NLRB Restricts Non-Disparagement and Confidentiality Clauses in Severance Agreements

Reversing two 2020 decisions, the National Labor Relations Board (NLRB) ruled this week that employers may not offer employees severance agreements that require the workers to broadly waive their rights under the National Labor Relations Act.

The decision in the McLaren Macomb case holds that employers may not offer employees severance agreements that include terms which prohibit them from making statements that could disparage the employer and from disclosing the terms of the agreement. These terms are generally referred to as non-disparagement and confidentiality clauses.

The ruling reverses the NLRB’s decisions in Baylor University Medical Center and IGT d/b/a International Game Technology, which set aside prior precedent in finding that offering similar severance agreements to employees was not by itself unlawful.

This week’s decision holds that merely offering employees a severance agreement that requires them to broadly give up their rights under Section 7 of the National Labor Relations Act (NLRA or the Act) violates Section 8(a)(1) of the Act. Section 7 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."

While severance agreements typically include both non-disparagement and confidentiality clauses, employers should remember that not all workers are covered by Section 7. Independent contractors, government employees, agricultural workers, and supervisors (as defined by the Act and with limited exceptions) do not have rights under Section 7. Therefore, the McLaren decision only applies to severance agreements provided to employees with Section 7 rights under the NLRA.

What Immediate Steps Should Employers Take?
The McLaren decision makes it clear that going forward, the NLRB will closely scrutinize severance agreements and any restrictions those agreements place on employees' rights under the Act. Employers will have to consider this increased scrutiny when drafting severance agreements going forward. Employers may decide to eliminate non-disparagement and confidentiality clauses from their severance agreements entirely. Employers who wish to continue including non-disparagement and confidentiality provisions in their severance agreements should consider if those clauses could be interpreted as restricting an employee's rights under the NLRA. In order to avoid this, employers should ensure that confidentiality and non-disparagement provisions are narrowly tailored and include language stating that the provisions are not intended to restrict an employee's Section 7 rights, such as filing a charge, participating in an investigation, or otherwise engaging in communications or conduct protected by Section 7.

We Can Help
Maslon’s Labor & Employment Group will continue to monitor developments regarding this decision, and its attorneys can answer questions you may have about how the NLRB ruling impacts your company.