Can Separation Agreements still include Confidentiality and Non-Disclosure Provisions?

On February 21, 2023, the National Labor Relations Board (NLRB) issued a decision which found that employers who included confidentiality and non-disparagement provisions in separation agreements of nonmanagerial employees were engaging in unfair labor practices prohibited by the National Labor Relations Act (NLRA). This decision will have a far-reaching effect, impacting the use of these common provisions upon which many employers have conditioned severance payments.

What was decided?

Employers routinely ask separated employees to maintain the terms and existence of their severance agreement confidential and to take no actions that would disparage the company. In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB examined standard confidentiality and non-disparagement provisions (which were included in the decision) and found their proffer had a reasonable tendency to impede the separated employees’ free exercise of their rights to discuss wages, benefits and the terms and conditions of their employment with the public and coworkers.

The NLRA determined that the employer – by conditioning their offer of severance benefits in part on the separated employees’ agreement to refrain from saying or writing disparaging or critical things about them and to hold the terms and existence of the separation agreement– engaged in unfair labor practices that interfered with, restrained or coerced employees’ exercise of their Section 7 rights. This ruling will fundamentally change how and when employers use confidentiality and non-disparagement provisions with nonmanagerial employees in their separation agreements.

Who is the NLRB?

The NLRB is an independent federal agency that is empowered to safeguard employees’ rights to organize and engage with one another to seek better working conditions. According to the NLRB’s website, the NLRB also “acts to prevent and remedy unfair labor practices committed by private sector employers and unions.” The NLRB has 5 members who serve 5-year terms with the term of one member expiring each year. Board members are appointed by the President and approved by the Senate. Currently, the Board has just 4 members with Democrats serving in three positions and as Chairman.

The General Counsel to the NLRB, Jennifer Abruzzo, a Democrat, was appointed by President Biden. In her role, Ms. Abruzzo is responsible for investigating and prosecuting unfair labor practices cases and for supervising the NLRB field offices in the processing of cases. When assuming her position, Ms. Abruzzo said: “I believe that vigorous enforcement of the [NLRA] will help level the playing field for workers and their freely chosen representatives.” In her first memo as General Counsel, issued on August 12, 2021, Ms. Abruzzo foreshadowed this recent action by the NLRB regarding separation agreements. She wrote: “It is critical that the NLRB vigorously protect the rights of workers to freely associate and act collectively to improve their wages and working conditions.” She dedicated a section to confidentiality and non-disparagement provisions in separation agreements.

What are Section 7 rights? How are employers restricted?

Section 7 of the NLRA governs employees’ rights to engage in concerted activities for the purpose of collective bargaining, which activities include discussing the wages, benefits and other terms and conditions of employment. It applies to union and nonunion employees. Section 8(a)(1) of the NLRA provides that employers engage in unfair labor practices when they take actions to interfere with, restrain or coerce employees’ exercise of the Section 7 rights. Drawing on these two provisions, in McLaren Macomb, the NLRB held employers may not condition severance payments on employees agreeing to confidentiality and non-disparagement provisions for nonmanagerial employees. It found those provisions require employees to broadly waive their rights under the NLRA. It further concluded that the act of offering the agreements with confidentiality and non-disparagement provisions violates Section 8(a)(1). Specifically, the decision held: “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, and the employers’ proffer of such agreements to employees is unlawful.”

Key Takeaways and Prudent Next Steps

• Faced with the risk of a complaint of unfair labor practices, employers across the country – those with and without unions – should evaluate the continued use of confidentiality and non-disparagement provisions in their separation agreements
• Whether those separation agreements can be salvaged by a disclaimer that the parties do not intend the agreement to intrude on Section 7 rights guaranteed by the NLRA is up for debate
• When considering offering severance to employees with Section 7 rights – those not in supervisory or managerial positions – employers should consider whether to include confidentiality and non-disparagement provisions. The most conservative route would be to excise them from the agreements

Review Separation Agreements

At a minimum, in light of McLaren Macomb, employers should review their severance agreements and consider on a case-by-case basis whether confidentiality and non-disparagement provisions should be included. For assistance with this exercise, employers should contact their legal counsel.

HMB Legal Counsel will update you on the developments in this law and other employment law developments. Should you have any questions, we encourage you to reach out to Jeri Baran.