On February 21, 2023, the National Labor Relations Board (NLRB) ruled that employers can’t require employees to waive rights under the National Labor Relations Act (NLRA) as part of severance agreements. This ruling has major implications for employers and will invalidate non-disparagement and confidentiality provisions commonly included in severance agreements.
The NLRB ruling
In McLaren Macomb, the NLRB found that the non-disparagement and confidentiality provisions in a severance agreement unlawfully interfered with the employee’s rights under Section 7 of the NLRA. The offending provisions read as follows:
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.
Employees’ Section 7 rights include the right to discuss the terms and conditions of employment with co-workers, file unfair labor practice charges, assist other employees in filing charges, or assist the NLRB with investigations. These rights also extend to an employee’s ability to communicate with third parties like the media and unions about working conditions. The Board found that the provisions above were so broad that they required employees to waive Section 7 rights.
In its decision, the Board emphasized that even offering a severance agreement to an employee with unlawful non-disparagement or confidentiality provisions violates the NLRA, even if the employee never signs it or the employer never tries to enforce it.
The NLRB’s decision applies to all private employers in the country and to union and non-union employees alike. But supervisors do not enjoy Section 7 rights, meaning that employers can continue to use appropriate confidentiality and non-disparagement provisions in severance agreements with supervisors. Whether an employee is a “supervisor” under the NLRA requires consideration of several factors, including whether the employee has the authority to hire, fire, discipline, or direct the work of another employee. Typically, executives and upper-level management qualify as “supervisors.”
Implications for employers
We expect the NLRB’s decision to be appealed, and we’ll be keeping a close eye on the case as it moves forward. In the meantime, the decision leaves employers with a lot of uncertainty about the ability to use non-disparagement and confidentiality provisions in severance agreements. So what should employers do during this time of limbo?
Risk-averse employers should consider eliminating non-disparagement and confidentiality provisions from severance agreements with non-supervisor employees. Although the NLRB’s decision did not announce a complete ban on non-disparagement or confidentiality provisions in severance agreements, the Board gave no real guidance on what it would consider to be a lawful non-disparagement or confidentiality provision. Most consequential for employers, the decision suggests that employers will no longer be able to require employees to keep the terms of a severance agreement (including the amount) confidential without violating the NLRA.
The decision so severely restricts the use of non-disparagement and confidentiality provisions that one is left wondering what the Board would consider lawful. It’s possible that a cleverly-crafted disclaimer could render a non-disparagement or confidentiality provision lawful. For instance, a non-disparagement or confidentiality provision could state that nothing in the agreement is intended to waive the employee’s rights under Section 7 of the NLRA. But the Board has taken a skeptical eye toward these types of disclaimers in the past, and it remains to be seen what type of disclaimer, if any, the Board would approve. In short, there remains a risk of liability even if a non-disparagement or confidentiality provision in a severance agreement contains a disclaimer.
As is common, we expect the NLRB’s General Counsel to release additional guidance on this decision sometime in the next few weeks. We will be monitoring any guidance that comes out as well as the result of any appeal of the Board’s decision. In the meantime, we’ve updated our separation documents to account for the Board’s decision.
Generate compliant severance agreements with SixFifty
SixFifty’s Employment Agreements toolkit includes severance and release agreements that comply with every state and federal law, and account for this recent NLRB decision. Our easy-to-use software platform helps you generate the necessary documents to manage and hire employees in every jurisdiction across the country. Legal experts at SixFifty are monitoring the current situation and will update our tools to reflect any change in the law so your employment agreements are always up to date.
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