The National Labour Relations Board (NLRB), on 21 February 2023, issued a decision restricting the use of broad confidentiality and non-disparagement provisions in severance agreements.
The Board’s decision in McLaren Macomb overrules pro-employer rulings issued by the Trump-era Board in Baylor University Medical Center and IGT d/b/a International Game Technology.
Employers are encouraged to reassess their severance agreements and consider narrowing or eliminating overly broad provisions to comply with the Board’s new ruling.
The Board’s decision
In McLaren Macomb, a unionised hospital laid off a portion of its staff during the COVID-19 pandemic. The employer proffered affected employees severance agreements containing broad confidentiality and non-disparagement provisions. In challenging the legality of these provisions, the NLRB’s General Counsel argued that the provisions were unlawful because they could be construed to restrict employees from engaging in protected activity, such as discussing the agreements with other employees or a union, filing an unfair labour practice with the Board or voluntarily assisting in a Board investigation.
The Board, reversing the administrative law judge, agreed and found that the confidentiality and non-disparagement provisions in the severance agreements violated the National Labour Relations Act (the Act). In doing so, the Board overruled the analytical approach used in Baylor and IGT, which focused on the circumstances under which a severance agreement with confidentiality and non-disparagement provisions was offered to employees. In stark contrast, the Board will now ignore such circumstances and will find that the agreement is unlawful – even absent any other indicia of coercion – if the terms could be construed to interfere with or restrain employees in the exercise of their Section 7 rights.
Applying those principles to the provisions at issue in the case, the Board found that the non-disparagement provision “on its face” interferes with employees’ Section 7 rights by prohibiting employees from making public statements about their former workplace. In a glimmer of hope for employers, however, the Board noted that the non-disparagement provision was not limited to statements that are “so disloyal, reckless, or maliciously untrue as to lose the Act’s protection,” implying that such provisions may pass muster even under the Board’s new analysis. Similarly, the Board noted that the provision at issue applied to future conduct, including future cooperation with the Board.
While the Board did not go so far as to hold that provisions incorporating these limitations would be lawful, its approach may provide some guidance to employers on how to tailor non-disparagement provisions under the Board’s new approach.
The Board likewise held that the confidentiality provision was unlawful. It reasoned that, by restricting the employee from disclosing the terms of the agreement to any third party (subject to narrow exceptions for the employee’s spouse, for obtaining legal or tax advice, or if compelled to do so by a court or administrative agency), the confidentiality provision would restrict the employee from voluntarily filing an unfair labour practice challenging the agreement, disclosing or discussing the terms of the agreement with the employee’s union, or discussing the agreement with co-workers.
The Board concluded that conditioning the receipt of the severance benefits on the forfeiture of these statutory rights is unlawful because such approach interferes with and restrains employees from exercising their statutory rights.
Where do employers go from here?
While the Board’s decision has far-reaching implications, employers are not without options. At the outset, it is important to note that some employees, such as managers and supervisors, are excluded from coverage under the National Labour Relations Act (NLRA). As such, the breadth of non-disparagement or confidentiality provisions in separation agreements with such employees should not be subject to this holding.
Moreover, the Board’s decision remains subject to federal appellate review, whether in this case or another raising the same issues. Some employers may choose to adopt a business-as-usual approach pending appellate review, although an employer banking on an appellate reversal does so at its peril (particularly given the deference ordinarily granted to the Board).
Alternatively, employers may consider more narrowly tailoring their existing non-disparagement and confidentiality provisions. While the Board provided no definitive guidance on provisions that would be lawful, employers may consider addressing the Board’s objections to the agreements in McLaren Macomb by more narrowly defining the conduct that would breach a non-disparagement provision (such as limiting it to statements that are reckless or maliciously untrue).
Similarly, because neither of the provisions in McLaren Macomb included any carveouts or disclaimers, employers may consider adding carveouts and/or disclaimers which make clear that the confidentiality and non-disparagement provisions do not restrict employees from engaging in any activities protected by the NLRA, such as filing or participating in the investigation of an unfair labour practice charge. Such an approach would be similar to exclusions of complaints of sexual discrimination or harassment from non-disparagement provisions often incorporated into severance agreements in the wake of the “Me Too” movement.
Additionally, we anticipate that future Board cases and/or General Counsel memoranda will provide additional colour on agreements that pass muster under the Board’s newly articulated standard.
Source: DLA Piper – Brian S. Kaplan