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NLRB Restricts Broad Confidentiality and Non-Disparagement Provisions in Severance Agreements

Severance Agreement Copy of Featured Images-15 - Buelow Vetter Buikema Olson & Vliet

After being appointed by President Biden as General Counsel of the National Labor Relations Board (NLRB), Jennifer Abruzzo has been vocal about her intent to increase the scope of the National Labor Relationship Act (NLRA) and overturn decades of prior Board precedent.  Abruzzo has been making good on her promise and these efforts extend to all employers, not just those with a unionized workforce.

It has been well-settled for many years that employers may utilize severance agreements with provisions designed to maintain the confidentiality of the agreement and protect businesses from employees casting the business or its agents in a negative or false light.  The Obama-era Board was the first to take issue with this and subjected such provisions to a historically high level of scrutiny.  The Trump-era Board in Baylor University Medical Center and IGT d/b/a International Game Technology later relaxed this scrutiny, restoring latitude in an employer’s use of confidentiality and non-disparagement provisions in severance agreements.   

However, on February 21, 2023, the NLRB issued a precent-shifting decision in McLaren Macomb (372 NLRB No. 58) overruling Baylor and IGT and restoring Obama-era law by holding a severance agreement, and by extension an offer thereof, violates Section 8(a)(1) of the Act “if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in their exercise of Section 7 rights.”  (emphasis added).  The Board noted its analysis will focus on the language of the agreement, including whether any relinquishment of Section 7 rights is narrowly tailored.  

The Decision

In McLaren, a unionized company furloughed eleven union employees and presented each severance agreements that included broad confidentiality and non-disclosure provisions.  

The confidentiality provision, which contained common language prohibiting the disclosure of the terms of the agreement, was found to be overly broad.  The Board reasoned the provision broadly prohibited an employee from disclosing the terms of the agreement to “any third person” with very limited exceptions.  The Board found this language could reasonably coerce an employee from filing an unfair labor practice charge or assisting a Board investigation. 

The non-disparagement provision, which prohibited the employee from making derogatory statements regarding the company, was likewise found to be overly broad.  The Board reasoned the provision was “not [] limited to matters regarding past employment with the [company],” and would ultimately “encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the [company].”  The Board further noted the provision applied to statements directed not only toward the company, but also toward its parents, affiliated entities and their officers, directors, employees, agents, and representatives.  Finally, the Board noted the provision had no temporal limitation.  The end result “is a sweepingly broad bar that has a clear chilling tendency on the exercise of Section 7 rights.”  

Thus, the mere act of offering these severance agreements containing the overly broad non-disparagement and confidentiality provision was found to violate Section 8(a)(1) of the Act. 

Notably, neither the confidentiality provision nor the non-disparagement provision at issue contained a disclaimer clause preserving an employee’s rights under the NLRA.  Thus, the Board did not address the effect such language may have on the legality of the provisions. 

In fact, the Board specifically noted conditioning the benefits under a severance agreement on the forfeiture of statutory rights has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights, “unless it is narrowly tailored to respect the range of those rights.”  Thus, the Board leaves the door open for lawful “narrowly tailored” provisions that protect an employee’s rights and explain those rights in detail.

The Board also specifically noted an employee’s right to discuss labor disputes or critique an employer’s policy is subject only to the requirement the employee’s communications not be so “disloyal, reckless or maliciously untrue.”  Thus, the Board seems to indicate employers may lawfully prohibit employee communications that are so disloyal, reckless, or maliciously untrue.  

The Impact

The Board did not hold all confidentiality and non-disparagement clauses violate the NLRA.  Rather, the Decision ruled specific language was overbroad.  Carefully drafted and narrowly tailored confidentiality and non-disparagement provisions that address the aforementioned concerns raised by the Decision should still be lawful under the new standard.

Again, employers must note this Decision impacts both unionized and non-unionized workforces and applies to employees who are covered by the Act.  Thus, this Decision specifically excludes dozens of categories of professional employees, contracted employees, temporary employees, managers, supervisors, and other higher-level employees. 

It is also important to point out the company in this case entirely bypassed and excluded the union, instead communicating and dealing directly with the eleven employees who entered into the severance agreement, which the Board found violated Section 8(a)(5) and (1) of the Act.  Had the company properly engaged in bargaining with the union over the severance agreement, which is a mandatory subject of bargaining, perhaps this issue could have been avoided entirely. 

While this case involved severance agreements, the Board will likely extend the Decision’s reach to settlement and other agreements that may include unlawful provisions under the new standard.

This Decision will likely be appealed to a federal court of appeals, which has the authority to enforce the Decision or set it aside.  

What Now?

Employers should review any confidentiality and non-disparagement provisions they are proffering to employees or potential employees in severance agreements and any other agreements.  Employers should consider using confidentiality and non-disparagement provisions approved in past Democrat-majority Board decisions as an example for use in future agreements. 

The attorneys at Buelow Vetter addressed this issue during the Obama-era Board decisions and made substantial revisions to agreements for our clients.  We are in the process of reviewing such agreements for similar revisions and encourage you to reach out to us as you review yours.

If you have any questions regarding this Legal Update, please contact Joel Aziere at jaziere@buelowvetter.com or (262) 364-0250, or Kirstin Mathers at kmathers@buelowvetter.com or (262) 364-0251, or your Buelow Vetter Attorney. 

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