National Labor Relations Board Decision regarding Confidentiality and Non-disparagement Provisions in Severance Agreements

In February, the National Labor Relations Board (NLRB) issued a new decision, McLaren, which overturned two decisions that had permitted the inclusion of confidentiality and non-disparagement provisions in severance agreements.  In late March, NLRB General Counsel Jennifer Abruzzo released a memo instructing NLRB regional offices on responding to inquiries regarding the McLaren decision.

             McLaren’s “mere proffer” of a severance agreement that conditions receipt of benefits on the acceptance of overly broad confidentiality and non-disparagement provisions.

The McLaren Decision

            McLaren involved a unionized Michigan hospital that permanently furloughed eleven union employees.  Each employee was presented with a severance agreement and general release the provisions:

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 a 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 of 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 found that a severance agreement is unlawful if “its terms have a reasonable tendency to interfere with, restrain, or coerce employees” in the exercise of their Section 7 rights. The NLRB found the non-disparagement provision unlawful since “statements by employees about the workplace are central to the exercise of employee rights under the Act.”  The NLRB also noted that the restrictions applied to the parent and affiliated entities, not just the hospital, and all officers, directors, employees, agents, and representatives (in other words, too broad).

            Regarding the confidentiality provision, since it prohibited employees from disclosing the terms of the agreement to any third person, it was also found to be overly broad.  This provision would prohibit employees from disclosing “even the existence of an unlawful provision contained in the agreement,” which might deter one from filing an unfair labor practice charge. 

NLRB General Counsel Guidance

            While the memorandum from the General Counsel of the NLRB is not law, it does offer some guidance for employers. 

Severance agreements can still be entered into as long as they do not contain overly broad provisions that “affect the rights of employees to engage with one another to improve their lot as employees.” 

Confidentiality clauses that are “narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications may be considered lawful.” 

A non-disparagement clause that is “limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity, may be found lawful.” 

Unlawful provisions would not invalidate the entire agreement, but those provisions would not be enforceable. 

The decision applies retroactively. 

Finally, the General Counsel’s guidance presupposes that the prohibition on overly broad confidentiality and non-disparagement provisions could even apply to supervisors if they were prohibited from participating in an NLRB investigation.

Next Steps for Employers

            Given the McLaren decision and the NLRB General Counsel’s recent guidance on the decision, now would be the time to review your severance agreements, with particular emphasis on all confidentiality and non-disparagement provisions.  Your Stall Legal attorney is ready to assist you with this effort so please do not hesitate to reach out to us for further guidance on this topic.