The National Labor Relations Board (“NLRB” or “Board”) issued a Decision and Order in McLaren Macomb and Local 49 RN Staff Council, Office and Professional Employees, International Union (OPEIU), AFL-CIO, Case 07-CA-263041 (“McLaren”), on February 21, 2023, reversing its position by reinstating prior NLRB precedent finding the use of certain confidentiality and non-disparagement provisions in severance agreements violates the National Labor Relations Act (the “Act”).
The McLaren Decision
At issue in McLaren were the confidentiality and nondisparagment provisions included in severance agreements offered and accepted by eleven (11) furloughed employees, which stated:
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 or 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.
In accepting the severance agreements, the furloughed employees waived their rights to any legal claims arising out of their employment or terminations and allowed the employer to seek monetary and injunctive relief against them if they breached either the nondisparagement or confidentiality provisions.
The Administrative Law Judge (“ALJ”) in the McLaren matter applied the test articulated in Baylor University Medical Center, 369 NLRB No. 43 (2020) (“Baylor University”), and IGT d/b/a International Game Technology, 370 NLRB No. 43 (2020) (“IGT”).
In Baylor University, instead of examining and analyzing the terms of the severance agreement, the Board focused on the circumstances surrounding the presentation of the severance agreement to the employees. The Board found “the [severance] agreement was not mandatory, pertained exclusively to post-employment activities and, therefore, had no impact on terms and conditions of employment, and there was no allegation that anyone offered the agreement had been unlawfully discharged or that the agreement was proffered under circumstances that would tend to infringe on Section 7 rights.” (McLaren at p. 4.) In effect, Baylor University disregarded long standing precedent finding severance agreements that included a “non-assistance clause” did not violate the Act.
Applying the Baylor University reasoning, several months later in IGT, the Board dismissed an allegation that a non-disparagement provision violated the Act on the grounds the severance agreement was “entirely voluntary, does not affect pay or benefits that were established as terms of employment, and has not been proffered coercively.” (IGT, slip op at 2.)
Impact of McLaren on Employers
McLaren impacts private employers’ union and non-union employees who fall within the definition of “employees” under Section 2(3) of the Act. Executives, managers, supervisors, and independent contractors are not covered by the definition.
As a condition of receiving severance, employers may not require laid off employees to keep the terms of the agreement or the conditions of their employment confidential, such as workplace issues and cooperating with investigations by the Board. Employers may, however, continue to require employees to waive claims and future lawsuits to receive severance. The ruling did not address whether it is to be applied retroactively, although later guidance (see below) suggests the NLRB views the ruling as retroactive.
One of the key takeaways for employers is that the Board ruling did not preclude all confidentiality and non-disparagement provisions, only those that violate employees’ rights under NLRA Section 7. There is no indication McLaren overruled prior NLRB precedent permitting the use of confidentiality provisions to prevent employees from disclosing the monetary terms of severance or settlement agreements. Instead, confidentiality and non-disparagement provisions must be sufficiently “narrowly tailored” to avoid violating the Act. Although the NLRB declined to elaborate on the meaning of the phrase “narrowly tailored” because the issue was not before the Board, it has recognized the use of disclaimers carving out exceptions for legally protected rights to avoid liability. Such disclaimers include allowing employees to discuss factual information regarding the terms and conditions of their employment, filing charges or complaints with the NLRB, and participating in investigations or proceedings conducted by the NLRB.
On March 23, 2023, The NLRB’s General Counsel issued guidance to all NLRB Field Offices on the decision’s scope and effect, and how to respond to questions the public. Some of the key points in the guidance include:
- The decision applies retroactively;
- The decision may apply to supervisors in limited circumstances (if they have been terminated for refusing to further unlawful employer action);
- The decision applies to signed and unsigned severance agreements;
- Narrowly tailored confidentiality clauses restricting dissemination of proprietary or trade secrets for a period of time based on legitimate business justification are lawful;
- Confidentiality clauses that have a chilling effect on employees assisting others about workplace issues and/or from communicating with the Agency, a union, legal forums, the media or other third parties are unlawful;
- Narrowly tailored, justified, non-disparagement provisions limited to employee statements about the employer that meet the definition of defamation are lawful;
- Savings clauses or disclaimers may not go far enough because they may not cure overly broad provisions;
- Other provisions that may violate Section 7 rights include: non-compete clauses, no solicitation clauses, no poaching clauses, broad liability releases and covenants not to sue, and no cooperation requirements involving any current or further investigation proceeding.
Employers should keep in mind that the NLRB’s jurisdiction is limited to safeguarding employees’ rights to organize and remedying unfair labor practices under the NLRA. Although as a practical matter the Board’s jurisdiction is very broad and covers the great majority of non-government employers, it is an administrative agency whose rulings may be appealed in court.
Provided severance agreements are carefully drafted to ensure employees’ statutorily protected rights are not abridged, employers may continue to protect confidential information, such as the monetary terms of an agreement, and may also protect against maliciously untrue remarks about the company’s products, services, or customers.
If you have any questions about how this ruling impacts current and future agreements, please contact us.