NLRB Decision Addresses Interaction between Confidentiality and Nondisparagement Provisions in Severance Agreements and Section 7 Rights

Two decisions issued by the Board under the prior administration — Baylor University Medical Center, 369 NLRB No. 43 (2020) and IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020) — broadly permitted employers to include confidentiality and nondisparagement provisions in severance agreements. Last week, the NLRB overturned those decisions in McLaren Macomb, 372 NLRB No. 58 (2023).

Under the Board's new rule, the "mere proffer" of a severance agreement that conditions receipt of benefits on the "forfeiture of statutory rights" (e.g., the acceptance of overbroad confidentiality and nondisparagement provisions) violates Section 8(a)(1) of the National Labor Relations Act (NLRA).

Prior Precedent

The Board's 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology held that an employer could lawfully include in a separation agreement confidentiality and nondisparagement clauses, and clauses prohibiting employees from participating in claims brought by any third party against the employer, in exchange for severance payments.

In Baylor, the Board moved away from examining the language of the severance agreement at issue and instead focused on the circumstances under which the agreement was presented to employees. In doing so, the Board held that Baylor did not violate the NLRA by the "mere proffer" of a severance agreement that required the signer to agree not to "pursue, assist, or participate in any [c]laim" against Baylor and to broadly maintain confidentiality surrounding the agreement. The Board reasoned that the agreement was not mandatory and did not affect terms and conditions of employment because it pertained exclusively to post-employment activities. Further, there was no allegation that anyone offered the agreement had been unlawfully discharged or that the agreement was offered under circumstances that would tend to infringe on Section 7 rights. Months later in IGT, the Board cited to Baylor in determining that a nondisparagement provision in a severance agreement was lawful where the agreement was "entirely voluntary, [did] not affect pay or benefits that were established as terms of employment, and [had] not been proffered coercively."

The McLaren Decision

In McLaren, a unionized teaching hospital in Michigan permanently furloughed 11 union employees, presenting each with a severance agreement and general release. The agreement included the following 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 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.

Despite being relatively standard severance agreement terms under prior precedent, the Board found the confidentiality and nondisparagement provisions unlawful and ordered McLaren to "cease and desist" from presenting employees with a severance agreement including the highlighted provisions.

According to the Board, "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." Specifically, regarding the nondisparagement provision, the Board held that because "[p]ublic statements by employees about the workplace are central to the exercise of employee rights under the Act," the nondisparagement provision violated employees' Section 7 rights. Further, the Board objected to how broad the Hospital's nondisparagement provision was, noting that it was "not even limited to matters regarding past employment with the [Hospital]," and would ultimately "encompass employee conduct regarding any labor issue, dispute, or term and condition of employment of the Hospital." The Board also noted that the provision had no temporal limitation and applied not only to the Hospital, but also to its parents, affiliated entities and their officers, directors, employees, agents and representatives.

The Board likewise found the confidentiality provision overly broad because it prohibited employees from disclosing the terms of the agreement to "any third person." The Board determined that such a broad provision would prohibit employees from "disclosing even the existence of an unlawful provision contained in the agreement," which could deter employees from filing unfair labor practice charges or assisting the NLRB in an investigation. Additionally, the Board held that the confidentiality provision would, in practice, prohibit employees from discussing the existence or terms of the severance agreement with others, including union representatives or other employees who may have received similar agreements. It bears emphasis that neither the confidentiality clause nor the nondisparagement clause at issue in McLaren contained a disclaimer regarding preservation of an employee's rights under the NLRA, and thus the Board did not address the effect, if any, of such a disclaimer on the legality of the provisions.

The New Rule (For Now)

The Board majority held that merely "proffering" a severance agreement containing unlawful confidentiality and nondisparagement provisions violated the NLRA because conditioning the receipt of benefits on the "forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights." This likely means that it will not be a defense for employers that continue to enter into these agreements to argue that, despite inclusion of confidentiality and/or nondisparagement provisions, they have done nothing to enforce them. Under McLaren, offering the agreement with unlawful terms to an employee with Section 7 rights is enough to result in an unfair labor practice.

What Now?

Employers should review any nondisparagement and confidentiality provisions they are proffering to employees or potential employees, regardless of the document in which the provisions are incorporated. This includes other agreements that may be incorporated by reference in severance agreements, such as proprietary information and invention agreements.

There is no one-size-fits-all approach that most employers will want to use. It might be possible to merely eliminate confidentiality and non-disparagement provisions and use a common form for all releases. Most employers still may need confidentiality in certain situations, however.

Furthermore, there may not be as much need for confidentiality and non-disparagement provisions in group termination releases, where the severance offer is under a standardized plan offered to potentially hundreds of employees in a reduction-in-force. Finally, employers with previously signed confidentiality agreements may not need another confidentiality provision in a release but may refer back to that agreement. Of course, some of those previously signed agreements may need revision as well.