NLRB changes course again and restricts use of severance agreements with broad confidentiality/non-disparagement clauses
Eric P. Weiss
In 2020, the National Labor Relations Board (“Board”) (controlled by President Trump appointees) issued two opinions (Baylor University Medical Center (369 NLRB No. 43) (“Baylor”) and IGT d/b/a International Game Technology (370 NLRB No. 50(“IGT”)) which made it easier for employers to present employees with or enforce severance packages and other agreements containing confidentiality and non-disparagement provisions.
In 2022, the Board was again presented with this issue in McLaren Macomb, 372 NLRB No. 58. But this time, the Board was controlled by President Biden’s appointees. Not unsurprisingly, the current Board sided with labor, expressly overruled Baylor and IGT, and issued a new opinion precluding employers from offering severance agreements with overly broad confidentiality and non-disparagement provisions.
Under Federal Law, employees have the right to unionize, to join together to advance their interests as employees, and to refrain from such activity. It is unlawful for an employer to interfere with, restrain, or coerce employees in the exercise of their rights. For example, employers may not respond to a union organizing drive by threatening, interrogating, or spying on pro-union employees, or by promising benefits if they forget about the union.
Section 7 of the National Labor Relations Act (“Act”) guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”
Section 8(a)(1) of the Act makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7” of the Act.
Section 8(a)(5) of the Act makes it an unfair labor practice for an employer “to refuse to bargain collectively with the representatives of its employees . . “
McLaren Macomb (“McLaren”) operates a hospital in Michigan where it employs approximately 2,300 people. In response to a COVID-19-related reduction in elective and outpatient procedures and government regulations prohibiting nonessential employees from working inside the hospital, McLaren permanently furloughed 11 employees who were represented by a local branch of the AFL-CIO. McLaren contemporaneously presented each of the furloughed employees with a “Severance Agreement, Waiver and Release” that offered to pay differing severance amounts to each employee if they signed the agreement. The agreement required each employee to release McLaren from any claims arising out of their employment or termination of employment. It also contained the following two provisions requiring confidentiality about the terms of the agreement and broadly prohibiting disparagement of the hospital:
Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouses, or as necessary to professional advisors for purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.
Non-Disclosure. 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 agreement provided for substantial monetary and injunctive sanctions against employees who breached the confidentiality and non-disparagement provisions.
McLaren neither gave the Union notice that it was permanently furloughing the 11 employees nor an opportunity to bargain regarding that decision and its effects. McLaren also did not give the Union notice that it presented the severance agreement to the employees, nor did it include the Union in its discussions with the employees regarding their permanent furloughs and the severance agreement. Thus, and this is highlighted in the opinion, McLaren “entirely bypassed and excluded the Union from the significant workplace events here: employees’ permanent job loss and eligibility for severance benefits.”
The complaint alleged that the non-disparagement and confidentiality provisions of the severance agreement unlawfully restrain and coerce the furloughed employees in the exercise of their Section 7 rights to unionize and, therefore, McLaren violated Section 8(a)(1) and (5) of the Act.
The Board’s opinion
The Administrative Law Judge found that McLaren had violated Section 8(a)(1) and (5) of the Act by permanently furloughing the 11 employees without first notifying the Union and giving it an opportunity to bargain about the furlough. However, relying on Baylor and IGT, the Judge found that that McLaren did not violate Section 8(a)(1) Act by merely proffering the severance agreement to the permanently furloughed employees. The Board agreed with the Judge’s ruling regarding the Union issue, but it disagreed with respect to the second issue: whether proffering a severance agreement to the permanently furloughed employees was a violation of the Act. The matter was then appealed to the Board.
The Board held in McLaren that severance agreements are unlawful if they “may chill” former employees from cooperating with Board investigations or discussing the terms of their former employment with current employees. According to the Board majority in McLaren, it is “coercive” to condition severance payments on terms that potentially interfere with section 7 rights. The severance agreements at issue in McLaren included non-disparagement and confidentiality clauses that the Board majority found to be overly broad. In particular, the non-disparagement clause prohibited former employees from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer, its Employer’s parent, affiliated entities, officers, directors, employees, agents, and representatives.” In the majority’s view, this restriction could be construed as forbidding “any statement asserting that the [Employer] had violated the Act” or assisting current employees with complaints to the government or media about the employer, “the Employer’s parent, affiliated entities, officers, directors, employees, agents, and representatives.”
The confidentiality clause prohibited former employees from disclosing the terms of the severance 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 Board majority explained that this provision would “coerce” former employees from filing unfair labor practice charges and cooperating with Board investigations into the employer’s use of the severance agreement.
Finally, the Board ordered its traditional remedies—i.e., that McLaren “cease and desist” from offering employees severance agreements that include the language the Board found unlawful and post a notice of employee rights for 60 consecutive days.
McLaren involved specific language the current Board majority deemed overbroad. The door remains open to the possibility of maintaining lawful confidentiality and non-disparagement provisions if they are carefully drafted and narrowly tailored to mitigate the concerns raised by the Board.
McLaren does not leave employers with a lot of room to prohibit employees from disclosing the nature and terms of severance and other agreements (even in settlements of disputed claims). Agreements with carefully drafted provisions prohibiting the disclosure of trade secrets, proprietary, and other confidential business information should be fine. And although the Board claimed not to be imposing a work-rules standard on severance agreements, employers should consider using non-disparagement and confidentiality policies approved in past Democrat-majority Board decisions as a template for crafting agreements going forward.
McLaren does not address whether unlawful provisions will render an agreement void or voidable. So a well drafted “severability” provision might help save the rest of an employer’s agreement if other provisions are found to be unlawful or unenforceable.
What should employers do?
Employers should carefully review any non-disparagement and confidentiality provisions they are proffering to employees or potential employees, regardless of the document in which the provisions are incorporated. This includes other agreements that may be incorporated by reference in severance agreements, such as proprietary information and invention agreements.
There is no one-size-fits-all approach that most employers will want to use. It might be possible to merely eliminate confidentiality and non-disparagement provisions and use a common form for all releases. Most employers still may need confidentiality in certain situations.
Furthermore, there may not be as much need for confidentiality and non-disparagement provisions in group termination releases, where the severance offer is under a standardized plan offered to potentially hundreds of employees in a reduction-in-force. Finally, employers with previously signed confidentiality agreements may not need another confidentiality provision in a release but may refer back to that agreement. Of course, some of those previously signed agreements may need revision as well.
Finally, the McLaren opinion comes on the heels of the Federal Trade Commission’s recent proposal which, more or less, seeks to ban non-compete agreements in the employment context, a proposal which we discussed here. It is thus clear that the Biden Administration is intent on protecting employees as much as possible in terms of their post-termination rights and opportunities. Even without the Federal Government’s opinions and regulations, many states are starting to impose strict restrictions on various types of employment-related agreements including non-disparagement and confidentiality clauses. As such, employers should review their state’s laws and regulations when drafting such agreements for their employees to sign.