NLRB Calls Into Question Confidentiality and Non-Disparagement Provisions in Agreements with Employees

Written by Jeremy Mittman, Jonathan Turner and Kyle DeCamp

On February 21, 2023, the National Labor Relations Board (the NLRB) issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023), that will impact employers in both unionized and non-unionized workplaces.  The decision holds that employers violate the National Labor Relations Act (the NLRA) when they present employees with severance agreements that contain overly broad confidentiality and non-disparagement provisions.  The Board’s decision overturns precedent from the Trump-era which held that severance agreements could lawfully include confidentiality and non-disparagement provisions; consequently, employers who have a practice of negotiating severance agreements to “buy out” employees in exchange for a release of claims or potential claims against the employer must now take a second look at those agreements, with a particular focus on confidentiality and non-disparagement language.

McLaren Macomb – an Overview

The NLRA is the primary federal labor law that affords employees the right not just to unionize but to engage in other “concerted” activities pertaining to wages, hours and other employment terms and conditions.  In McLaren Macomb, the NLRB considered whether the employer violated the NLRA by offering severance agreements including standard confidentiality and non-disparagement provisions to a group of permanently furloughed employees. In its defense, the employer cited to then existing NLRB precedent, Baylor University Medical Center, 369 NLRB No. 43 (2020) – a Trump-era NLRB decision which held that confidentiality and non-disparagement clauses in voluntary severance and waiver agreements were legal when there was otherwise no evidence that the employees offered such agreements were unlawfully discharged or that circumstances surrounding the offers would tend to infringe on the employees’ NLRA rights.  

The employees filed Unfair Labor Practice charges with the NLRB alleging that the provisions unlawfully interfered with the employees’ exercise of their rights to engage in union or other activities protected under the NLRA.  The theory of the alleged violation was that the provisions in question were overbroad and if enforced would contractually prevent employees from disclosing and discussing with former coworkers matters pertaining to wages, benefits and other working conditions.  Under the NLRA, discussion on these topics ordinarily are protected even if such discussions might disparage the employer’s image or put the employer in an unfavorable light.

In the Baylor decision, the NLRB sustained the legality of the challenged provisions under the theory that the severance agreements did not pertain to existing terms and conditions of employment but instead to conditions materializing after an employment has ended. Hence, the NLRB reasoned that, so long as employees were not unlawfully discharged or discriminated against, and were free to accept or not accept the terms of the severance agreement in return for the money offered thereunder, there was no basis to conclude that employee rights under the NLRA were being interfered with.

The current NLRB rejects the reasoning in Baylor and decided against the employer in McLaren Macomb.  The current NLRB found that Baylor wrongfully—in its view— gave employers “carte blanche to offer employees severance agreement[s] that include unlawful provisions[,]” and that such provisions have a reasonable tendency to interfere with, restrain, or coerce an employee’s NLRA rights.

The NLRB further found that those NLRA rights “are not limited to discussions with coworkers, as they do not depend on the existence of an employment relationship between the employee and the employer, and the Board has repeatedly affirmed that such rights extend to former employees.” The Board affirmed that such a protective standard is necessary to “afford[] protection for employees who engage in communications with a wide range or third parties in circumstances where the communication is related to an ongoing labor dispute,” including the NLRB itself, that might otherwise be chilled by perceived coercive terms in separation agreements.

Considerations for Employers

Employers should analyze their severance (and other agreements) that contain confidentiality and non-disparagement provisions to ensure that such agreements are consistent with McLaren and do not contain terms that have a reasonable tendency (in the Board’s view) to interfere with, restrain or coerce employees in the exercise of their Section 7 rights.

While the NLRB did not explicitly prohibit confidentiality and non-disparagement provisions when reverting to a pre-Trump era standard, the Board indicated that such provisions can be lawful only if “narrowly tailored.” Unfortunately, the NLRB did not provide clear guidance as to what being “narrowly tailored” means.

Accordingly, employers may possibly maintain their confidentiality and non-disparagement provisions if they carve out activities protected by Section 7, including discussing terms and conditions of employment with coworkers and third parties, filing unfair labor practice claims, assisting other employees in filing charges, and assisting in the NLRB’s investigative process. While the specific contours of this issue will likely be addressed in a future advisory memo by the Board’s General Counsel, the NLRB implied that another workable pre-Trump solution is to restrict non-disparagement provisions to the types of statements the NLRB has previously recognized as unprotected, including maliciously false statements and attacks on the employer’s products, services, or customers. See Linn v. United Plant Guard Workers of America, 383 U.S. 53, 60 (1966); NLRB v. Electrical Workers Local 1229 (Jefferson Standard), 346 U.S. 464, 477 (1953).

Another consideration for employers is that severability provisions in their agreements could help ensure that a finding that a specific provision of the agreement is unlawful cannot be a basis for striking down other provisions or the agreement as a whole.

Employers ought to consider, too, that disclaimers attached to confidentiality and non-disparagement provisions may help them pass muster. Notably, in McClaren Macomb, the covenants at issue did not have disclaimers stating that nothing in the agreement or provisions therein prevented employees from enforcing their Section 7 rights. While the NLRB has not affirmatively stated that such a disclaimer would have made the difference, a broad enough disclaimer could help.

In their assessment of confidentiality and non-disparagement agreements, employers should of course remember that the NLRA covers only “rank and file” employees—not supervisors, independent contractors, agricultural laborers, and in-home domestic servants, among others.

Notably, the NLRB did not specifically address whether its decision applies to agreements entered into before the date of the McLaren Macomb decision. But because Section 10(b) of the NLRA contains a 6-month statute of limitations for employees bringing charges of unfair labor practices, employees should be precluded from unfair labor practice charges related to such agreements outside of that time period.

Finally, employers can and should coordinate with outside counsel when drafting and considering revising their severance agreements. MSK’s Labor & Employment team will continue to monitor developments as they become available.

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