NLRB Rules about Severance Agreement Clauses

Does your company offer severance agreements to employees? You may need to reword your non-disparagement and confidentiality clauses per a new National Labor Relations Board (NLRB) ruling. 

On February 21, 2023, the NLRB specified that most severance agreements cannot include broad non-disparagement and confidentiality clauses. In layman’s terms, a non-disparagement clause refers to an agreement where employees promise to not badmouth or inappropriately talk about the company in a negative or disrespectful way, and a confidentiality clause prohibits the employee from divulging the terms of the agreement. 

While both clauses are meant to protect your company, severance agreements that are written too broadly infringe on employees’ rights outlined in the National Labor Relations Act (NLRA) and are prohibited as an unfair labor practice. 

Background to the 2023 NLRB Ruling: McLaren Macomb 

The recent NLRB ruling about not including broad language in severance agreements stems from a case that involves McLaren Macomb Hospital in Michigan. 

During the outbreak of COVID-19 in March of 2020, McLaren Macomb hospital had to furlough 11 nonessential employees because of its shift to focus on trauma, emergency, and COVID-19 patients. Those 11 employees were eventually termed and offered severance agreements under the following terms:  

6. 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. 
7. 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.
8. Injunctive Relief. In the event that Employee violates the provisions of paragraphs 6 or 7, the Employer is hereby authorized and shall have the right to seek and obtain injunctive relief in any court of competent jurisdiction. If Employee individually or by his/her attorneys or representative(s) shall violate the provisions of paragraph 6 or 7, Employee shall pay Employer actual damages, and any costs and attorney fees that are occasioned by the violation of these paragraphs.

While there was a separate issue in this case of the hospital excluding the employees’ union throughout the furloughs and severance agreement signings, the more serious part of the grievance was the wording of the severance agreement. The NLRB found that the non-disparagement and confidentiality provisions unlawfully restrained and coerced these 11 employees from exercising their Section 7 rights under the NLRA. In addition, because the payouts to employees were conditional to employees upon signing the agreements, the NLRB found them to also violate 8(a)(1) of the NLRA. 

What rights do employees have under Section 7 of the NLRA? 

Although Section 7 of the NLRA is primarily focused on allowing employees to form or join a union, it also enables employees (with or without a union) the right to discuss wages and work conditions.  

The McLaren Macomb severance agreement infringed on the ability for current or former employees to discuss terms and conditions with others, particularly coworkers, which the NLRB coined as the “heart of protected Section 7 activity.”  

Employees cannot be so restricted when discussing terms of their separation. While they cannot recklessly badmouth their former employer with malicious untruths, they do have the right to truthfully talk to others about their work conditions and offer support for coworkers (former or current) who may be experiencing similar circumstances. 

What is a violation of Section 8(a)(1) of the NLRA? 

Section 8(a)(1) of the NLRA prohibits employers from coercing employees from exercising their Section 7 rights. For example, employers cannot promise benefits, threaten adverse consequences, withhold benefits, or do anything that interferes with their rights to join or participate with a union, or to discuss wages and work conditions. 

The confidentiality provision in the McLaren Macomb severance agreement prohibited employees from sharing any unlawful provisions “to any third person” without severe monetary penalties. In addition, payouts for the 11 McLaren Macomb employees were contingent upon signing the severance agreement. Both actions were found to violate Section 8(a)(1) of the NLRA. 

What is an unlawful severance agreement? 

While severance agreements are not outlawed, you do need to be cautious with how terms are worded. The NLRB defined a severance agreement unlawful when “it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.” 

However, there are employee classifications exempt from the NLRA where these severance agreement clauses would still be allowed, most notably supervisors and managers. An analysis of employees in these roles should be completed to ensure they meet the proper definitions.  

For more information, please seek guidance from legal counsel or contact your certified Stratus HR expert who has access to internal legal counsel. Not a current Stratus HR client? Book a free consultation and our team will contact you shortly.