined that the broad provision would preclude employees from “disclosing even the existence of an unlawful provision contained in the agreement,” which “would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the Respondent’s use of the severance agreement.” The Board further concluded that the confidentiality provision would, in practice, prohibit employees from discussing the existence or terms of the severance agreement with others, including union representatives or former coworkers who are presented with similar agreements.
Effectively, the Board held that conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights, unless it is narrowly tailored to respect the range of those rights. Thus, an employer can violate the NLRA by simply offering a severance/separation agreement containing unlawful confidentiality and nondisparagement provisions because conditioning the receipt of benefits on the “forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights.”
Under this new standard, it is unlikely that an employer will be able to mount a viable defense by claiming that it has not enforced the offending confidentiality and/or nondisparagement clauses where the Board’s holding extends unfair labor practices to include the mere offering of an agreement with offending clauses. While the Board hinted in a footnote that there might be a way to lawfully offer employees a “narrowly tailored” severance agreement containing those clauses, it refused to explain how that could be accomplished and simply noted “we are not called on in this case to define today the meaning of a ‘narrowly tailored’ forfeiture of Section 7 rights in a severance agreement.”
Although the Board’s new rule applies to both union and non-union employees, employers should note that it does not apply to public sector employees or individuals who are not deemed employees with Section 7 rights under the NLRA, such as executives, managers, supervisors and independent contractors.
In the wake of McLaren Macomb, employers are encouraged to review their standard agreements, specifically any nondisparagement and confidentiality provisions currently contained in those agreements, and should engage legal counsel to determine if such provisions are necessary and if so, how those provisions should be drafted to prevent a violation of Section 8(a)(1).
[1] McLaren Macomb, 372 NLRB No. 58 (2023).
[2] Baylor University Medical Center, 369 NLRB No. 43 (2020).
[3] 29 U.S.C. §§ 151-169.
[4] Baylor University Medical Center, 369 NLRB No. 43 (2020).
[5] IGT d/b/a/ International Game Technology, 370 NLRB No. 50 (2020).
[6] Id.
