NLRB Holds That Severance Agreements With Confidentiality Or Non-Disparagement Provisions Are Unlawful

• Jurisdiction: United States,Federal
• Law Firm: Arnold & Porter
• Subject Matter: Employment and HR, Employee Rights/ Labour Relations
• Author: Mr David Reis, Dipanwita Deb Amar, Matthew R. Diton and Katharine L. Waters
• Published date: 03 March 2023

On February 21, 2023, the National Labor Relations Board (the Board) issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023), holding that, under the National Labor Relations Act (the Act), it is unlawful for employers to offer severance agreements that include broad confidentiality and non-disparagement provisions.

The new decision'which applies to all employees, regardless of union status'overturned two recent Trump-era Board decisions, Baylor University Medical Center (Baylor) and International Game Technology (IGT), which had permitted such provisions. This swing back to an Obama-era policy should cause employers to review their severance agreements to ensure they comply with the Board's current framework.

The Decision

In McLaren Macomb, McLaren Macomb Hospital permanently furloughed eleven employees, offering them each a severance agreement which conditioned benefits on acceptance of confidentiality and non-disparagement provisions that, in turn, prohibited employees from (i) disclosing the terms of the agreement to any third party other than their spouse, attorney, or tax provider¹ and (ii) disclosing confidential information the employees had learned by reason of their employment.² In relevant part, the administrative law judge (ALJ), relying on Baylor and IGT precedent, found that there was no violation for proffering the severance agreements to the employees. The NLRB disagreed with the ALJ and instead reinstated the pre-Baylor and IGT analytical framework, which looks at whether the agreement offer "had a reasonable tendency to interfere with, restrain or coerce employees' exercise of" their rights under the Act. The Board held that, under this framework, even the act of offering a severance agreement conditioned on such broad and wide-ranging confidentiality and non-disparagement terms violated the Act insofar as these provisions "interfere[d] with, restrain[ed], or coerce[d] employees' exercise of Section 7 rights." Because the mere act of offering such an agreement violated the Act, the Board held it was irrelevant to its decision whether the employee ultimately accepted the offer.

Key Reactions

In light of the McLaren Macomb decision, employers should take a second look at their severance agreements to ensure that any agreements with confidentiality and/or non-disparagement provisions also contain express reservation of rights sections protecting an employee's right to engage in activity protected under the Act. Such sections should...