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March 15, 2023
On February 21, 2023, the National Labor Relations Board (NLRB) overruled precedent to hold that the confidentiality and non-disparagement provisions in an employer’s severance agreement unlawfully restricted employees’ exercise of their rights under the National Labor Relations Act. See 372 NLRB No. 58 (Feb. 21, 2023).
Factual Background
McLaren Macomb (McLaren) operated a hospital in Michigan. During the COVID-19 pandemic, McLaren permanently furloughed 11 union-represented employees. McLaren offered the employees severance payments in exchange for a release of claims. The severance agreements contained the following provisions, among others:
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 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.
Non-Disclosure: At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. 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’s Holding
The NLRB held that McLaren’s severance agreement was unlawful because these provisions had a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their rights under Section 7 of the National Labor Relations Act (NLRA or Act). Section 7 of the 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.” The NLRB reasoned that, because McLaren conditioned receipt of severance benefits on the forfeiture of statutory rights, McLaren’s mere proffer of the agreement violated the Act.
As for the non-disparagement provision, the NLRB ruled that the provision, on its face, interfered with Section 7 rights because of its broad subject-matter and temporal scope. Specifically, the provision prohibits discussion of any topic related to McLaren, including about its “parent and affiliated entities and their officers, directors, employees, agents and representatives,” and applies “at all times hereafter.”
As for the confidentiality provision, the NLRB ruled that the provision interfered with Section 7 rights because it prohibited employees from disclosing the terms of the agreement to any third person, including prohibiting an employee from filing an unfair labor practice charge or assisting the NLRB in an investigation of McLaren. [1]
Take-Aways
Employers should review their severance agreements and remove provisions that could be construed to interfere with Section 7 rights. To the extent such provisions are included, employers should be sure to narrowly tailor them and include a carve-out that expressly allows employees to exercise their Section 7 rights.
[1] The NLRB’s decision overrules Baylor University Medical Center, 369 NLRB No. 43 (2020), where the NLRB held that an employer did not violate the NLRA by the mere proffer of a severance agreement that required the signer to agree not to pursue, assist, or participate in any claim against Baylor and to keep a broad array of information confidential. The NLRB had reasoned that the severance agreement was not mandatory, pertained exclusively to post-employment activities and, thus, had no impact on terms and conditions of employment, and no allegations existed that anyone to whom Baylor offered the agreement was unlawfully discharged or that the agreement was proffered under circumstances that would tend to infringe on Section 7 rights. The decision also overrules IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020), where the NLRB dismissed an allegation that the employer maintained an unlawful non-disparagement provision in its severance agreement. In IGT, the NLRB again reasoned that the agreement was entirely voluntary, did not affect pay or benefits that were established as terms of employment, and had not been proffered coercively.
